[Congressional Record Volume 156, Number 65 (Tuesday, May 4, 2010)]
[Senate]
[Pages S3065-S3088]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
RESTORING AMERICAN FINANCIAL STABILITY ACT OF 2010--Continued
The PRESIDING OFFICER. The Senator from Massachusetts.
Mr. GREGG. Mr. President, will the Senator yield for a second?
I ask unanimous consent that after Senator Brown speaks, Senator
Mikulski be recognized and then I be recognized.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Massachusetts.
Honoring our Armed Forces
Sergeant Robert J. Barrett
Mr. BROWN of Massachusetts. Mr. President, I rise today to say a few
words about a hero: Massachusetts Army National Guard SGT Robert J.
Barrett who was killed in Afghanistan on April 19. I had the sad honor
of attending his funeral this past weekend.
So everyone knows, Robert was on foot patrol south of Kabul when an
IED exploded, killing him and injuring eight of his fellow soldiers of
1st Battalion, 101st Field Artillery Regiment. He was 21 years old.
Robert was from Fall River, a city of 90,000 in the southeastern part
of Massachusetts. He was a long-time member of the 54th Massachusetts
Volunteer Regiment. He geared his life toward helping others,
especially veterans.
He was selected for the regiment's honor guard in early 2008 and took
part in more than 350 events honoring our fallen soldiers, including
marching in the President's inaugural parade a little more than a year
ago.
His primary mission in Afghanistan was of the utmost importance. He
was training Afghan soldiers so they would be able to stand up and
provide security for their own country. Rather than spend his free time
relaxing, he gave of his time and knowledge by volunteering at local
orphanages and
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schools. Robert was a shining example of ``selfless service,'' one of
the seven Army values.
Before his deployment, Robert wrote several lines that summarized his
thoughts about his service and our mission overseas. I wish to take one
final moment to read one of his thoughts:
I volunteered to put my life on the line for freedom and
country. For my fellow soldiers, for my little girl, for my
weeping mother and father. I am going to a land where
American freedom is just a dream, a hope, a slow reality. I
am an American Soldier.
That was by Robert J. Barrett before he mobilized.
Mr. President, I yield the floor.
The PRESIDING OFFICER. The Senator from Maryland.
Ms. MIKULSKI. Mr. President, I rise to speak on the issue of
financial services. Before I do, I wish to say to the Senator from
Massachusetts, Mr. Brown, that we in Maryland express our condolences
to him and his loss. We have suffered many of our own. We are comrades
in arms in this moment of grief. We salute him and respect the family.
Mr. BROWN of Massachusetts. I thank the Senator from Maryland.
Ms. MIKULSKI. Mr. President, I come to the floor today to talk about
an issue about which I care very deeply and have fought for all of my
life. That is financial services reform.
I am not a Janie-come-lately to this issue. In 1999, I opposed the
repeal of the Glass-Steagall Act which led to the crisis we have today.
I was one of eight Senators to vote against the repeal of the Glass-
Steagall Act which tore down the walls between conventional banking and
investment banking. Had that bill been defeated in 1999, we would have
not had the crisis that faced us in the last 2 years.
My family, too, has fought over generations to protect consumers and
expand access to credit. At the beginning of the old century when the
downtown banks would not lend to people such as my family, whom they
regarded as on the other side of the tracks, my grandfather, along with
other small business people in the area, got together and started a
savings and loan to serve that community. They lent to people who did
not have access to credit. They lent to small business owners, such as
my father, who opened a grocery store. They lent to women, such as my
grandmother, who opened a bakery. When tough times came during the
Great Depression, this savings and loan wanted to make sure that people
would not lose their homes. If you paid a nickel a week on your
mortgage, you were current.
I was raised in that sense that financial institutions should be on
the side of the people and they should have access to the American
dream to buy a home, to start a business.
As a young social worker working in Baltimore's African-American
community, I saw, once again, there was no access to credit. The
African-American community was sidelined and red-lined. What we saw
were these local payday vendors who had names such as Happy Harry. Why
was Harry so happy? It was because he was charging 18 to 20 percent
interest for a loan.
I got together with the people in the community at the parish council
and we were able to start a credit union so there would be access to
credit and end the scamming and scheming and gouging of those hard-
working people.
I continued that fight in the Senate. I helped create a task force in
Baltimore to end that scheme and scam. I also worked as the Chair of
the Commerce-Justice-Science Appropriations Subcommittee. I made sure
in 2009, working with Senator Shelby and listening to the comments of
Senator Dodd, that we put extra money in the Federal checkbook so the
FBI could come after the financial fraud crowds, the mortgage fraud,
the securities fraud.
It sure was not the Securities and Exchange Commission. They were too
busy sitting on their wingtips while money was flying out the door with
these terrible lending practices.
As we deal with this bill pending before the Senate, the Restoring
American Financial Stability Act, I want you to know I support this
bill. I have been a reformer and a watchdog all of my life. I have a
deep suspicion of how big banks treat the little people and what they
do with the little people's money. Time and time again, we see the
consequences of loose regulations and wimpy and tepid enforcement. Yes,
I said it, wimpy and tepid enforcement.
Time and time again, I voted for more teeth and better regulation and
more enforcement. I always wanted to be sure it was Main Street that
got access to credit, and I was against the unfair and abusive
practices of Wall Street.
Here we are again in this financial situation where we bailed out the
big banks. We bailed out the whales, we bailed out the sharks, and we
have left the people in the community, the little minnows, to swim
upstream and be on their own.
Now is the time to right this reform. Now is the opportunity to pass
real financial reform that puts the strongest consumer protections in
financial reform and to ensure that the greed of Wall Street does not
trump the needs of Main Street.
We need to put government back on the side of the middle class. If we
can bail out the banks, how about we make sure we protect the middle
class against fraud, duplicity, and gouging? People with limited access
to credit are being victimized, abused, and defrauded. It is both a
crime and a shame.
Since the people who do it have no shame, maybe we have to make it a
crime. In fact, I think we ought to make it a crime. When they get out
of their pinstripes and start wearing orange jumpsuits and stand out in
the crowd on visiting day, rather than cruising parents' weekends,
maybe they will have some remorse, and maybe they will be ready to
change the nature of their practices.
When I travel around my State, whether it is in diners or grocery
stores, there is anger and frustration in people's voices. They are
mad, and they are scared. They have watched Wall Street executives pay
themselves lavish salaries while they are worried about their job and
being laid off. They have watched Wall Street mortgage brokers profit
off irresponsible lending while their husbands work an extra shift to
make sure they can make the monthly mortgage payment. And they have
watched big firms take very risky gambles with their money without any
regulation. It essentially was casino economics. This is why people are
mad, and they are losing trust in government. People they counted on to
protect them did not.
What infuriates the people of Maryland and of this country and me is
there is no remorse by Wall Street about what they did. Nothing about
their behavior suggests they have learned or even care what is wrong.
Look at what happened with AIG after receiving $170 billion in taxpayer
money. They paid themselves $165 million in bonuses. I stood on the
floor and said ``AIG'' stands for ``ain't I greedy.''
I do not want to have catchy phrases. I want to have concrete,
enforceable, tough regulations. Again, what bothers me is the lack of
remorse and a commitment to reform.
Right or wrong, if you are in a 12-step program, people usually say
that one of the ways to right those wrongs is to say ``I am sorry'' and
mean it. I did wrong and I will never do it again. I want to make
amends by making it right.
Not these guys. They need us to have a tough approach to this
situation. They say: We will never do anything like that again.
Actually they do not even say that.
What we need to do is to make sure we have the strongest regulations.
We have an opportunity now to choose between real reform or business as
usual. Consumers need protection in regulation to guarantee the safety
of their deposits and the availability of basic banking services. Small
business needs credit to grow so that they can create a job for
themselves and for those in their community. And we need to hold Wall
Street accountable. We need to make sure there are no taxpayer bailouts
ever again and to ensure when banks take risks, they do it with their
own money, not with money out of the deposits of hard-working people.
The bill before us is an excellent bill. It provides a 21st century
regulatory framework for the financial system. No more scheming, no
more scamming, no more preying.
It is time to pass this bill. There are amendments pending that I
think will also help to improve the bill, but I
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think it is time that we pull the sharks out of the tank, make sure the
whales do not crush the little guy, and to make sure that the minnows
get a chance and that we have an economy that is swimming.
Mr. President, I yield the floor.
The PRESIDING OFFICER. The Senator from New Hampshire.
Mr. GREGG. Mr. President, I wish to speak briefly on the bill that is
before us and how I think it can be improved.
First, I congratulate the chairman of the committee, working with the
ranking member. I understand they have reached an agreement on how to
do the issue of resolution, which addresses the issue of too big to
fail, which is a very critical part of this bill. I congratulate them
for making that type of initiative. I hope the rumors are true and that
such an amendment will address strong too-big-to-fail language so the
American taxpayers will not be on the hook for institutions that
overextend themselves and take on too much risk but are institutions
that are so large it is felt they are too big to fail, that concept
will no longer be part of our lexicon, and we will essentially put an
end to that. I congratulate the chairman and ranking member.
There are, however, other major issues in this bill that need to be
addressed. They are substantial and rather complex. A few that are not
even in the bill--for example, how we address Fannie Mae and Freddie
Mac. We know that the American taxpayers today are on the hook for
somewhere between $400 billion and $500 billion--$400 billion to $500
billion--that we are going to have to underwrite in order to stabilize
those two entities on the credits which they have run up which have
gone bad and they have purchased. That is serious.
There will be a proposal that comes from our side of the aisle. It
will not totally be structured to Fannie and Freddie. It should. I
would like to see that. It is too complex to do in this bill. It will
at least address some of the core issues that ought to be addressed.
For example, we ought to tell the American people upfront and
forthrightly how much they owe. It should be put on budget. We ought to
put on budget what the obligations are, because they are scoreable,
relative to the costs the American taxpayers are going to have to bear
to bail out and maintain Fannie and Freddie. It is going to be
somewhere around $400 billion to $500 billion additional debt. It is
coming. We do not want to talk about it because it affects other debt
obligations of this country in a lot of different ways, primarily in
crowding out.
Second, the bill has language on underwriting but it is not strong
enough. If you want to look at what caused this event at the end of
2008, what caused this traumatic event which almost brought the entire
financial system of America down, which almost put us into a depression
and put us into a very severe recession, cost a lot of people their
jobs--and there are still a lot of people experiencing trauma because
of it--there are three or four main causes. I have talked about them
before:
One, of course, is that I believe the money was made too easy to get,
at too low a price, for too long by the Fed.
Another was the fact that the Congress specifically encouraged and,
in fact, forced lenders, for all intents and purposes, to lend to
people who couldn't afford the homes they were buying because it became
congressional policy to do that.
Another was that people were shopping for the weakest regulators.
This is what happened in the derivatives market, and the derivatives
were not structured in a way that actually put capital or liquidity or
margin behind derivatives.
The fourth and I think probably the most significant was that there
was a total breakdown in underwriting standards. In other words, the
people who were making the loans on subprime mortgages and on other
types of exotic instruments so that people could buy houses who
couldn't afford them were making those loans and not looking at the
underlying value of the asset, and they weren't looking at the ability
of the person to pay back that loan. What they were doing, quite
simply, was making the loan because they were going to get a fee for it
and then they were going to sell the loan, securitize it. It was going
to be chopped up, sent out, and syndicated, and they didn't really care
what the loan did because they were basically making a loan for the
purpose of making a fee. Those were the one-off lenders.
In the banking industry, you had a complete breakdown. Banks were
lending to people they knew couldn't repay when these loans reset, and
they knew the value of the asset could only support that loan if there
was an appreciation in the market, which was a gamble.
This happens every time we go through one of these events, by the
way, one of these real estate-driven recessionary events. It happened
in the late 1970s; it happened in the late 1980s when I was Governor of
New Hampshire and New England went through a horrific contraction as a
result of an expansive effort of lending money in the real estate
markets--underwriting standards break down.
There needs to be a clear national definition of what proper
underwriting standards are. Senator Isakson and I and a number of other
people--Senator Corker--are going to put forward an amendment in that
area.
One of the core areas here that needs to be addressed and hopefully
will be included in this bill and improve the bill in this area--one
area of this bill that simply has to be changed if it is to be
effective in doing what it is supposed to do is the language of
derivatives.
Most Americans don't understand derivatives. It is understandable.
They are complex products. But basically think of it this way: You are
on Main Street, and you have a business--usually a fairly large
business--and you are making a product. You want to be able to sell
that product to somebody at the price you quote that person and make
the profit you expected at that quoted price.
But there are a lot of things that affect that product that you can't
control. If you are selling it to another country, you can't control
what the dollar is going to do in relationship to the currency of that
country--for example, if you are selling it to Brazil, whether their
currency goes up or down vis-a-vis the dollar. If you enter into a
contract today and can't sell your product for 6 months, your whole
profit could be wiped out by the market devaluing as relates to that
currency. The materials you buy to make that product may change in
value or viability. The person you are getting a loan from to allow you
to expand your business to build that product may have financial
troubles and you may have an issue there or, vice versa, you may have
an issue with that person. All of these are things which are usually
beyond the ability of the individual who is making the product--and in
this case, I am talking about making products--to control.
So there is something called a derivative, which is an insurance
item. Basically, someone insures for you over those risks. There is a
lot of complexity to this because these insurance items mutate into all
sorts of different instruments. They can affect financial instruments,
they can affect commodities, they can affect goods, they can affect
just plain currencies, but they are critical instruments--derivatives--
for making the economic engine work. They are sort of the grease you
put in the economic engine to make sure it doesn't seize up, to allow
the economic engine to move down the road. They are so critical, in
fact, that they are approximately $600 trillion--trillion--of notional
value. Notional value is not really what the risk is because there are
underlying assets here, but that is a big number--a big number.
So we have to make sure that when we amend the derivatives section of
this bill to try to have a stronger derivatives industry, we don't make
big mistakes and basically undermine the ability of people to use this
type of instrument to get credit and to make the markets work and to
create jobs on Main Street because these all tie back to jobs on Main
Street. Even if you are not working for the company that uses the
derivatives, you are probably working for somebody who does business
with a company that does derivatives. In Nashua, NH, there are a bunch
of big companies that do derivatives. There are a lot more smaller
companies that sell products to those companies on Main Street. So it
will affect Main Street if we do this wrong because credit will
contract.
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The unique advantage America has is that we are the place in the
world where, if you have a good idea and you are willing to take a risk
yourself and you are an entrepreneur, you can usually get capital and
credit to allow you to do that idea, to take that risk and thus create
jobs, which is the bottom line for all of us; we want to create jobs.
So derivatives play a large role in making that system work. This bill,
unfortunately, adopted language which was put forward in the
Agriculture Committee which literally undermines the safety and
soundness of the derivatives market and, secondly, the ability of
America to be a leader in the derivatives market.
Our goal here should be very simple. Our goal should be two steps:
One, make our banking and financial system safer, sounder, and a system
which will, to the extent we can anticipate it, avoid systemic risk.
While doing that, our second goal must be to have a vibrant credit
market and capital market and be the primary place in the world where
people come to create credit and capital because that gives us a
competitive advantage over the rest of the world. That creates jobs
here in the United States. Unfortunately, this bill, as structured,
doesn't accomplish that. In fact, it undermines that.
A good derivatives reform bill would essentially create an atmosphere
where derivatives are more transparent, where the pricing is more
transparent, and where there is standing behind the two parties to an
agreement on a derivatives contract--assets, liquidity, margin--
something that can be turned to should one of the parties fail to
perform on the contract. This can be done by creating a reasonable
exception for end-use derivatives--those are the ones where you
basically have a purely commercial purpose--and if people don't fall
into that reasonable exception, then requiring essentially all the
other derivatives to go through what is called a clearinghouse.
The clearinghouse becomes basically the situation where the two
parties to the contract--there are multiple parties to the contract--
essentially put up collateral, margin, liquidity, so that the contracts
are supported--the counterparties are supported. The clearinghouse
itself also has to be collateralized adequately, capitalized
adequately, so that it doesn't become a risk because it is going to be
the insurer, basically, of these contracts--all very doable through new
regulatory restructure or a modified regulatory restructure.
Then, as these contracts become more standardized or are
standardized, they move over to an exchange. A lot of them could do
that right now, but some simply can't because their contracts are too
customized to move directly to an exchange. But over time, most of them
probably will. And that is the way it should be structured.
Unfortunately, in this bill, it is directed that we set up a new
process for doing these derivatives by taking basically the market
makers in these derivatives--which are the swap desks--and moving them
out of the financial institutions into separate institutions. Where
this idea came from is hard to fathom because on its face it makes
absolutely no sense. I mean, it is so counterproductive to the purpose
of making the derivatives market safer, sounder, and more efficient
and, as a result, a better market which creates credit in a
transparent, fair, effective, and sound way. It is so counterproductive
to that on its face, you would think anybody who suggested it would
have it immediately pointed out that this doesn't work. But for some
reason, it has found its way into this bill.
The practical effect of doing this is that you will create these
separate entities. These separate entities are going to have to be
capitalized because you have to have capital behind these derivatives
desks. That is the whole point. You have to have something standing
behind these desks to make them viable so that you don't end up with an
AIG. What was the AIG problem? There was nothing behind the derivative
contracts except for the name AIG. You don't want to do that again. You
want capital.
It is estimated that it would cost $250 billion to set up these
separate desks. What does that mean? That means that capital is not
going to be available for the creation of credit. You will see an
immediate contraction. It is estimated by the industry--and again, this
is an industry number, not mine, so you can take it with a grain of
salt--that will cause a $\3/4\ trillion contraction in credit. That is
Main Street not being able to get credit. Let's even say they have
exaggerated. Say it is only going to contract 80 percent. That is still
$600 billion to $700 billion of credit that is not available on Main
Street to do business, to create jobs, to take risk. It is foolish to
do that type of contraction and to set up this structure.
Plus, you have nobody who is going to oversight this as effectively
as the people who oversight the present derivative market makers. The
FDIC won't be able to get on top of this. The Fed probably will have
trouble getting on top of this. You will create a less stable platform
from which to view these markets, when the whole purpose of the bill
was to make it more stable. It makes absolutely no sense.
This is section 106 in the Agriculture bill. I think it is section
714 in this bill. And you don't have to believe me on this. I mean, two
of the major, premier regulatory agencies--which are the fair arbiters
here, really; I mean, they are the umpires--have come out in a very
unusual way, because they do not usually comment in the middle of a
legislative process such as this, and said that this--this is my
paraphrasing--is a stupid idea, a counterproductive idea, the type of
idea which, if it were to be put in place, would be cutting off your
nose to spite your face and we would end up with a less sound system.
Let me read to you from the commentary of the Federal Reserve staff
on section 106, which is now, I believe, section 714. Here is what the
Federal Reserve staff said about this approach:
Section 106 would impair financial stability and strong
prudential regulation of derivatives; would have serious
consequences for the competitiveness of United States
financial institutions; and would be highly disruptive and
costly, both for banks and their customers.
That is pretty specific. That is pretty damning testimony as to the
effect of this language. It is going to reduce our competitiveness
because a lot of these derivatives will go overseas. It is going to
make it much more difficult to have sound regulatory policy toward
derivatives, and it will be highly disruptive and costly not only for
the banks but for their customers. That is called Main Street--the
people who create the jobs. This is a very inappropriate idea that has
been put in this bill.
But don't just rely on the Fed if you are a Fed hater--and there
appear to be a number in this body, for reasons I still have trouble
fathoming. They must have something against having a sound money
policy. But if you don't like the Fed, listen to the FDIC. I don't
think anybody around here doesn't give great credibility to the way
Sheila Bair, the Chairman of the FDIC, handled the bank crisis. Very
honestly, they stepped in, they settled out a lot of major banks, and
they did it in a way that was extraordinarily professional. As a
result, the markets remained calm, people got their money back, and
deposits were not at risk.
This is an agency which has high credibility, and this is what
Chairman Sheila Bair has specifically said about this:
If all derivatives market-making activities were moved
outside the bank holding companies, most of the activities
would no doubt continue, but in less regulated and more
highly leveraged venues.
In other words, be much more risky.
Such affiliates would have to rely on less stable sources
of liquidity which--as we saw during the past crisis--would
be destabilizing to the banking organizations in times of
financial distress, which in turn would put additional
pressure on the insured banks to provide stability.
In other words, bad idea. It undermines the banking industry to do it
this way.
Finally: ``Thus, one unintended''--actually, this is not finally. The
whole letter is three pages long and has a lot of strong points. But
the final part I am going to read:
Thus, one unintended outcome of this provision would be
weakened, not strengthened, protection of the insured bank
and the Deposit Insurance Fund, which I know is not the
result any of us want.
That is pretty specific. So you have the Fed on one side, one of the
major regulators, saying this idea doesn't work, it will undermine the
structure of the banking industry. You have the FDIC on the other side
saying this proposal doesn't work, it is going to undermine the
insurance deposit system.
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So you do not have to listen to myself or others who pointed out the
failure of this section. Listen to these regulators. This section has
to be removed from this bill.
There are other things that need to be done in the derivatives areas
which would improve the language. For example, once you are on a
clearinghouse, you should not be mandated to go directly to an exchange
because it simply will not work. There needs to be an intermediary step
as standardization and then the best thing to do would be to require
regulators to look at these different instruments and then, if they
feel they can be standardized, tell the people producing them they can
be standardized and then move them over. To unilaterally say everything
has to go to an exchange is, I think, going to be counterproductive and
again push a lot of business offshore.
But clearly this one section is damaging to our efforts to produce a
safer, sounder, more transparent derivatives regime which has adequate
liquidity and capital behind it and which keeps America as the primary
place to do credit in the world so our entrepreneurs can get credit at
a reasonable price, so they can go out and take the risks to create the
jobs in America.
I ask unanimous consent to have both these statements printed in the
Record, and I yield the floor.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Comments on Senate Agriculture Committee's OTC Derivatives Bill
April 24, 2010
1. Section 106 should be deleted.
a. Lending to financial market utilities. Section 106 would
prohibit any federal assistance to swap dealers, major swap
participants, swap exchanges, clearinghouses and central
counterparties. This would appear to override the provision
of Title VIII that would allow the Federal Reserve to provide
emergency collateralized loans to systemically important
financial market utilities, such as clearinghouses and
central counterparties, to maintain financial stability and
prevent serious adverse effects on the U.S. economy.
i. As systemically important post-trade ``choke points'' in
the financial system, it is imperative that these utilities
be able to settle each day as expected to avoid systemic
problems and allow for a wide range of financial markets and
institutions to operate. The failure of a systemically
important utility to settle for its markets would not only
call into question the soundness of the utility as a critical
market infrastructure but could also create systemic
liquidity disruptions for one or more markets and potentially
other financial market utilities. The increased importance
that Title VIII places on central counterparties and central
clearinghouses to reduce risk in the financial system
necessitates ensuring that short-term secured credit is
available to these utilities in times of stress.
b. ``Push-out'' of bank swap activities. Section 106 would
in effect prohibit banks from engaging in derivative
transactions as an intermediary for customers or to hedge the
bank's own exposures.
i. Title VI, which includes the so-called Volcker rule
provisions, better addresses the problem of risks from
derivatives activities by prohibiting any bank, as well as
any company that owns a bank, from taking speculative,
proprietary derivative positions that are unrelated to
customer needs.
ii. Section 106 would impair financial stability and strong
prudential regulation of derivatives; would have serious
consequences for the competitiveness of U.S. financial
institutions; and would be highly disruptive and costly, both
for banks and their customers.
iii. Banks are subject to strong prudential regulation,
including capital regulations that take account of a bank's
exposures to derivative transactions. The Basel Committee on
Banking Supervision has recently proposed tough new capital
and liquidity requirements for derivatives that will further
strengthen the prudential standards that apply to bank
derivative activities. Titles I, III, VI, VII and VIII all
add provisions further strengthening the authority of the
Federal supervisory agencies to address these risks.
2. The foreign exchange swap exclusion should not be limited
to non-exchange-traded non-cleared transactions.
a. The bill permits the Treasury to exclude foreign
exchange swaps and forwards from coverage as ``swaps,'' but
the exclusion applies only if the transaction is not listed
or traded on an exchange or a swap execution facility and not
cleared through a derivatives clearing organization. A
substantial share of foreign exchange swaps and forwards are
entered into using electronic trading platforms. The broad
definition of swap execution facility appears to capture
these platforms, thereby rendering the Treasury's exemptive
authority largely meaningless.
b. Foreign exchange forward and swap transactions should be
treated in a way comparable to other physically settled
forwards for securities and nonfinancial commodities that are
exempted under the bill. Foreign exchange forwards and
foreign exchange swaps are delayed purchases and sales in
broad and deep cash markets. Prices for foreign exchange are
already readily available and transparent and that existing
transparency, coupled with the breadth and depth of the
foreign exchange markets, makes the foreign exchange markets
not easy to manipulate.
3. Core principles for financial market utilities should not
be hard-wired in the statute.
a. The bill sets out specific core principles for
derivatives clearing organizations, swap execution
facilities, and swap data repositories, and would not give
the CFTC or SEC leeway to adjust the core principles to
reflect evolving U.S. and international standards (as does
the Dodd bill).
b. The current international standards for central
counterparties are under review for needed changes in light
of market developments, particularly in the OTC derivatives
market, and are expected to change, thus potentially creating
an immediate conflict with the bill.
c. Providing regulatory flexibility would permit changes to
the international standards and other future refinements in
risk management standards to be addressed. In addition, such
flexibility would facilitate the ability of the U.S.
regulatory agencies to work together to adopt consistent
standards across financial market utilities that perform
similar functions.
4. The definition of ``swap data repository'' is overly
broad.
a. The definition (``any person that collects, calculates,
prepares, or maintains information or records with respect to
transaction or positions in or the terms and conditions of,
swaps entered into by third parties'') appears to include
entities whose purpose is not related to acting as a central
record-keeping facility. For example, the definition may
sweep in trade comparison services and news organizations
that collect trading information.
b. Given its breadth, it will be difficult to apply core
principles to such disparate activities and organizations.
5. Data-sharing among regulators is unnecessarily restricted.
a. The bill would require a swap data repository to notify
the relevant Commission of any information requests from
other regulators and require that those other regulators
indemnify the repository and the Commission from any claims
stemming from those requests. These provisions restrict
access by relevant U.S. regulators to needed data.
b. These restrictions may lead foreign regulators to demand
a local repository so that they can have adequate access to
the data. Splitting the market data into repositories in
different countries will make it significantly more difficult
for regulators to get a holistic view of the market.
c. The bill allows swap data to be shared with foreign
central banks, but not the U.S. central bank (the Federal
Reserve).
6. Prudential regulators should retain their safety-and-
soundness enforcement authority over bank swap dealers
and major swap participants.
a. Section 131 provides the prudential regulators with
authority to enforce the prudential requirements of the Act
over bank swap dealers and major swap participants and
provides the CFTC with the authority to enforce non-
prudential requirements.
b. Although section 133 preserves the prudential
regulators' authority under other law, the conforming
amendments in section 131 limit the prudential regulators'
authority under section 8 of the Federal Deposit Insurance
Act over swap dealers and major swap participants.
c. In order to carry out their obligations as safety-and-
soundness supervisors over banks, the prudential regulators
need to retain their full Federal Deposit Insurance Act
enforcement authority over bank swap dealers and major swap
participants.
7. The Act should clarify that risk management is part of
prudential rules.
a. Section 121 provides that the prudential regulators are
to prescribe prudential requirements, including capital and
margin requirements, for bank swap dealers and major swap
participants. Section 121 also requires swap dealers and
major swap participants to establish robust and professional
risk management systems.
b. The bill is unclear about which agency should set risk
management rules. These rules should be set by the prudential
regulator . . .
____
Federal Deposit Insurance
Corporation,
Washington, DC, April 30, 2010.
Hon. Christopher J. Dodd,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Hon. Blanche L. Lincoln,
Chairman, Committee on Agriculture, Nutrition and Forestry,
U.S. Senate, Washington, DC.
Dear Chairman Dodd and Chairman Lincoln: Thank you for
reaching out to the Federal Deposit Insurance Corporation for
our views on Title VII of the ``Wall Street Transparency and
Accountability Act'' contained in S. 3217, the ``Restoring
American Financial Stability Act of 2010.'' At the outset, I
[[Page S3070]]
would like to express my strong support for enhanced
regulation of ``over-the-counter'' (OTC) derivatives and the
provisions of the bill which would require centralized
clearing and exchange trading of standardized products. If
this requirement is applied rigorously it will mean that most
OTC contracts will be centrally cleared, a desirable
improvement from the bilateral clearing processes used now. I
would also like to express my wholehearted endorsement of the
ultimate intent of the bill, to protect the deposit insurance
fund from high risk behavior.
I would like to share some concerns with respect to section
716 of S. 3217, which would require most derivatives
activities to be conducted outside of banks and bank holding
companies. If enacted, this provision would require that some
$294 trillion in notional amount of derivatives be moved
outside of banks or from bank holding companies that own
insured depository institutions, presumably to nonbank
financial firms such as hedge funds and futures commission
merchants, or to foreign banking organizations beyond the
reach of federal regulation. I would note that credit
derivatives--the riskiest--held by banks and bank holding
companies (when measured by notional amount) total $25.5
trillion, or slightly less than nine percent of the total
derivatives held by these entities.
At the same time, it needs to be pointed out that the vast
majority of banks that use OTC derivatives confine their
activity to hedging interest rate risk with straightforward
interest rate derivatives. Given the continuing uncertainty
surrounding future movements in interest rates and the
detrimental effects that these could have on unhedged banks,
I encourage you to adopt an approach that would allow banks
to easily hedge with OTC derivatives. Moreover, I believe
that directing standardized OTC products toward exchanges or
other central clearing facilities would accomplish the
stabilization of the OTC market that we seek to enhance, and
would still allow banks to continue the important market-
making functions that they currently perform.
In addition, I urge you to carefully consider the
underlying premise of this provision--that the best way to
protect the deposit insurance fund is to push higher risk
activities into the so-called shadow sector. To be sure,
there are certain activities, such as speculative derivatives
trading, that should have no place in banks or bank holding
companies. We believe the Volcker rule addresses that issue
and indeed would be happy to work with you on a total ban on
speculative trading, at least in the CDS market. At the same
time, other types of derivatives such as customized interest
rate swaps and even some CDS do have legitimate and important
functions as risk management tools, and insured banks play an
essential role in providing market-making functions for these
products.
Banks are not perfect but we do believe that insured banks
as a whole performed better during this crisis because they
are subject to higher capital requirements in both the amount
and quality of capital. Insured banks also are subject to
ongoing prudential supervision by their primary banking
regulators, as well as a second pair of eyes through the
FDIC's back up supervisory role, which we are strengthening
as a lesson of the crisis. If all derivatives market-making
activities were moved outside of bank holding companies, most
of the activity would no doubt continue, but in less
regulated and more highly leveraged venues. Even pushing the
activity into a bank holding company affiliate would reduce
the amount and quality of capital required to be held against
this activity. It would also be beyond the scrutiny of the
FDIC because we do not have the same comprehensive backup
authority over the affiliates of banks as we do with the
banks themselves. Such affiliates would have to rely on less
stable sources of liquidity, which--as we saw during the past
crisis--would be destabilizing to the banking organization in
times of financial distress, which in turn would put
additional pressure on the insured bank to provide stability.
By concentrating the activity in an affiliate of the insured
bank, we could end up with less and lower quality capital,
less information and oversight for the FDIC, and potentially
less support for the insured bank in a time of crisis. Thus,
one unintended outcome of this provision would be weakened,
not strengthened, protection of the insured bank and the
Deposit Insurance Fund, which I know is not the result any of
us want.
A central lesson of this crisis is that it is difficult to
insulate insured banks from risk taking conducted by their
nonbanking affiliated entities. When the crisis hit, the
shadow sector collapsed, leaving insured banks as the only
source of stability. Far from serving as a source of
strength, bank holding companies and their affiliates had to
draw stability from their insured deposit franchises. We must
be careful not to reduce even further the availability of
support to insured banks from their holding companies. As a
result, we believe policies going forward should recognize
the damage regulatory arbitrage caused our economy and craft
policies that focus on the quality and strength of regulation
as opposed to the business model used to support it.
The FDIC is pleased to continue working with you on this
important issue to assure that the final outcome serves all
of our goals for a safer and more stable financial sector. We
hope that a compromise can be achieved by perhaps moving some
derivatives activity into affiliates, so long as capital
standards remain as strict as they are for insured
depositories and banks continue to be able to fully utilize
derivatives for appropriate hedging activities.
Please do not hesitate to contact me or have your staff
contact Paul Nash, Deputy Director for External Affairs.
Sincerely,
Sheila C. Bair.
The PRESIDING OFFICER. The Senator from Montana.
Amendment No. 3749
Mr. TESTER. Mr. President, I rise today to talk about amendment No.
3749, the Tester-Hutchison amendment.
Before I talk about this amendment, I want to thank Chairman Dodd for
his work on a very strong Wall Street reform bill. I think his work has
been very much appreciated by me and other members of the Banking
Committee. I look forward to getting to this bill and making it even
stronger and passing it out of this body to the President and into law.
This amendment would lift a burden inappropriately placed on our
community banks in this country.
These are the banks that make rural America run. They do not deserve
to be left holding the bag for the risky behavior of big banks.
What the Tester-Hutchison amendment does is hold big banks
accountable for their actions by basing FDIC deposit insurance premiums
on risk.
Our amendment would force big banks to pay their fair share of
insurance. And it would fix the lopsided assessment system that we
currently have--which unfairly burdens community banks.
The recent turmoil in the financial sector has placed significant
strains on the FDIC's Deposit Insurance Fund--the first line of defense
and resource tapped to provide assistance to troubled federally insured
banks.
Since the beginning of 2008, the FDIC has closed 229 banks, including
7 banks last week. That has left a wake of devastation that has
impacted the entire banking system.
Some of the larger failures--including those of IndyMac and Bank
United--caused significant destruction. They have left the FDIC's
Deposit Insurance Fund depleted and destabilized. In fact, the fund
began the year with a negative balance of over $20 billion.
Why is that? We now know that some of these institutions were engaged
in risky activities--some far beyond the traditional depository
functions.
But, because the FDIC's Deposit Insurance Fund was still based solely
on the institution's deposits--rather than assets, the fund wasn't able
to take into account the impact that this risky behavior would have on
the fund.
In fact, under the current system, community banks pay 30 percent of
total FDIC premiums while only holding 20 percent of the Nation's
banking assets.
Let me repeat that Mr. President. Under the current system, community
banks pay 30 percent of total FDIC premiums while only holding 20
percent of the Nation's banking assets.
Our bipartisan amendment brings some common sense back into the
equation.
The FDIC--and the fund--have never faced such troubling times. In
light of these failures, the FDIC was forced to make emergency, upfront
assessments on all banks to protect the integrity of the Fund.
Montana banks didn't get involved in this risky behavior--they didn't
offer subprime mortgages or sell sophisticated financial instruments
meant to manipulate markets.
But Montana banks, like community banks around the country, have had
to pay the price for the risky behavior of the larger banks that
destabilized the fund.
Mike Richter, President and CEO of the State Bank of Townsend in
Townsend, MT, tells me that because of the emergency assessments in
December, his bank had to prepay 3 year's worth of premiums--3 years.
For the Bank of Townsend, that was a bill of $190,000 on top of the
$70,000 that he already paid in 2009 assessments. I am no banker, but I
know that is no way to run a business.
When I think about the impact that the community banks have in my
State and the role that they play--originating mortgages and providing
small businesses and farms with credit--it pains me to see them suffer
as a
[[Page S3071]]
result of the risky activities of larger banks.
That is why I have teamed up with my friend from Texas, Senator
Hutchison, as well as Senators Conrad, Murray, Burris, Brown of
Massachusetts, Harkin and Shaheen in offering this important,
bipartisan amendment.
We want to ensure that the FDIC implements a genuine risk-based
assessment system to protect the health of the Deposit Insurance Fund
and to ensure equity among FDIC-insured institutions.
This amendment builds on the underlying language included in the
bill, directing the FDIC to base assessments on assets rather than
deposits.
Specifically, the amendment would require the FDIC to implement this
change, rather than permitting them to make the change as in the
current language.
It also further shifts the assessment base formula to benefit
community banks by eliminating ``long term unsecured debt'' as a factor
in calculating assessments. And it includes language directing the FDIC
to implement risk based assessments for banker's banks and custodial
banks which have different structures than traditional banks.
The FDIC has already taken a step forward in recognizing the risks
that larger banks pose to the Deposit Insurance Fund, voting to base
their emergency assessments on a bank's assets rather than deposits.
The Independent Community Bankers of America also support this
amendment. They believe that it will codify these important changes and
bring greater equity to the assessment base.
In closing, let me say how much I appreciate all of the work of my
colleague from Texas, Senator Hutchison, and how much I appreciate the
committee's willingness to work with us on this important amendment.
I yield the floor.
Mr. DODD. Will my colleague yield before yielding the floor?
Mr. TESTER. I will.
Mr. DODD. Mr. President, I commend my colleague and friend and our
colleague from Texas, Senator Hutchison. This is exactly the kind of
effort we are trying to achieve in this bill. It is a complicated area
of law. I appreciate the work of Senator Tester and others. I didn't
hear all. I gather it is Senator Tester, Senator Hutchison, Senator
Scott Brown, Senator Harkin--you have a list of Democrats and
Republicans here who have worked on this amendment to bring it to this
point. I support the amendment. I think this is a strong amendment that
will require the FDIC, as I understand it--my colleague will correct
me--to change how it charges for deposit insurance, which I think makes
a lot of sense--from charging each bank's domestic deposits as it does
now, to charging its total liabilities, which makes far more sense.
This is a great help to community banks across the country, of which
Senator Tester has been a champion since his arrival in the Senate and
as a member of our Banking Committee. The change will help ease the
burden of FDIC assessments on our community banks by requiring the
largest banks in the country to shoulder a little more of the
responsibility to rebuild and maintain a sound deposit insurance fund.
The amendment is fundamentally about fairness, which I think is one
of its most important features. Community banks, as we all know, have
been victims of a severe economic recession brought on by the behavior
of major Wall Street firms. This has led to a high rate of community
bank failures and a sharp increase in premiums necessary to rebuild the
FDIC's insurance fund. Meanwhile, the largest banks have been saved by
TARP moneys and other government programs that were necessary,
obviously, as we all know, to avoid the economic meltdown and
catastrophe we were facing in the fall of 2008.
The change required by this amendment will lead to a far more
equitable distribution of the responsibility to maintain a strong
deposit insurance fund. It also will free up new resources for smaller
banks to lend to households.
So on every front, this amendment is a very positive contribution to
this overall bill and one of the real features Members ought to keep in
mind as we try to get this bill done. Without this amendment, which I
support and want to see included, this will make even additional
pressures on our community banks.
I thank both our colleagues, from Montana and Texas, as well as our
new Senate colleague from Massachusetts, and Senator Harkin as well,
for their contribution. As soon as we find a window here to bring this
up, we wish to see this amendment get adopted and be part of the bill.
The PRESIDING OFFICER. The Senator from Montana.
Mr. TESTER. I very much thank Senator Dodd. I think he is right. It
is about equity. It is about assessing the premiums for the FDIC
insurance fund to the banks that pose the most risk. Community banks
are not among them. They played by the rules, they have done things
right, and they have not tried to manipulate the market. I very much
appreciate my colleague's comments and appreciate his support.
Mr. DODD. Mr. President, we have some potential action here. I hope
in a few minutes to move along. The amendment of Senator Tester and
Senator Hutchison is an amendment I hope we can deal with at some point
fairly quickly. Again, it is one of those amendments where we have
reached an agreement on both sides. My experience is when you have an
agreement such as that, you better move on it.
I know there are others as well. The Boxer amendment I hope we can
get up. Senator Shelby and I have worked on a larger amendment to deal
with the too-big-to-fail provisions. Again, all of us want to see
language, but let me say in the absence of language, we have reached
agreement. Obviously we both need to look at the language of it before
we can say that categorically. But I am satisfied, as is, I believe, my
colleague from Alabama, that we have reached that agreement on the too-
big-to-fail provisions which, with the Boxer amendment, takes that
issue completely off the table as far as any further debate goes about
title I and title II of the bill.
We have other issues. Senator Gregg mentioned a couple that obviously
are going to need some work and some amendments are going to be offered
on those. But in my view the sooner we move along on the ones where we
have agreement, such as the Tester-Hutchison amendment, and some ideas
I believe our colleague from Maine, Senator Snowe, wants to offer, we
will demonstrate, I think once again, that we have the capacity to work
with each other to actually advance what we are all trying to achieve,
and that is reform of the financial system. My hope is rather shortly
we will get to some agreements on time and bring up these efforts and
not have another day go by when we are not actually dealing with
specific amendments in this bill.
With that, I don't see another Member seeking recognition, so I
suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. DODD. Madam President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER (Mrs. Gillibrand.) Without objection, it is so
ordered.
Mr. DODD. I ask unanimous consent that the pending Boxer amendment
No. 3737 be temporarily set aside and that Senator Snowe of Maine be
recognized to call up two amendments, Nos. 3755 and 3757; that no
amendments be in order to either amendment; that upon the conclusion of
debate with respect to the Snowe amendments, they be set aside and the
Boxer amendment reoccur.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Maine is recognized.
Amendment No. 3755 to Amendment No. 3739
Ms. SNOWE. Madam President, the pending amendment was set aside. I
call up the Snowe amendment No. 3755.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:
The Senator from Maine [Ms. Snowe] proposes an amendment
numbered 3755 to amendment No. 3739.
Ms. SNOWE. I ask unanimous consent that further reading of the
amendment be dispensed with.
[[Page S3072]]
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
(Purpose: To strike section 1071)
Strike section 1071.
Ms. SNOWE. Madam President, I ask unanimous consent that Senator
Shaheen be added as a cosponsor.
The PRESIDING OFFICER. Without objection, it is so ordered.
Ms. SNOWE. I would like to thank the distinguished chairman of the
Banking Committee, Senator Dodd, for working with me so constructively,
as well as his staff, on these two amendments I am calling up this
afternoon. And I thank Senator Shelby, as well, for agreeing to the
substance of these amendments.
I think it is important to address these issues that are so
fundamental to so many small businesses across the country. The first
amendment I have made pending would reduce cumbersome and unnecessary
restrictions on the banking industry that may potentially infringe on
Americans' privacy rights and curtail the ability of financial
institutions to serve their customers.
Specifically, the underlying legislation contains language that would
compel banks to make the following disclosures to the Consumer
Financial Protection Bureau: Banks would have to report from each
deposit-taking facility, including each individual automated teller
machine, a record of the number and dollar amount of the deposit
accounts of customers; a geo-coding, by census tract, of the residence
or business location of each customer; and a record of whether each
customer is transacting commercial or residential business.
This type of detailed reporting imposes a regulatory cost on banks
and provides an extraordinarily large amount of data to the Federal
Government.
While many have advanced the image of banks as monolithically large
entities with tens of thousands of employees spread across the globe,
the vast majority of banks are small community-centered institutions.
For small community banks, every dollar spent on complying with
government regulations is another dollar that cannot be used for
customer service or extending credit. While these existing processes
may be in place at large banks--and even if not, their procurement
would be relatively inexpensive--for a small bank this could have a
sizeable impact on their bottom line and prove to be an extremely large
regulatory burden.
In addition, the Federal Government's track record when it comes to
securing its citizens' privacy data is less than stellar. As we all
recall, in May of 2006 the Department of Veterans Affairs lost Social
Security numbers and dates of birth of more than 26 million veterans. I
cannot imagine what would occur if the sensitive deposit data that
banks are required to track under this legislation was inadvertently
lost.
The legislation does contain a provision requiring that the personal
identities of all customers be removed, but one slip could result in
the intimate financial details of bank customers being revealed to
unscrupulous computer hackers.
I would note both the Independent Community Bankers Association and
the Credit Union National Association are supporting this amendment due
to its regulatory burden. I am pleased that we have reached agreement
to have it accepted in this legislation.
Amendment No. 3757 to Amendment No. 3739
I ask unanimous consent the pending amendment be set aside, and I
call up Snowe amendment No. 3757.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:
The Senator from Maine [Ms. Snowe] proposes amendment No.
3755 to amendment No. 3739.
Ms. SNOWE. I ask unanimous consent that the reading of the amendment
be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
(Purpose: To provide for consideration of seasonal income in mortgage
loans)
At the end of section 1031, add the following:
(f) Consideration of Seasonal Income.--The rules of the
Bureau under this section shall provide, with respect to an
extension of credit secured by residential real estate or a
dwelling, if documented income of the borrower, including
income from a small business, is a repayment source for an
extension of credit secured by residential real estate or a
dwelling, the creditor may consider the seasonality and
irregularity of such income in the underwriting of and
scheduling of payments for such credit.
Ms. SNOWE. This second amendment would fix an unintended consequence
of the Consumer Financial Protection Bureau in the underlying
legislation, which would have the effect of choking off access to
credit by small business.
According to the February 2010 survey of the National Federation of
Independent Business on the state of credit:
. . . 16 percent of all small employers have a mortgage on
their residence that helps to finance the(ir) business. . . .
The Small Business Administration's Office of Advocacy has calculated
that there are nearly 30 million small businesses in America. Taken
together, this means approximately 4.8 million small firms, hardly an
unsubstantial number, rely on a home mortgage for their financing.
Many of those small business owners also make loan payments intended
to reflect the cashflow of their business models. For example,
innkeepers often make larger loan payments during their busier seasons,
and farmers and fishermen borrow funds based on their crop or catch
cycles.
As brought before the Senate, the underlying bill would prohibit
lending products if the Consumer Financial Protection Bureau has a
``reasonable basis to conclude that . . . substantial injury is not
outweighed by counterveiling benefits to consumers.''
This means if the Consumer Financial Protection Bureau finds that the
injury of a loan product is outweighed by the benefit it might create,
the Bureau can prevent a financial institution from offering it.
The problem with the manner in which the bill is drafted is that it
does not take into account that many entrepreneurs use home mortgage
loans with customized repayment terms for business purposes.
Accordingly, overzealous regulators could determine that such loans,
which are consumer products, are abusive and thereby either prevent or
make it extremely difficult for financial institutions to continue
offering these types of critical products.
For example, a loan to a borrower with balloon payments in June, July
and August and interest-only payments for the rest of the year might
look suspicious to the Bureau and be declared abusive. Yet this is
exactly how many seasonal firms in Maine and throughout the Nation
finance their businesses.
My amendment simply preserves the ability of small business owners to
use their homes as collateral and to make payments based on an
alternate lending cycle by clarifying that the CFPB must allow banks to
offer home loan products with customized payment terms for small
businesses.
I originally raised my concern that the underlying bill could
inadvertently harm small business lending during meetings with Treasury
Secretary Tim Geithner and National Economic Council Chairman Larry
Summers. They were both immediately receptive and agreed that the bill,
if not altered, could have unintended consequences that would restrain
access to capital for small businesses.
The necessity of this amendment is especially critical given the
small business credit crisis that continues to plague the Nation. This
fact has been underscored by numerous studies including the Federal
Deposit Insurance Corporation's survey that found outstanding loan
balances have dropped by the largest margin since 1942. Furthermore,
the Federal Reserve's April 2010 Senior Loan Officer Opinion Survey
shows that only 1.9 percent of banks surveyed had loosened credit terms
for small businesses in the past quarter.
While harming small businesses, lack of access to affordable capital
also has a ripple effect across the greater economy. In his April 14
testimony before the Finance Committee, Dr. Mark Zandi, the chief
economist for Moody's Analytics, stated that ``small business credit
(is) key to job creation.''
By preserving financing flexibility for small business owners, this
amendment ensures that home equity will remain as a possible means for
entrepreneurs to secure funds to start or grow their businesses. With
small businesses adding two-thirds of all net new
[[Page S3073]]
jobs, this provision will help small business owners create jobs,
finance their businesses, and help us reduce our current 9.7 percent
unemployment rate.
We understand how instrumental small businesses are to job creation.
We have to remain deeply concerned that in the last 3 months, we have
had static employment growth with a 9.7-percent unemployment rate.
Small businesses are the engine that will drive this recovery and will
lead us out of a jobless recovery. A jobless recovery is not a true
recovery. Anything we do here, particularly on this legislation, that
could affect small business's access to capital will certainly infringe
upon our ability to promote job creation. I reiterated that this
morning in the Finance Committee hearing, where Treasury Secretary
Geithner indicated he shared my deep concerns about stagnation when it
comes to lending. It is important to improve upon these regulations
that are vetted in the underlying legislation.
I appreciate the chairman's effort to be flexible and to address and
modify some of these issues and these constraints, and for allowing me
to offer these amendments and agreeing to them.
I yield the floor.
The PRESIDING OFFICER. The Senator from Connecticut.
Mr. DODD. Madam President, I thank my fellow New Englander and
colleague for her two amendments. They are very strong and positive
contributions to the bill. She raises very worthwhile points. We have a
tendency to think of small businesses all operating the same way, and
they obviously don't. Particularly, the seasonal businesses have
moments of peak activity and then periods when not much happens,
whether we are talking about farming or fishing or tourism, other such
industries. It was never our intent that they be adversely affected,
but the amendment she has offered makes a huge difference in that
regard. I thank her. The Consumer Financial Protection Agency to allow
mortgages to be made on the basis of seasonal income is of great value.
The second amendment, 3755, on the collection of deposit account
data, is a very good suggestion. The last thing we want to do is
overburden the regulatory environment. The intentions were sound
enough. We have an awful lot of people who go into the sort of nonbank,
nontraditional sources of support financially. That was sort of the
motivation behind it. Her concern, that this could be burdensome--and
the last thing we need is more burdens--is worthwhile. I thank her for
her contributions. I support these efforts.
I believe, at the appropriate moment, we can adopt these amendments.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant editor of the Daily Digest proceeded to call the roll.
Mr. LEVIN. I ask unanimous consent that the order for the quorum call
be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. LEVIN. I ask unanimous consent to speak as in morning business
for 3 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Congratulating Kalamazoo Central High School
Mr. LEVIN. Madam President, I come to the floor to congratulate the
students, faculty, staff, and parents at Kalamazoo Central High School
in Kalamazoo, MI, who learned today that President Obama will deliver
the commencement address for their high school next month. It is a
tremendous honor to host a President, particularly this President. I am
proud not only that Kalamazoo Central High has been accorded this honor
but how the school earned it. More than 1,000 schools submitted
applications for a competition called Race to the Top Commencement
Challenge. This competition encouraged academic excellence and
innovation. Evaluators narrowed the contestants down to six who were
finalists. Public voting selected the final three, and the White House
then announced today that the President had chosen Kalamazoo Central
from those three finalists.
I am not going to make any claim that I am unbiased here, but I
believe it is meaningful that this Michigan school represents what is
possible for a large, urban public school, open to all students.
Kalamazoo, similar to many communities in my State, is not without its
challenges. The tough economic times have given public educators an
extremely difficult task. Kalamazoo has had to cope with the effects of
plant closings, corporate mergers, and downsizings that meant
administrators have had to do more with less.
But the people of Kalamazoo have not allowed those challenges to
stand in the way of excellence. Kalamazoo is the home of the Kalamazoo
Promise. Every graduate of the Kalamazoo public schools is entitled to
a scholarship covering a portion of their higher education costs at a
Michigan public university, up to 100 percent for those who attended
Kalamazoo schools from kindergarten through 12th grade. Since the
Promise was established, thanks to the generosity of a small group of
anonymous donors, more than 90 percent of Kalamazoo High graduates have
gone on to college.
This commitment to quality education for all is nothing new to
Kalamazoo. In 1873, a small group of property owners, convinced that
they did not need to pay taxes to support a public high school, sued
the Kalamazoo School Board. In the ``Kalamazoo Case,'' as it became
known, the Michigan Supreme Court upheld the establishment of a public
high school supported by tax dollars and open to all. The case settled,
once and for all, the status of public education in Michigan and has
been cited by courts throughout the country where public education has
come under attack.
Today's announcement adds to the rich history of public education in
Kalamazoo. It is a fitting honor for the students, educators, parents,
and citizens of a community that has once again demonstrated its
commitment to academic excellence.
I spoke after today's announcement with the principal of Kalamazoo
Central High, Von Washington, and offered my congratulations. He told
me the news brought cheers and excitement to the high school students
and even a few tears as the word spread quickly throughout the entire
Kalamazoo community--the justifiably proud community.
So we all look forward to President Obama's visit to Kalamazoo, and I
know that a proud city and a proud school will offer both the best in
hospitality and an example for other schools to follow.
I yield the floor.
The PRESIDING OFFICER. The Senator from Texas.
Mrs. HUTCHISON. Madam President, I rise to speak on my amendment with
Senator Tester because we are trying to ensure that safe community
banks and large financial institutions are treated equally. I heard
Senator Tester's speech on the floor just a little while ago on our
amendment, and I am very pleased we are able to put this amendment
forward. I am also pleased the chairman has said he supports my
amendment. I think that is a great first step for us, for the chairman
to support an amendment, because we all know this bill came to the
floor on good faith, the good faith that we would have amendments and
we would try to address the legitimate concerns of many in our country,
from small businesspeople such as dentists to food manufacturers, as
well as community bankers. We don't want--and I know the chairman
doesn't want and no one wants--to hurt our economy with financial
reform.
I also think I can say we all have a goal of good reform that
eliminates some of the things that happened a couple years ago that
American taxpayers are paying dearly for right now. We don't want
bailouts. We don't want taxpayer-funded bailouts of financial
institutions that have taken great risk, and we certainly don't want to
hurt our economy, which is not all that great right now, we all must
admit. I think that going forward we must address the issues that
caused the financial meltdown and stop the misuse of derivatives and
get our financial house in order while also protecting our financial
house.
So that is what the Hutchison-Tester amendment tries to do. We want
to ensure that large banks pay their fair share in deposit insurance
premiums and community banks are not over-assessed and, therefore, can
continue to
[[Page S3074]]
provide lending and depository services to creditworthy American
families and small businesses. I am very pleased we have a group of
cosponsors. Senator Tester and I are joined by Senator Burris, Senator
Conrad, and Senator Harkin in this amendment.
While much debate has centered on systemic risk and the $50 billion
fund to unwind large financial firms, the Hutchison-Tester amendment
focuses on bringing parity to the existing FDIC deposit insurance fund.
Our amendment will reform the FDIC's assessment base to ensure that
banks pay assessments into the deposit insurance fund based on the risk
they pose to the banking system.
Currently, the FDIC levies deposit insurance premiums on a bank's
total domestic deposits. Unfortunately, domestic deposits are not the
best measure to analyze the safety of banks. Financial assets, other
than deposits, also create risk in the system but are not considered in
determining FDIC assessments. Yet because the system does not charge
assessments based on assets, it doesn't fairly assess all the risks in
the system.
Community banks with less than $10 billion in assets rely heavily on
customer deposits for funding, which penalizes these safe institutions
by forcing them to pay deposit insurance premiums above and beyond the
risk they pose to the banking system. How? Despite making up just 20
percent of the Nation's assets, these community banks contribute 30
percent of the premiums to the deposit insurance fund. At the same
time, large banks hold 80 percent of the banking industry's assets but
pay 70 percent of the premiums.
We must fix this inequity. This is a clear imbalance. We must ensure
that banks of all sizes pay deposit insurance premiums based on the
risk they pose to the system. The Hutchison-Tester amendment will do
this by requiring the FDIC to change the assessment base to one which
is a more accurate measure--a bank's total assets less tangible
capital. This change will broaden the assessment base from $8.5
trillion to $11.5 trillion, and it will better measure the risk a bank
poses.
Throughout Senator Dodd's legislation, a bright line asset test is
used to measure risk to the system. A bank's assets include its loans
outstanding and securities held. One need only look back over the last
2 years to realize that assets show a bank's exposure to risk. It
wasn't a bank's deposits that contributed to the financial meltdown.
Instead, the meltdown was caused by bad mortgages that were packaged up
into risky mortgage-backed securities and used to create derivatives.
These risky financial instruments, and the large banks which created
and held them, were what led to the financial crisis.
Our amendment is especially timely because of the great strains
placed on the deposit insurance fund because of the crisis. Numerous
banks have failed over the past 2 years, forcing the FDIC to dip more
and more into the fund to cover insured deposits of customers.
In February 2009, with the fund already in a precarious state and
more failures expected, the FDIC made an unprecedented move and levied
a $5 billion special assessment on all insured institutions.
Originally, the FDIC intended this assessment to be eight basis points
of an institution's domestic deposits.
This assessment stood to penalize community banks by forcing them to
pay for the faults of others, despite having nothing to do with the
risky practices that caused the crisis and ensuing bank failures. To
add insult to injury, community banks would have paid a
disproportionate amount based on domestic deposits in the assessment
base.
The FDIC had the regulatory authority to broaden its base to total
assets. I raised this point with the FDIC following the announcement of
their assessment. I was pleased the FDIC listened. They altered their
special assessment to a base of total assets less tangible capital.
As a result, the assessment was lowered to 5 percent of assets--a
move which ensured that large banks with heavy assets paid an
assessment which fairly accounted for the added risk they posed to the
banking system. So I applaud Chairman Sheila Bair for making that
decision.
However, the broader base was only used one time and the FDIC has now
reverted to the traditional annual premium based on domestic deposits
assessments. The Dodd bill continues to give the FDIC the authority to
continue using this narrow base of domestic deposits.
The Hutchison-Tester amendment will put in place a statute which
ensures that we will have the fair assessment. That will be the
mandate. There will not be options to create this unlevel playing field
between the big banks and the community banks. It just makes sure the
community banks will never have to pay a higher portion of the
deposit insurance when they have a lower amount of the assets. Our
amendment levels the playing field.
Since the beginning of 2008, 229 banks from across the United States
have failed, and because of these failures, it has left the deposit
insurance fund below the statutory minimum requirement, despite last
spring's special assessment. The discouraging state of the fund has led
the FDIC to make yet another unprecedented move. The FDIC is requiring
its banks to prepay deposit insurance premiums, all due over the next 3
years, by the end of this fiscal year. We must act now to ensure that
these prepaid deposit premiums and all premiums in the future are
assessed proportionately so banks pay premiums based on the risk they
pose.
I ask my colleagues to support the Hutchison-Tester amendment, to
bring additional parity between banks on Wall Street and those on Main
Street.
I thank my colleagues who have cosponsored the amendment. I thank the
chairman for supporting the amendment. This is one step we can take. I
would love for the first amendment taken up to be one that would have
bipartisan support, and I hope it is overwhelming support, because our
community banks did not participate in the financial meltdown and are
not at fault. Yet they are paying a much heavier price. But if we ask
the small businesspeople in Texas and probably in most parts of the
country where are they getting the loans they need for their businesses
to continue to operate, it is mostly from community banks. It is the
community banks that have stepped forward in this crisis and have done
the best they could to make sure that in every way possible we keep our
economy growing with small businesses that are the economic engine of
America. So I hope we can have a time agreement very shortly and be
able to vote on the Hutchison-Tester amendment, and I look forward to
working on this bill for the next few weeks.
There are many amendments that I think are quite legitimate that will
help this bill to be one that will fix what was bad in our economic
system that caused the financial meltdown but at the same time will
protect the legitimate uses of the derivatives, the legitimate banking
concerns of our community banks, our Main Street banks, our small
businesses needs, and certainly not create another new level of
government bureaucracy piled on top of banks that are already
regulated. I just hope we don't do overkill, as I would say the
Sarbanes-Oxley bill did, which was passed in the aftermath of the Enron
scandal. Back then I think there was overkill that hopefully we will be
able to go back and address so we keep the bad things from happening,
while assuring that our economy can go forward and compete not only in
the communities across our Nation but globally.
The PRESIDING OFFICER. The Senator from Connecticut.
Mr. DODD. Madam President, very briefly, let me thank my colleague
from Texas. I already commented when Senator Tester of Montana spoke,
but I will again thank her and the Senator from Montana and others
cosponsoring this amendment. It is a very solid contribution to the
bill.
Again, I think the idea of considering the total liabilities
obviously makes a lot more sense. It alleviates the burden financially
on smaller institutions. It adds that larger institutions have a
greater capacity to share more equitably in these costs. Whether it is
in our State or not, we read accounts of--as we have seen over the last
year and a half--small banks having to close their doors. The pressures
on the FDIC are mounting. Again, you don't want to keep adding
assessments on institutions that are already trying to lend to
[[Page S3075]]
businesses in their communities, to provide mortgages and the like.
This is a very constructive amendment and a very solid idea to add to
the bill. I thank the Senator from Texas and the Senator from Montana
and the others involved. As soon as we work out time agreements,
hopefully we can conclude and give the Senator from Texas a couple of
minutes before we vote. It is exactly the way I want to manage this
bill, if I can. There is a lot of commonality and many common
interests, and too often the public only sees the fights we have and
they don't realize how many issues we agree on. We are making the
effort to try to reach agreements with each other. Obviously, it is not
as interesting a story when we agree. It is not as exciting as when
there is a brawl on the floor over some issue. I appreciate the media's
appreciation of the brawls, but my intention is to limit that and get
us to the point where we have common interests in putting a good bill
together. Senator Hutchison's contribution to this amendment does
exactly that, just as our colleague from Maine, who talked about her
amendment a moment ago. Senator Warner has also been very helpful in
this bill. I see Senator Whitehouse here. He is also interested in the
subject matter. I thank my colleague from Texas.
Mrs. HUTCHISON. Madam President, there is certainly one thing we can
all agree on, and that is our assessment of the media and what they
really like to write about. I hope we can make progress on this bill
and do something good for our country and the economy. I think we have
the same goals, and if we really work for the next 3 weeks or so trying
to get amendments through, that would be great.
Mr. DODD. Madam President, one of the important things about this
amendment is this: There will be amendments offered in which we will
take things out of the bill or put things in, but this is an idea which
has great value as a freestanding idea in many ways. That is why it has
great value. This is something we clearly need to do. You can talk
about other parts of the bill, but this is an idea that brings value to
the bill--significant value, in my view, in light of the economic
circumstances we are in. I appreciate this amendment more than kind of
a strike something in the bill or modify something. This adds real
value to the legislation. I am appreciative of that.
The PRESIDING OFFICER. The Senator from Rhode Island is recognized.
Mr. WHITEHOUSE. Madam President, I had planned to offer an amendment
this afternoon. I have been informed by the managers that the amendment
slots are full at the moment. I wish to speak about my amendment and
then return to the floor at the earliest opportunity to offer it for a
vote.
First, I say to the chairman of the Banking Committee that the bill
we are currently debating would do great things to regulate an out-of-
control Wall Street, to end the pernicious practice of too big to fail,
and to provide for regular consumers an independent financial
protection agency to look out for their interests against all the big
sharks and lobbyists and lawyers who are ganged up against them on
consumer debt. I appreciate the work Chairman Dodd and Chairman Lincoln
have done, and I look forward to continuing to work with them on this
important piece of legislation.
My amendment is cosponsored by Senators Merkley, Durbin, Sanders,
Levin, Burris, Franken, Brown of Ohio, and Menendez, and we are
continuing to solicit cosponsorships. We are also receiving
endorsements from outside of this body.
The amendment would address an area that is not yet covered by the
Wall Street reform bill; that is, runaway credit card interest rates.
It would do so not by imposing new restrictions on lending but, rather,
by restoring historic State powers--powers that were eliminated in the
relatively recent past.
Madam President, when you and I were growing up, a credit card offer
with a 20-percent or 30-percent interest rate might have been a matter
to bring to the attention of the authorities. Such interest rates were
illegal under the laws of most, if not all, of the 50 States. Laws
against charging excessive interest rates go much further back than our
youth, however. The Code of Hammurabi in the third millennium B.C.
limited interest rates. Hindu laws of the second century B.C. limited
interest rates. Roman law limited interest rates. So when America was
established, there was already a long tradition of protecting citizens
against excessive interest rates, and that tradition carried to the
founding of the United States of America.
For the first 202 years of our Republic, each State had the sovereign
power to enforce usury laws against any lender doing business with its
citizens. During those two centuries, our economy grew and flourished,
and lenders profited while complying with those laws.
Then, in 1978 came an apparently uneventful Supreme Court case. It
was little noticed at the time it was decided. The case was called
Marquette National Bank of Minneapolis v. First of Omaha Service
Corporation. The Supreme Court there had to determine what the word
``located'' meant in an old statute, the National Bank Act of 1863--
whether it meant that the transaction between a bank in one State and a
consumer in another State was governed by the law of the bank State or
of the consumer State. The resolution was that the term ``located''
referred to the location of the bank and not the location of the
consumer. This meant that in a transaction between a bank in one State
and a consumer in another, the transaction would be governed by the
State in which the bank was domiciled.
Well, it did not take long for the big banks to see the loophole this
very narrow decision created. This loophole was never sanctioned by
Congress, apparently never intended by the Supreme Court, but it was a
significant loophole. It allowed banks to, for the first time in the
Nation's history, avoid interest rate restrictions by the States of
their consumers. It allowed them to get through that loophole by
reorganizing as national banks and moving to States with comparatively
weak consumer protection.
Once the banks figured out that loophole, what is called ``a race to
the bottom'' ensued. Bank credit card centers moved to States with the
worst consumer protections, and in some cases States made their
consumer protections even worse in order to attract that business to
their State. The result of that is that today the credit card divisions
of major banks are based in just a few States. That deal with the bank
State causes consumers in all other States to be denied their
traditional, historic, lawful protection against outrageous interest
rates and fees.
With millennia of interest rate protections behind us and hundreds of
years of protection by the sovereign States of our Nation, the current
system that has developed since that 1978 decision is the oddity in our
history.
My amendment would do nothing more than reinstate the historic,
longstanding powers of our sovereign States to protect their citizens
against excessive usurious interest rates. Let me be clear about what
this amendment would not do. It would not mandate anything. It would
not even recommend interest rate caps. It would not impose any other
lending limitations. It would just restore to our sovereign States the
power they enjoyed for over 200 years from the founding of the
Republic--the power to say: Enough. Thirty percent or 50 percent or 100
percent is too much interest to be charged to its citizens.
The current system is unfair to consumers, but it is also unfair to
local banks--banks that continue to be bound by the laws of the State
in which they are located. A small local bank has to play by the rules
of fair interest rates. The gigantic national credit card companies can
avoid having any rules at all. That is not fair. We need to level the
playing field to eliminate this unfair and lucrative advantage for Wall
Street banks against our local Main Street community banks.
To make sure lenders cannot find another statute to use to once again
avoid State law, my amendment would apply to all types of consumer
lending institutions and not just national banks. So no more changing
your charter or your means of business to avoid limitations on gouging
your customers.
My amendment gives State legislatures ample time to revise their
usury statutes if they wish and gives lenders ample time to adjust. The
amendment would not go into effect until 1 year
[[Page S3076]]
after the President signs the bill into law.
In the meantime, it is worth noting that most States' usury laws are
around or above 18 percent. Presently, federally regulated credit
unions do quite well under a Federal 18 percent interest rate cap. So
there should not be a large shock when this amendment goes into effect
as law. It is the 30-percent-and-over interest rates that are the
recent anomaly, the historic peculiarity, the oddity, and cruelty to
consumers that States have traditionally been able to defend against.
We should go back to the historic norm, the way the Founding Fathers
saw things under the doctrine of federalism, and close this modern
bureaucratic loophole that allows big Wall Street banks to gouge local
citizens and compete unfairly with local banks.
I ask my colleagues for their consideration of this amendment and
urge them to support it. I think it is a good amendment.
I see the distinguished majority whip on the floor. I yield back my
time so that he may speak.
The PRESIDING OFFICER. The Senator from Illinois.
Mr. DURBIN. Madam President, I thank the Senator. I hope to join him
as a cosponsor. It wasn't that long ago--the Senator will remember--
when we had a debate on the floor about credit card reform. People
across America said: There are some things going on with credit cards
that aren't fair and right, and we need you to police these credit
cards and make sure they don't do outrageous things and charge people
unreasonably.
I think we made some progress in the law we passed, but we made one
critical error: we gave the credit card companies a long grace period
to adjust to the changes. If you will notice, over the last year or so
you received notices--I got them at my home in Springfield, IL--from
credit card companies saying they were going to raise interest rates on
the credit cards before the new law went into effect. My wife saved
them and said: Mr. Smart Senator, how did you let this happen? It
turned out that we had no control on those interest rates during that
period of time and very little after the reform bill.
What the Senator from Rhode Island is challenging us to look at is
this: What is a reasonable amount to charge for an interest rate? His
decision--and I concur with it--is, let's let each State make that
decision.
Thirty-two years ago, the Supreme Court incorrectly removed the
authority of States to make that decision. They said: If your credit
card company is located in State X, you are bound by the laws of State
X when it comes to interest rates for all of your customers across the
United States. You don't have to change for a customer living in
Arkansas, which has a cap on interest rates, or for a customer living
in Illinois. You just take the law of State X and that is the law you
apply to your customers.
The Senator from Rhode Island says: Why would we allow that? Why
don't we let standards be established by each State? He doesn't dictate
the standard--whether it is 5, 10, or 100 percent. That will still be
up to the State. He doesn't say it will happen overnight. He gives a
year for them to phase it in.
It will also level the playing field for a lot of community banks and
local financial institutions in each State bound by State law.
When the community banks in Illinois are doing business with me as a
resident of Illinois, there are laws that can apply, and in other
States as well. But when it comes to credit cards, they can charge me
whatever they want because the States they say they do business in have
no rules whatsoever.
The net result of this most people understand. If the interest rates
are not regulated, if they literally go to the high heavens, people end
up paying enormous sums of money. The penalties involved go through the
roof as well.
This is a legitimate issue and a legitimate subject for us to raise.
I believe, as the Senator from Rhode Island does, that there is a
reasonable level of interest rates where a reputable institution can
make a good profit. Beyond that, it turns out to be a trap that a lot
of people fall into because they do not realize there is no ceiling
whatsoever on the interest rates they are being charged.
There will be other amendments on this financial stability bill. This
is one that I think most people will understand completely. The law of
your State will determine the interest rate you are going to pay on
your credit card, not the law of some other State. I do not think it is
an unreasonable amendment. It is a very reasonable one. It reduces the
cost for families and businesses and the life they lead, and it gives
to each State the authority to decide what that limit will be within
each State. For those who argue against Federal control, the Senator
from Rhode Island is taking this right back to the local level where
the decisions will be made.
I am happy to support his amendment, and I encourage my colleagues to
join us in cosponsoring it.
The PRESIDING OFFICER (Mr. Kaufman). The Senator from Rhode Island.
Mr. WHITEHOUSE. Mr. President, I thank the Senate majority whip for
cosponsoring our legislation. I appreciate his support immensely. He
has a wonderful way of making things clear and helping people
understand how basic and simple and historic this amendment is. It
takes us back to the way the country was through the vast majority of
its history.
The ``greatest generation'' served in World War II, came home, and
went to college and built the society we now live in under these rules.
George Washington and his men at Valley Forge served under these rules.
The Civil War took place and the Korean war took place under these
rules. There are 202 years of solid history behind this issue.
I will close with an appeal to my colleagues to continue to show
interest in this legislation, in particular my colleagues on the other
side of the aisle. If you believe in States rights, this is a good
piece of legislation.
If you believe in States as laboratories of democracy, as centers of
innovation, as places where you multiply times 50 the chance of getting
the right answer when you allow a little bit of innovation to take
place, you should support this legislation.
If you take comfort in more than 200 years of solid American history
proving that this is the right way to go, you should support this
amendment.
If you want to protect consumers in your State from out-of-State
banks that are out of control and have no restrictions on interest
rates they can charge your consumers, you should support this
amendment.
If you think the Federal Government has too much power and you want
the States to have more say about what can take place with its own
citizens, you should support this amendment.
I look forward to continuing to push for a vote on this amendment. I
think it is an important one.
I yield the floor. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. SCHUMER. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. SCHUMER. Mr. President, more than 18 months after the collapse of
Lehman Brothers put our financial system into a deep freeze, we are at
a crossroads in history. We can continue to turn a blind eye to the
very real threat that excessive risk taking and reckless deregulation
pose to our economy or we can choose to learn from the financial
disaster that nearly brought our economy to a screeching halt. I urge
my colleagues to choose reform.
We can't wait any longer to take on the challenge of overhauling the
rules of the road for our financial system. We have a regulatory system
based on the 1930s and 1970s and a financial world in the year 2010. We
have an economic imperative to pass a strong set of financial reforms.
The shock waves in the real economy that resulted from the financial
crisis are still being felt today by the millions of Americans who
can't find a job or are facing foreclosure, who can't pay their
children's college tuition or have to put off retirement because their
savings have been decimated.
We have 9.7 percent unemployment in this country, not because of any
reform proposal that has yet to become law
[[Page S3077]]
but because of an irresponsibility in the financial system and a
broken-down financial regulatory system that was last updated in the
1930s and allowed too many firms, and even whole markets, to slip
through the cracks. If we do nothing, we will surely find ourselves
facing a similar crisis in the not too distant future.
Senator Dodd and my colleagues on the Banking Committee have put
together a bill with strong forward-looking reforms that make our
financial system stronger and more stable so it can return to its
fundamental role--helping our economy grow and innovate and create
jobs. The bill lays out new rules of the road, fills gaps in our
regulations, and protects consumers and investors. Most importantly, by
creating a new resolution authority--which I know my colleague from
Virginia, who is sitting on the floor here now, has worked very hard
on--this bill ensures that taxpayers will never again have to bail out
large financial institutions. Firms that fail, will fail, period. There
will be no rescue or bailout, only an orderly unwinding that forces
stockholders and bondholders to suffer, not taxpayers.
As a New Yorker, I see the connection between Wall Street and Main
Street every day. The financial industry is responsible for 500,000
jobs in New York City, and most of them are not the kind of fancy,
high-paying jobs you read about or see in the movies. The average
salary for these jobs is about $70,000. But I realize the financial
system plays a special role far beyond Manhattan. There are many
analogies. It is the heart of the economy, the lifeblood, the
circulatory system, the engine of the economy or the oil that greases
the gears. Whatever image you choose, it is absolutely critical to
helping businesses grow and innovate and create new jobs. So our reform
must be forward thinking and strong but not punitive or vindictive or
vengeful, because that will hurt the whole economy.
With the special status of the financial system come special
responsibilities. The industry has reacted to many of the new proposals
by arguing that they will kill innovation. But because we can make cars
that go 200 miles per hour doesn't mean we shouldn't have speed limits.
In general, I think this bill strikes the necessary balance between
maintaining an innovative and competitive financial system while
ensuring that the recklessness that occurred by some on Wall Street
will never again threaten the financial health of Americans on Main
Street. Make no mistake about it, these reforms will be good for both
Wall Street and Main Street.
The bill will create a financial system where consumers and investors
on Main Street can have confidence in the products and services they
receive and where they put their money; a financial system focused on
getting capital into the real economy, so people can start new
businesses and grow their existing ones. At the same time, the
certainty and stability that reform will provide will make our
financial system even more attractive to investors around the world and
will help keep America at the forefront of the world's economy.
I believe this bill will strengthen jobs and income creation in my
State of New York, not leak it, because it will make the system
stronger. It will make people have more confidence in that system, and
money from around the world will flow into New York, which is the
capital of the financial system for our Nation and our world.
The bill Senator Dodd put together is stronger in many ways than most
people expected it to be a couple of months ago. It contains several
core reforms that will go a long way toward fixing the problems that
crept up in our financial system over decades. The bill would make sure
taxpayers never again have to foot the bill when large institutions
fail; make sure every large financial institution has a regulator
looking over its shoulder to prevent excesses, and a council of
regulators looking at risks across the whole system; make sure
derivatives--which, when abused, can put the whole system at risk--are
traded transparently, at the very least, and on an exchange whenever
possible.
I should note this is a huge change from the way the derivatives
market works now. We would go from a totally unregulated market to one
that is regulated, where regulators know every trade that happens and
risks can't build up in the system without anyone knowing better.
The bill will also make sure there are stronger consumer protections
to ensure institutions can't take advantage of average Americans in
their mortgages, credit cards, or other financial instruments. It would
give investors additional power to hold their boards accountable so
they are not asleep at the wheel the next time their management is
loading up the company with risk.
Like many of my colleagues, however, I believe there are areas of the
bill I wish to see improved, and I will continue to work with my
colleagues on the floor to do that. First, I wish to see even stronger
consumer protection in the financial services area, and I am working
with Senators Reid and Durbin and others to strengthen this part of the
bill. This is an area where I have worked hard for decades now in
Congress, both in the House and Senate. It is clear to me we can't
force Congress to pass a new law every time a credit card company
figures out a way to skirt the old laws. We need an independent agency
whose only mission is to protect consumers, and that agency needs to
write and enforce rulings across the board for all financial
institutions.
I am sponsoring an amendment to expand the enforcement authority of
the Consumer Protection Bureau over all nonbanks, such as payday
lenders and rent-to-own companies, to make sure consumers are protected
no matter who they rely on for financial services.
In the area of consumers, small companies can rip off consumers just
the way large companies can. And while large companies can pose a
greater risk to the system as a whole, small companies can pose every
bit as great a risk to the individual consumer, and the distinction
between the two is faceted and unfair.
I also think the bill could go farther in dealing with credit rating
agencies, and I am working with Senator Franken on a proposal that
would reduce the conflicts of interest inherent in their current
business model. There are other changes I will proposal as well.
In conclusion, we have many tasks in front of us if we are to rebuild
the American economy, but a stronger financial system focused on the
needs of the real economy is crucial in that effort. There should be no
doubt that part of putting us back on the path to prosperity requires
instituting smart, thoughtful financial reforms.
Mr. President, I yield the floor.
Enemy Combatants
The PRESIDING OFFICER. The Senator from Alabama.
Mr. SESSIONS. Mr. President, I wish to share a few remarks about the
recent arrest of the Faisal Shahzad, the individual who allegedly
attempted to detonate a car bomb in Times Square in a plot to kill a
lot of Americans.
I have been asked about that incident several times over the last
several days, and I think I was incorrect in making comments to
reporters and even to friends about the precise legal situation in
which we are involved. Let me briefly summarize what I think the
current state of the law is, and all of us will then be better able to
respond to the questions we may be asked.
The Christmas Day bombing suspect, Umar Farouk Abdulmutallab, as was
established pretty quickly, is an unprivileged enemy belligerent and is
thus eligible to be tried for his offenses and detained as a person at
war against the United States. Mr. Abdulmutallab is an individual who
could be held as a prisoner of war, if the military so chooses, for so
long as the hostilities continue, just as we did in World War II and
every war the United States has been part of. Also, the military would
be entitled to try Mr. Abdulmutallab, the Christmas Day bomber, by
military commission. That is what we would normally do, and that is
what was done in World War II when we caught Nazi saboteurs plotting to
blow up targets in the U.S.
I believed the administration made a mistake when they treated Mr.
Abdulmutallab as a civilian criminal and provided him Miranda rights
and appointed him a lawyer, which we have to do if we are going to
treat somebody as a criminal rather than an unprivileged enemy
belligerent. I believe firmly that was an error, and the
[[Page S3078]]
normal procedure should be for these types of individuals to be tried
or detained by the military because they are not criminals, they are
warriors.
Yesterday's arrest of the Times Square bombing suspect, Faisal
Shahzad, raises similar questions. My initial thought was that the
Supreme Court has clearly held that a U.S. citizen who has joined the
enemy to fight against this country can be designated as an unlawful
enemy belligerent and could be detained for the duration of
hostilities. That is a fact Abraham Lincoln never had any doubt about
when he took people prisoners. I guess George Washington, when there
was the Whiskey Rebellion, he never had any doubt he had the ability to
attack, destroy, or arrest people when they were at war with the United
States. Fortunately, he did not have to go so far, but that is the kind
of thing the Supreme Court reaffirmed in Hamdi v. Rumsfeld.
In the Hamdi case, Justice Sandra Day O'Connor, who wrote the
opinion, made clear that a citizen who has taken up arms in hostilities
against the United States can be designated as an unlawful enemy
combatant--``unlawful enemy belligerent'' is the phrase she used--and
she wrote the opinion which said:
There is no bar to this Nation's holding one of its own
citizens as an enemy combatant. . . . A citizen, no less than
an alien, can be ``part of or supporting forces hostile to
the United States or coalition partners'' and ``engaged in an
armed conflict against the United States''; such a citizen,
if released, would pose the same threat to returning to the
front during the ongoing conflict.
That is perfectly sound and perfectly reasonable. She concluded that
Mr. Hamdi, who was captured alongside the Taliban in Afghanistan but
who was an American citizen, could be detained for the duration of the
hostilities authorized by the Authorization for the Use of Military
Force that Congress passed, authorizing military force against him in
order to keep him from rejoining the enemy.
We have had quite a number of people who have been released from
Guantanamo, who have been captured in the process, who have returned to
the combat and attacked us. So it is clear that under Hamdi, the
administration has the authority to detain the Times Square terror
suspect as an unprivileged enemy combatant if he can be linked to our
terrorist enemies within the definitions of the Military Commission's
Act.
But I want to be clear. There is a distinction: this suspect, unlike
the Christmas Day bomber and the 9/11 plotters, cannot be tried via
military commission under current law. He can be detained by the
military, but not tried by military commission. In previous conflicts,
military commissions were used to try civilians who took up arms
against the United States in ways that violated the rules of war. For
example, Herbert Haupt was one of the Nazi saboteurs who was prosecuted
via military commission after plotting to blow up targets within the
United States in the early months of World War II. He was a naturalized
U.S. citizen, and the U.S. Supreme Court, in the landmark case of ex
parte Quirin, allowed the commission to go forward with his trial, and
I think he was executed. A number of the people involved in that case--
most of those who sneaked into the country by submarine, as I recall,
off our coast, to blow up our cities and infrastructure and kill
civilians--were tried for being in violation of the rules of law, very
much unlike a German soldier who was captured on the battlefield during
the Battle of the Bulge. They were detained as prisoners of war
throughout the war. Because these people had violated the rules of war
they could be tried by a military commission.
But what happened in the Haupt case ex parte Quirin is no longer law.
Since 2006, the Military Commissions Act that Congress passed required
and made it clear that the military commission trials are only
available for alien unprivileged enemy belligerents. Accordingly, the
Times Square bombing suspect who appears to be a citizen must be
prosecuted, if he is prosecuted and tried at all, in Federal court--if
the reports are accurate that he is a citizen.
I want to be sure. I think we have this matter straight. I believe an
alien unlawful belligerent who is captured should not be treated like a
criminal. They should not be appointed a lawyer that day to tell them
don't say anything. They should not be advised of their rights because
they are prisoners of war. If their actions amount to a violation of
the rules of war, an alien unlawful enemy belligerent can be tried in
civilian court, if we choose, or tried by a military commission. But if
they are a citizen and they are caught under these circumstances, they
can be detained in military custody, but they can't be tried by a
military commission. They can only be tried by the civilian courts in
civilian trials.
With regard to the matter of Miranda warnings, Miranda is not a
constitutional requirement. It was never part of American law until
recently--40 years ago, 50 years ago. No nation in the world I think--
except perhaps one, I forget which one--provides that you have to warn
people they have a right to remain silent. We can ask them questions.
They can remain silent. We can't force them to talk, but we don't have
to read them the Constitution before we ask them questions. But we do.
So, to me, it makes no sense that we would provide this extra
constitutional right to unlawful enemy alien combatants like a
Christmas Day bomber. They should be detained by military custody. If
they need to be tried, the choice should be made between whether to be
tried in civilian courts or military courts. The ability to obtain good
intelligence about the operation is more enhanced, in my view, without
any doubt--even though sometimes people who are given the Miranda
rights talk--but there is no doubt we will have less people talking if
they are appointed lawyers and read Miranda rights than if we don't.
Since war is won or lost so often on the question of who has the best
intelligence, we should not provide lawyers to individuals who are at
war with us and seek to destroy our country and kill innocent men,
women, and children.
I think that is the basic state of the law today. I have been a bit
confused myself, and I am glad my staff has helped me get correct.
I yield the floor.
The PRESIDING OFFICER. The Senator from South Dakota.
Mr. JOHNSON. Mr. President, this week, as the Senate moves forward
with consideration of Wall Street reform legislation, I am optimistic
that legislation will be passed that reforms our financial system and
prevents those who nearly brought down the economy from ever being able
to do that again.
As we have heard many times over the last several weeks, the bill
creates a mechanism to monitor the economy for nationwide trends and
risky patterns that could lead to problems. It establishes a consumer
watchdog dedicated to identifying and preventing lending trends that
are harmful to consumers. In addition to preventing future bailouts,
the bill also requires that most financial speculation be done in the
open, while addressing the underlying problem that allowed the banks to
go casino-crazy in the first place. It also brings derivatives into a
transparent marketplace. I believe all these changes will make the
American financial system more transparent, accountable and responsive
to future risks.
It has been discouraging to see some Members and special interests
opposed to these changes. In fact, I believe it is hard to argue
against these reforms with a straight face. Yet those against reforming
Wall Street have been doing just that, asserting that making markets
fair and transparent will somehow hurt the economy. These reforms will
help, not hurt, American consumers, small banks and small businesses.
As I have said before, our community banks in South Dakota, and
across the Nation, have acted responsibly. It was the actions of large,
interconnected financial institutions that endangered our economy and
received Federal bailouts.
This bill eliminates the likelihood that the government would once
again be forced to throw billions of dollars at Wall Street or run the
risk of bringing down our entire economy.
The community banks in South Dakota, and across the country, are a
vital part of our economy, as they reinvest money back into the
communities they serve. This legislation will help community banks
since it levels the
[[Page S3079]]
playing field between banks and nonbank financials, such as mortgage
lenders.
In addition, the bill fills many regulatory gaps, helping solve the
problem of charter shopping, meaning financial institutions will no
longer be able to choose the regulator they think will be the
friendliest.
I would also like to see the legislation go further in some areas,
such as the registration of private equity and venture capital with the
SEC, in addition to hedge fund registration.
I also believe the legislation fills important regulatory gaps
relating to insurance regulation. This legislation establishes the
Office of National Insurance, and gives this office the ability to
negotiate international agreements, a task that is currently a struggle
for our country in a global marketplace.
These provisions will give us a better picture of what is happening
in this national and international industry, something we do not have
now. We should resist efforts to take authority away from the Office of
National Insurance.
This bill has had substantial input from Republicans and Democrats.
As the legislation process moves forward, I hope that bipartisan
language on investor protection can be retained, that we can find
common ground on national preemption and State AG enforcement, and that
additional good ideas from both sides of the aisle can be incorporated
into this legislation through the amendment process.
I believe all Members of this body want to support bipartisan
legislation to reform Wall Street. But, as we seek bipartisan
consensus, we should assess all amendments from a Main Street,
commonsense perspective.
South Dakota's small farms, ranches and business operate with
transparency and accountability. It is time for that same transparency
and accountability to be extended to Wall Street.
Taxpayers, consumers, and businesses across our Nation have been
affected by the gambling of Wall Street. The fallout of Wall Street's
recklessness has affected all of us, whether it is job loss,
foreclosure, loss of retirement funds, or decreased access to a loan or
other type of credit.
Nearly 2 years have passed since the financial crisis. It is time to
move forward and fix our failed system of financial services
regulation.
A young South Dakotan was in my office last week, and said that he
thought this bill represents South Dakota values, because he was raised
with the value that you should be careful with your money, and even
more careful with someone else's money. That is something that Wall
Street forgot.
Any legislation that passes this body must make our markets safer,
better protect consumers, create a level playing field for industry,
and remind Wall Street that our Nation's economy is not something they
are free to gamble away.
The PRESIDING OFFICER. The Senator from Connecticut.
Mr. DODD. Mr. President, I just wish to say to my friend how much I
appreciate his involvement and support and effort over the past many
months that we have worked in this area, since the collapse of our
economy back in the fall of--well, it began earlier than that,
actually, as we witnessed early in 2007 the mortgage crisis occurring
across the country.
Senator Johnson has been tremendously helpful and valuable. He is my
seatmate on the Banking Committee. We have been sitting next to each
other on that committee for the past 3 years and working on these
issues together. He brought great value to this debate and discussion,
contributed significantly to the product before us, and I wished to
thank him for that.
We have some work to do, obviously, in the next number of days on
this bill. But it is a good bill. I appreciate his comments about how
it has been a bill crafted not by one member, not by a chairman of a
committee but by a group of us on that committee, Democrats as well as
Republicans who contributed to this bill.
So I thank him for his work.
I suggest the absence of a quorum.
The PRESIDING OFFICER (Mrs. Hagan). The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. DORGAN. Madam President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. DORGAN. Madam President, I know the Senator from Connecticut has
been on the floor all of this day managing a piece of legislation, and
it appears to be kind of a lonely process here. He is managing what is
a very important piece of legislation dealing with financial reform or
Wall Street reform. I know he is perhaps as frustrated as everybody
else that we are not making more progress and voting on amendments. I
know work is going on behind the scenes as well.
I hope we will be able to move ahead and get a good piece of
legislation through the Senate. I don't know what time it will take,
but what is far more important is that we get it right. The
consequences of not making the changes necessary would be that we would
experience again at some point in the future the kind of financial
crisis we have seen in the last couple years. It is a significant
crisis for a lot of Americans--about $15 trillion of lost value, but
that is an aggregate number that doesn't mean much.
What means something is that millions of people are losing their
jobs, their homes, and many are losing hope. That is the consequence of
this kind of very deep recession--the deepest recession since the Great
Depression.
Following the Great Depression, if you read the economic history of
the country, you will find that a number of very aggressive pieces of
legislation were put into place to protect our country and make certain
that could not happen again. Those pieces of legislation enacted into
law lasted for a long time--70 or 80 years--to protect this country's
economic interests. But what happened was that a number of people
decided they were old-fashioned provisions and needed to be modernized,
so we had modernization legislation that I did not support. We had to
modernize the system. That modernization a decade ago caused massive
problems. So now we are back having experienced the last couple of
years and a very deep recession that is not a natural economic
disaster; it is manmade. I think it is caused by the most unprecedented
greed this country has ever seen among some of its largest financial
institutions.
It is important to say that banking is critical to this country's
economic existence. You need production and you need finance. I don't
think we ought to suggest--and nobody has--that finance is not
worthwhile. It is very important. You can't produce or have businesses
without the ability to provide finance for those businesses. But over a
couple of centuries of economic history in this country, sometimes
producers have had the upper hand; sometimes those in the finance
production have had the upper hand. For the last 15, 20 years, those in
finance production in this country have had an unbelievable amount of
clout and sway and the upper hand. That has caused us serious problems.
Today, I am not talking about the origins of this latest economic
wreck--I have done that many times before--but starting with the
subprime loan scandal that permeated much of the country, there was
unbelievable greed and excess, securitization of bad mortgages that
were rated AAA and passed from one to another, from mortgage bankers,
to hedge funds, to investment banks, and back and forth.
Then even that wasn't enough. They were passing a bunch of bad paper
around where everybody was making big fees, not knowing what they were
buying, and buying things they would not get from people who never had
it.
That wasn't enough. Then we created synthetic securities and naked
swaps. I guess that was a natural extension by those who were greedy
enough to believe you have to have something to trade no matter what
the circumstances. So they created instruments--debt instruments,
securities, and others--that had no value. They were debt instruments
related to values of things that were extraneous, so there was no
insurable interest.
A naked credit default swap is something that has no insurable
interest on either end. It is simply two people who have decided to bet
on whether a bondholder over there may or may not default, despite the
fact that neither of these people has an economic interest in the bond.
They are just making a wager. They could have just as well put
[[Page S3080]]
it on black or red at the roulette wheel or played the craps table or
played blackjack. It is not an investment; it is just betting.
That all went on, and there was a dramatic amount of new leverage and
borrowing. I cannot begin to describe the excess that occurred. I guess
the final circumstance for me to see what was wrong with all of this
was that in 2008 the ``Wall Street'' firms earned a net negative of
about $36 billion, that is, they had $36 billion of losses, and still
paid, I believe, $17 billion in bonuses. That represents sort of the
most egregious excesses you can imagine.
The question now and the circumstance that exists that I know the
Senator from Connecticut cares a lot about is how do we restore
confidence? How do we restore some confidence for the American people
going forward? If we do not have confidence, this economy is not going
to expand and rebound.
The answer is, we put together a piece of legislation called Wall
Street or financial reform and construct it the right way to try to
make certain the things that were done cannot be done again, to make
certain the kind of economic wreck that occurred cannot happen again.
My colleague from the Banking Committee, the chairman of the Banking
Committee, Senator Dodd, and others have done quite a good job of
putting together a piece of legislation that moves in that direction.
It can be improved, in my judgment, and perhaps will be. I know he will
agree with that as well. There are other ideas that can be brought to
the floor of the Senate on this legislation.
I am going to talk about two of them ever so briefly--actually three,
but one of them will be very quick.
Senator Grassley and I intend to offer an amendment that says to the
Federal Reserve Board: You must disclose to whom you were providing
emergency assistance during the financial debacle on Wall Street,
including loans out of the discount window to investment banks for the
first time in history. You must disclose whom you provided loans to,
what the terms were, and how much those loans amounted to. Two Federal
courts--the district court and now the appeals court--have ordered the
Fed to do so. The American people, they said, deserve to know. The Fed
announced they intend to appeal that once again.
Tomorrow, Senator Grassley and I will offer an amendment that says
the law will require them to make that disclosure. The American people
deserve to know.
On the other two issues, one is on too big to fail. This is central
to the bill. There are a lot of ideas about too big to fail. Mine is, I
think, the most direct, the most decisive, and the most effective.
If the Financial Stability Oversight Council decides that an
institution is too big to fail--that is, by definition, the construct
and size of that organization would create a moral hazard to this
country, would create unacceptable risks and grave risks to the entire
future of the American economy--if that is the case, if that is the
judgment, then it seems to me you have to pare back portions of that
enterprise until it is not any longer too big to fail and causing grave
risk to the future of this economy.
In my judgment, the most direct and reasonable thing to do is to
simply require that you restructure and require divestiture, where
necessary, of those portions of an institution that have become too big
to fail and cause a grave risk to the future of this country's economy,
should they fail.
I will be offering that amendment. I know it is different than some
others. My colleagues, Senator Brown and Senator Kaufman, have an
amendment which I will vote for and support as well on this issue. I
think this is probably the most direct and probably the most effective
amendment on the issue of too big to fail.
Finally, I am going to offer an amendment that would ban what are
called naked credit default swaps. If people want to gamble, just bet
one another. There are plenty of places to do that in America. Las
Vegas comes to mind. Atlantic City comes to mind. It seems to me, we
should not mistake betting for investing. We ought to get back to
basics in our financial institutions.
I think we have something close to $25 trillion of credit default
swaps that exist now. I don't know what percent of them have no
insurable interest, that represent just wagers, just flatout bets
rather than investments. In England, a study suggested that about 80
percent of credit default swaps are what are called naked credit
default swaps with no insurable interest. If that is the case on this
side, we are talking about a notional value of perhaps $16 trillion,
$17 trillion of instruments out there that simply allow for the making
of wagers that have nothing at all to do with the insurable interest
and bonds.
I mentioned earlier that Mr. Pearlstein, who writes for the
Washington Post, once observed a pretty simple question: Why should
there be more insurance policies to insure bonds than there are bonds
to insure? The answer is obvious. They created these excess insurance
policies that have no insurable interest so people could just gamble.
It is fine if you are gambling with your own money, but once you start
gambling with the taxpayers' money, if you are a federally insured bank
and the taxpayers are going to bear the risk, that is a different
matter.
I am going to offer these amendments. I say, again, as I said when I
started, all of us who come to this debate about financial reform or
Wall Street reform understand that an effective, functioning system of
finance in this country is essential to the well-being of America. I do
not think anybody wants to take apart a system of finance that has the
different levels of FDIC insured banking, commercial banking,
investment banking, venture capitals, hedge funds--all those are
important to this country's long-term future. I personally would like
to see hedge funds and derivatives regulated. I have talked about that
with Senator Feinstein and others for a long time. It is very important
that we have a system of finance that has the confidence of the
American people and that we need in order to finance the production in
this country.
Ultimately, all of us would like the productive sector to be
repaired, to grow and hire people once again, employ people, and have
``Made in America'' put on products once again. All of us would like to
see that happen. That will not happen unless we have a working system
of finance as well.
We had a hearing where representatives from three businesses came to
that hearing. All three were small- to medium-sized businesses. All
three had sailed through this deep recession, with some difficulty, but
were still profitable. All three were ready to expand, ready to hire
more people, and none of them could find any financing to do it. None
of them have been delinquent. All of them had existing banking
enterprises with which they had a relationship and always paid back
everything they owed. They had never been delinquent. Yet they could
not find the funding to expand their business and hire more people.
That is what is wrong.
Even today, by the way, some of these record profits that are coming
from some of the biggest financial institutions are coming not as a
result of their lending money to people but as a result of their
trading, in many cases in some of the same securities that caused some
of the same problems a couple years ago and over the last decade.
This reform legislation is essential. This is one of the most
important pieces of legislation we will have considered in this
Congress--probably the most important. In many ways, the consequences
of what we do will be with us for a decade or more. That is why it is
important to get this right.
I say to my colleague from Connecticut, I wish to be helpful to him.
He has written a piece of legislation that has much to commend it. This
Senate owes him a debt of thanks and the Banking Committee a debt of
thanks. That does not mean we cannot offer amendments that might
improve pieces here and there. But this is an awfully good start.
My hope is, Senator Dodd will have sufficient cooperation in the
Senate to begin getting votes on amendments so we can get through this,
have the debate, and get the best ideas that everybody has to offer and
get a piece of legislation that will give the American people some
confidence once again.
[[Page S3081]]
I yield the floor. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. GRASSLEY. Madam President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. GRASSLEY. Madam President, I wish to speak as in morning business
for 15 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Extension of the Biodiesel Tax Credit
Mr. GRASSLEY. Madam President, last Tuesday, President Obama traveled
to Iowa. He visited counties and towns that have been hit particularly
hard by the economic downturn. While Iowa's average unemployment rate
stands at 6.8 percent, Lee County's unemployment rate stands near 11
percent. Wapello County's unemployment rate is at 9.5 percent. These
were the counties that President Obama visited. Over 1,000 jobs have
been lost in each of the 3 counties he visited since the recession
began.
The visit to Iowa was billed as an effort to highlight the steps
taken to achieve long-term growth and prosperity by creating a new,
clean energy economy.
During his trip, the President visited a Siemens wind blade
manufacturing facility in Fort Madison. I had the opportunity to visit
there about a year and a half ago. The President touted Iowa's
leadership in the production of wind energy. This Siemens facility is a
great facility. I recall just a few years ago speaking to Siemens
manufacturing when they were looking for a site for their first wind
production facility in the United States. I told the executives at
Siemens they would not be disappointed if they chose Fort Madison for
their facility because Iowans are some of the hardest working and
honest people in the country.
I am particularly proud of the second-in-the-Nation status of Iowa's
wind production. I first authored and won enactment of the wind
production tax credit in 1992. This incentive has led to the
exponential growth in the production of wind across our entire United
States.
It has also helped my State of Iowa to become a leader in the
production of wind energy component manufacturing.
The emerging wind industry has created thousands of jobs in recent
years in the cities of Newton, West Branch, Cedar Rapids, and Fort
Madison.
When President Obama says energy security should be a top priority, I
agree with our President. When he says we need to rely more on
homegrown fuels and clean energy, I agree with our President. When he
says our security and our economy depend on making America more energy
independent, I agree with our President.
During a subsequent visit to an ethanol facility in Missouri,
President Obama stated unequivocally that his administration would
ensure the domestic biofuel industry would be successful. The President
and I are in strong agreement that renewable biofuels are a key part of
our future.
Unfortunately, I believe President Obama missed an important
opportunity to make a push for the message of the biodiesel tax credit.
While the President was in Iowa touting green jobs, this Democratic
Congress has, in effect, sent pink slips to about 18,000 people who
depend on the production of biodiesel for their livelihood.
On December 31, 2009, the biodiesel tax credit, which is essential to
keep a young bioindustry competitive, expired. In anticipation of the
expiration of the tax credit, Senator Cantwell and I introduced a long-
term extension in August of 2009. That bill was never considered last
year.
In December, as the expiration loomed, I came to the Senate floor to
implore my colleagues to put partisan politics aside and pass a clean
extension of the biodiesel tax credit because, without an extension, I
knew the industry would come to a grinding halt, and it has.
For whatever reason, the Democratic leadership in the House and the
Senate have never considered this extension a priority. Now the
industry is experiencing the dire situation I predicted.
On January 1 of this year, about 23,000 people were employed in the
biodiesel industry. Because of the lapse in the credit, nearly every
biodiesel facility in the country is idle or operating at a fraction of
capacity. Nearly all of Iowa's 15 biodiesel refineries have completely
halted production. This has led to the loss of about 2,000 jobs in Iowa
alone.
The thousands of jobs created by the wind industry in Iowa have
essentially been offset by the thousands of jobs lost in the biodiesel
industry.
You do not have to take my word for the dire state of the industry. A
$50 million biodiesel facility in Farley, IA--that is in northeast
Iowa--announced that they just laid off 23 workers and cut the pay of
the rest of the staff. Renewable Energy Group laid off 9 employees in a
facility in Ralston, IA, and 13 in Newton, IA. Ironically, the Newton
biodiesel facility is 1 mile down the road from a wind manufacturing
facility that President Obama visited on Earth Day just last year.
During President Obama's trip to Iowa, he was within a few miles of
three biodiesel facilities that are idle: one in Keokuk, IA, one in
Washington, IA, and another in Crawfordsville, IA.
According to a press release from the Iowa Renewable Fuels
Association, an Iowan affiliated with biodiesel industry was able to
speak to President Obama very briefly following a townhall session in
Ottumwa, IA. Mr. Albin, vice president at Renewable Energy Group, told
President Obama that plants are idle and 90 percent of the biodiesel
employees have been laid off simply as a result of the tax credit
lapse. According to Mr. Albin, President Obama assured him that he
would not let the biodiesel industry die.
He recalls the President saying something like this--and I want to
quote what I suppose was a paraphrase by Mr. Albin:
I'm the President and I promise I will do whatever I can.
Look, I'm on your side, but I've got a Congress to deal with.
Well, I can understand what the President would say. I happen to
believe that in my 4 years of serving with then-Senator Obama, that
Senator Obama, now President Obama, is very sincere about the promotion
of ethanol and biodiesel or biofuels--whatever you want to call it. In
fact, I had the good occasion of working with then-Senator Obama on a
Senate bill when I was still chairman of the Finance Committee to
promote the tax credit that is now in place so that filling stations
can get a tax credit for putting in for E85 ethanol, as an example. So
I don't question President Obama's response to Mr. Albin. Of course, we
do have checks and balances in government and the President has
Congress to deal with. But I hope President Obama will take strong
action to insert himself into this debate in the Congress.
It seems that even President Obama, from this quote, is frustrated by
the lack of action by the Democratic congressional leadership on this
issue.
Mr. President, I ask unanimous consent to have printed in the Record
this press release from Iowa RFA at the conclusion of my remarks.
The PRESIDING OFFICER (Mr. Udall of Colorado). Without objection, it
is so ordered.
(See exhibit 1.)
Mr. GRASSLEY. The board president of Western Iowa Energy in Wall
Lake, IA, recently stated:
Due to the continued lapse of the biodiesel tax credit,
Western Iowa Energy continues to suffer from significantly
limited sales and reduced sales forecasts. Due to these
market conditions, we have made the difficult decision to
idle our facility. Today we are laying off 15 full-time
employees. This represents more than 50 percent of our staff.
On February 10, Senator Baucus, chairman of the Finance Committee,
and I worked in a bipartisan fashion to develop an $84 billion jobs
package that included a 1-year extension of several energy tax credits,
including the biodiesel tax incentive. Before the ink was even dry on
the paper, Majority Leader Reid scuttled our bipartisan package in
favor of a partisan approach. That delayed passage of an extension in
the Senate for well over a month, until the month of March.
Now it has been languishing for 6 weeks. Where is the urgency? This
Congress jammed through a stimulus bill that spent $800 billion to keep
the unemployment rate below 8 percent, and of course it didn't stay
below 8 percent. Yet we can't find the time to pass a
[[Page S3082]]
simple tax extension that will likely reinstate 20,000 jobs overnight.
We are 4 months delinquent in our obligation to these biofuel producers
with no end game in sight. The lack of action on this issue defies
logic or common sense.
So while the Democratic leadership talks about creating green jobs,
their action has led to job cuts. Americans are unemployed today
because of the action--or more aptly the inaction--of the Democratic
congressional leadership, particularly on this biodiesel issue.
The United States is more dependent upon foreign oil because of the
inaction of the Congress. Automobiles are producing more pollution
because we have essentially eliminated this renewable, cleaner-burning
biofuel. Rural economies are being stripped of the economic gain of
this value-added agricultural product.
So I urge the Senate to take immediate action to extend this tax
incentive and reduce our dependence upon foreign oil and save green
jobs.
Mr. President, I yield the floor.
Exhibit 1
President Obama Gets Biodiesel Message in Ottumwa
IRFA Secretary Albin Uses 90 Seconds with the President to Share
Urgency of Tax Credit
Ottumwa, IA.--During his Iowa visit on April 27, 2010,
President Barack Obama heard firsthand of the urgency to
reinstate the biodiesel tax credit from Brad Albin, Vice
President at Renewable Energy Group and Secretary of the Iowa
Renewable Fuels Association (IRFA).
Following President Obama's speech and town hall session at
Indian Hills Community College, Albin grabbed the President's
attention. During a 90 second exchange, Albin shared the
message of the biodiesel industry's state of disruption and
uncertainty resulting from the lapse of the federal biodiesel
blenders tax credit since January 1, 2010.
``I shook his hand and told him that we're losing jobs as
we stand here, which seemed to get his attention,'' explained
Albin, who had been sitting in the second row. ``I told him
about plants idling and that more than 90 percent of
manufacturing staff at U.S. biodiesel plants have been laid
off as a result of the tax credit lapse.''
President Obama acknowledged that his biodiesel tax credit
updates are coming through USDA Secretary Vilsack. The
President continued to listen as Albin explained that for 20
years Americans have worked to meet the challenge of
increasing energy independence, that farmers and families
have invested billions, and that now companies are bleeding
to death or bankrupt. Albin further explained that the five
month lapse of the tax credit could not have come at a worse
time as the Renewable Fuels Standard goes into effect July 1,
2010.
``We're going to die without this tax credit,'' Albin added
even after the President's assurances. ``The President then
responded, `We won't let you die.' ''
``Those that know me know I want to make sure my message is
clearly understood; so as the President was walking away to
shake another hand, I asked him if he could commit to the tax
credit being in place by May 31,'' Albin said. May 31, 2010,
the start of the Memorial Day recess, is the date Chairman
Sander Levin of the House Ways and Means Committee promised
as a reinstatement deadline for the biodiesel tax credit
during an energy hearing earlier this month.
``The President heard me ask him again about the May 31
date. He turned back to me and said, `I'm the President and I
promise I'll do whatever I can,' '' Albin recalled of the
exchange. ``President Obama then assured me of his commitment
to clean energy by saying, `Look, I'm on your side, but I've
got a Congress to deal with.' ''
``I believe he now has our urgent message straight from the
state where the tax credit lapse is having the most impact--
the nation's top biodiesel state,'' Albin said. ``It really
was a miracle to be in that right spot at the right moment to
be able to get the biodiesel message straight to the
President of the United States of America.''
The Iowa Renewable Fuels Association was formed in 2002 to
represent the state's ethanol and biodiesel producers. The
trade group fosters the development and growth of the
renewable fuels industry in Iowa through education,
promotion, legislation and infrastructure development.
The PRESIDING OFFICER. The Senator from Minnesota is recognized.
Mr. FRANKEN. Mr. President, I rise today to discuss an amendment that
I have just filed. But before I begin, I would like to thank Chairman
Dodd for his exemplary work on this Wall Street reform bill. It is the
result of months of tireless work and many hours of negotiation by
Chairman Dodd and his staff.
This Wall Street reform bill will vastly improve the regulatory
structure currently on the books. It creates a strong consumer watchdog
within the Fed--a bureau that will put consumers first, ahead of Wall
Street profits. This bill also brings derivatives out of the shadows
and onto exchanges so that Wall Street's bets upon bets never again
threaten to bring down our entire economy. This bill accomplishes many
things and brings us a long way toward robust reform.
But there is one area we need to make stronger. We need to go further
in addressing the rampant problems plaguing the credit rating industry.
That is why I intend to introduce an amendment to change the way the
initial credit ratings are assigned and encourage competition within
the credit rating industry.
Currently, Wall Street firms that issue complex securities request
and purchase ratings from nationally recognized statistical rating
organizations--or NRSROs. I am sure all of you are familiar with them--
Moody's, Standard & Poor's, and Fitch. What you may not know is that
there are actually a handful of other credit rating agencies doing the
same work. But the big three agencies have effectively shut all others
out of the market. It is easy to see how.
In the current system, the issuer of the bond pays the credit rating
agency. So there is an incentive to rate every product that comes
across your desk as AAA. If you give a risky product a low rating, the
issuer can just go to one of the other agencies and shop around for a
better rating. Guess which agency that issuer is going to go back to
the next time? Of course, the agency that gave them the higher rating.
Does anyone see a problem? I do.
Well, the problem is that the entire credit rating structure is
basically one enormous conflict of interest. Issuers want high ratings,
and raters want business. The market offers incentives for inflated
ratings not accurate ratings. These perverse incentives have driven the
behavior of all participants. Any rating agency looking to enter the
market with better methods or any rating agency that refuses to inflate
its ratings will never be able to compete.
My friend and colleague, Senator Levin, held a hearing not long ago
in the Permanent Subcommittee on Investigations. His PSI investigative
team unearthed some very unsavory e-mail exchanges between issuers and
raters--e-mails which implied that an issuer could obtain a higher
rating if he paid more money. And money--money--is what drove this
industry not performance. As an example, the New York Times reported
Sunday that 93 percent of AAA-rated subprime mortgage-backed securities
issued in 2006 have since been downgraded to junk status.
This might be easy to dismiss if these junk bonds simply cost some
Wall Street speculators a few bucks here and there. But, in fact, these
junk securities permeated the entire market. These junk securities were
in older workers' pension funds and working peoples' retirement funds.
These junk bonds contributed to the loss of $3.4 trillion in retirement
savings during this crisis.
To me, it is obvious we need an entirely different model. My
amendment, which I am introducing with Senators Schumer and Nelson,
would finally encourage competition and--get this--accuracy, in an
industry that has little of either. Specifically, my amendment creates
a credit rating agency board--a self-regulatory organization--tasked
with developing a system in which the board assigns a rating agency to
provide a product's initial rating. Requiring an initial rating by an
agency not of the issuer's choosing will put a check on the accuracy of
ratings. Simple.
My amendment leaves flexibility to the board to determine assignment
process. But the board will be inclined to make the process one that
incentivizes accuracy because the representatives of the investor
community will make up a majority of the board--for example, pension
fund managers and endowment directors; folks who have a vested interest
in the AAA bonds they have selected actually performing as AAA bonds.
The board gets to design the assignment process it sees fit. It can be
random, it can be based on a formula, just as long as the issuer
doesn't get to choose the rating agency.
The board will select a subset of qualified credit rating agencies to
be
[[Page S3083]]
eligible for the assignment pool. The board will be required to monitor
the performance of the agencies in the pool. If the board so chooses,
it can reward good performance with more rating assignments. It can
recognize poor performance with fewer rating assignments. If the rater
is bad enough, that might even be zero assignments.
My amendment gives the SEC a year and a half to carefully implement
this new system with input from the board members. The result will be
increased competition among the credit raters, generally, and
incentives to produce accurate ratings, not inflated ratings. The
amendment does not prohibit an issuer from then seeking a second or a
third or a fourth rating from an agency of its choice.
But rating agencies will be disinclined to give inflated ratings to a
product if the initial rating reflects its true value. Some smaller
credit rating agencies, which haven't taken part in the inflated
ratings game, would finally have a chance to compete. An assignment
mechanism for initial ratings will break up today's credit rating
oligopoly, promote real competition, and produce more accurate ratings.
More accurate ratings will decrease risk and create more stability in
our financial system. And that is what this is all about.
Now, Wall Street lobbyists may claim this issue is too complex for
Congress to address, but imagine that your child came home from school
one day saying their chemistry teacher was offering an A to anyone who
wanted to skip the final exam and instead pay $100.
You don't need to know anything about chemistry to understand that
this system of rewards is harmful. Not only is the teacher making easy
money, but nobody is holding the student accountable for doing good
work.
Now I don't know any teachers that corrupt. But the credit rating
agencies have demonstrated that they have blindly followed the perverse
incentives of the current market. Congress should not sit idly by and
let the credit rating industry continue to expose our economy to great
risk just because Wall Street insists the problem doesn't have an easy
solution. Now, my amendment may not fix the entire system, but it will
provide checks, encourage accuracy, and increase competition.
And there is no need to take my word for it--the idea in my amendment
was actually first proposed by several well-respected academics.
Matthew Richardson, a leading expert and professor of applied financial
economics at NYU's Stern School of Business, supports this proposal,
and has been integral in the development of my amendment, and I would
like to thank him for his assistance.
Economist Paul Krugman has suggested this model as a step toward
improvement. And so has economist Dean Baker. Americans for Financial
Reform, which includes the Nation's most prominent consumer groups,
supports it.
I would like to thank my colleagues, Senator Schumer and Senator
Nelson, for their leadership on this issue and for their expertise in
helping me craft this amendment. I also thank my colleagues, Senators
Brown, Whitehouse, and Murray for joining us in cosponsoring it.
Going forward, I hope that more of my colleagues will join with us in
taking action to restore integrity to the credit rating industry.
I yield the floor.
Ms. MIKULSKI. Mr. President, if there is one thing that we should all
be able to agree on, it is that the American taxpayer should never
again have to bail out a Wall Street firm. We need to be fighting for
Main Street, not Wall Street, and the Boxer amendment is a step in the
right direction on that path.
This amendment sends a clear message to Wall Street firms that they
can no longer take risks with our financial security and then expect
the taxpayers to be there to prop them up. Wall Street must be held
accountable. It is time to end to taxpayer bailouts once and for all.
When I talk to people in Maryland, I hear their frustration and I
feel their anger. They want to know, why should AIG receive a bailout,
when nobody is bailing out them from this economic crisis? They wonder,
who is on their side? Who is going to bail out their stagnant wages?
Who is going to bail them out when they are trying to pay their
utilities and put gas in the car? And, seniors wonder who will bail
them out as they try to make sure they do not lose their income.
This amendment shows that we heard their concerns and we are on their
side. It sends a message to Wall Street that their time of running
around acting like masters of the universe--with irresponsible lending
practices and risky investments--has come to an end. And, it sends a
message to American families and small businesses that their government
is looking out for them. We are here fighting for them--fighting so
that consumers can be sure that their deposits are safe; fighting so
that small businesses have access to the credit they need to create and
retain jobs; and fighting to make sure that taxpayers' money is
protected.
We teach our kids at a young age that they will be held responsible
for their own actions. When they make a mess, they must take
responsibility and clean it up. We must pass this amendment so that
corporate America can see that the same lesson applies to them, and to
show the taxpayers that we are serious about being stewards of their
money. This amendment makes sure that if a Wall Street firm gets in
trouble, they will be required by law to clean up their own mess. If a
company gets in trouble from this point forward, the responsibility
will be placed where it belongs--on the financial sector. No longer
will taxpayers be standing by.
I support the Boxer amendment because I believe it is time to put an
end to all taxpayer bailouts.
Mrs. FEINSTEIN. I have filed an amendment to the Wall Street reform
bill before us that would remove one barrier between the unemployed and
a job.
Forty-seven percent of employers use credit reports to screen at
least some potential hires, according to the Society for Human Resource
Management. Thirteen percent of employers checked the credit history of
all hires.
Unfortunately, many of our country's 15 million unemployed are facing
more challenges than ever. For instance, some have seen their credit
drop precipitously as a result of the economic downturn. In some cases,
their credit history is affecting their ability to find employment.
My amendment would prohibit employers from using a consumer credit
report as a condition of employment. It would impact potential hires
and current workers.
Put simply, an employer would not be able to hire or fire someone
based upon their credit history.
I certainly understand that some jobs require workers to display a
pattern of financial responsibility. To that end, my amendment would
exempt those applying for the following:
Positions at financial institutions, including banks and credit
unions, that require substantive work with customer accounts and funds;
jobs that require a national security or Federal Deposit Insurance
Corporation clearance; State or local government jobs that otherwise
require a credit report; and, positions otherwise requiring credit
checks by law.
This amendment is similar to a bill introduced in the House of
Representatives by Representative Steve Cohen known as the Equal
Employment for All Act, H.R. 3149.
Why is this legislation needed? As of March 2010, 15 million
Americans continue to struggle with unemployment, and over 2.3 million
of them live in my State alone.
It is critical that obstacles to employment be removed for these
victims of the economic downturn.
During these difficult times, many unemployed Americans have seen
their credit scores reduced precipitously for events largely outside of
their control. These events include bankruptcy, foreclosure, and credit
card debt.
Millions of American homeowners have also experienced foreclosure
over the past 3 years. Through the first 3 months of this year alone,
216,000 have been filed in California. Last year, more than 1 million
foreclosures were filed in my State.
Foreclosures can have a devastating impact on one's credit history.
Moreover, responsible alternatives to foreclosure, such as a short sale
or loan modification can also affect a homeowner's credit.
A short sale can reduce a homeowner's credit score between 200 to 300
points, according to the Third Way.
[[Page S3084]]
And in a report prepared by First American CoreLogic, in February
2010, 35 percent of California homeowners were underwater, or owed more
on their mortgage than the value of their home. This means that short
sales, in which a homeowner sells a home for less than they owe, will
likely continue as an alternative to foreclosure.
According to the National Bankruptcy Research Center, more than 1.4
million individuals and businesses filed for bankruptcy in 2009. This
is a 32-percent increase over the prior year 2008.
Federal Reserve statistics show that average credit card debt in the
U.S. per household is over $16,000.
These are disturbing trends, and display a pattern of difficult
financial situations facing many Americans.
Unfortunately, if you have lost your job in this economy, these
circumstances are often out of your control. But, they should not
impede your ability to find another job.
I have received many heartbreaking letters from Californians facing
these situations. They can't pay off debt because their debt is
limiting their ability to find work.
For example, a chemist from San Diego wrote to me about her student
loans, which have ballooned from $60,000 to $110,000. At the time she
wrote, she had been unemployed for 15 months.
But, she feels she cannot find a job in the field she trained for due
to her poor credit score.
A former job recruiter from Corona wrote to share her firsthand
experience with this practice, which prevented her from hiring well-
qualified, experienced candidates. This constituent, herself now
unemployed and late on her mortgage payment, is worried that her credit
will now prevent her from finding a new job in the recruiting field.
These are just two examples of how credit history is posing an
unnecessary obstacle for the long-term unemployed.
An April 9, 2010, article in the New York Times highlighted the issue
that my amendment seeks to address.
It cited testimony provided by an executive of the credit bureau
TransUnion before the Oregon legislature. He stated that he was not
aware of research linking job performance to the contents of a worker's
credit report.
Research by Professor Jerry K. Palmer of Eastern Kentucky University
has also found no correlation between worker performance and the
strength of their credit report.
While credit bureaus argue that credit background checks are a
helpful tool in preventing employee theft and workplace violence,
little evidence supports that conclusion.
To be clear, I recognize that in some cases, a credit history is
important. Mortgage brokers or bank employees working with deposits
should be able to demonstrate a responsible credit history.
That is why my bill would exempt these industries from the
prohibition in my amendment.
The unemployment situation in California is untenable. It is my goal
to develop fiscally responsible solutions to help those in need.
My amendment does just that.
Workers should not be prevented from a job they are well-qualified
for, on account of reasons beyond their control.
If my colleagues have concerns about this legislation, I am happy to
work with them to improve it.
I hope this amendment will be adopted and provide assurance to
workers that their credit will not keep them out of work.
Mr. President, I have also filed an amendment to the Wall Street
Reform legislation that would require the Consumer Financial Protection
Bureau to undertake a study on the availability of credit to the
unemployed.
An article in the Los Angeles Times in March 2010 highlighted a
disturbing new trend in the payday lending industry targeting the
unemployed. Specifically, payday lenders are providing cash advances to
individuals using unemployment checks as collateral.
This is a troubling practice, especially for those surviving solely
on their unemployment benefits.
In California, payday loans can carry interest rates of up to 459
percent.
In light of this, I believe more must be done to ensure reasonable
and fair credit terms are available to the unemployed.
This Wall Street Reform bill creates a research unit within the
Bureau of Consumer Financial Protection housed at the Federal Reserve.
My amendment would require this unit to conduct a study on the
following:
The effects of payday lending on the unemployed; the potential
impacts, both positive and negative, of providing payday loans to
individuals using their unemployment checks as collateral; alternative
credit options for the unemployed, including the accessibility and
costs associated with them; and policy recommendations that the Bureau
of Consumer Financial Protection could implement to prevent
unscrupulous lending practices.
This report would be completed within 1-year of the bill's enactment
and be made available to the public.
To be clear, my amendment would not provide the Bureau of Consumer
Financial Protection with any new authorities, nor require it to carry
out the study's recommendations. It is intended as a guide for the
Bureau as it works on rules to protect consumers, notably the
unemployed, from deceptive and predatory lending practices.
In California, those individuals who turn to cash advances from
payday lenders can expect to pay roughly $15 in fees for every $100
they borrow.
This interest rate, when expressed in terms of an annual percentage
rate, amounts to 459 percent. While this is the maximum rate that may
be charged for a payday loan in California, some States, such as
Delaware and Wisconsin, have no interest rate limit at all.
The maximum payday loan that can be extended to a borrower at any one
time in California is $300.
So in practical terms, a borrower wishing to take out the maximum
$300 payday loan will pay $45 in fees just to borrow $255.
Often, borrowers must take out additional payday loans in order to
pay off their current debts. In 2006, approximately 450,000 borrowers
in California made more than six back-to-back payday loans.
Such reliance on this form of credit can lead some working families
to fall into a harmful spiral of debt.
Over 2.3 million people in California are out work and roughly
100,000 of them have reached the 99-week maximum for receiving
unemployment benefits.
The average unemployed Californian receives roughly $300 a week in
benefits, which is also the State's limit for a payday loan.
Typically, payday loans are offered as advances on paychecks and
should be used in cases of emergency. Such cases include falling short
on bills or rent during a difficult month.
However, unemployment, especially in this economy, can be long-term.
Payday loans may not offer a sustainable solution.
Unemployment is one of the underlying factors contributing to the
rise in foreclosures throughout our country. In California alone, over
215,000 foreclosures were filed in just the first 3 months of this
year. In tough months, those facing the dual threat of unemployment and
foreclosure need to access credit more than ever.
And now, payday lenders have made it easier for the unemployed to
fall into a cycle of debt.
By offering cash advances on their primary source of income, Federal
or State unemployment benefit checks, payday lenders are specifically
targeting this vulnerable group of borrowers.
Now is not the time to be doing this.
Such high loan fees are a burden for those surviving solely on their
unemployment benefits.
So why is this study important?
Studies and reports on the effects of payday lending are already
available, some of which consider its benefits and others its burden to
borrowers. But the study required by my amendment should offer much
more than just the pros and cons of payday lending.
I hope this study will determine if payday lending practices,
including cash advances on unemployment checks, are useful credit
options for the unemployed.
If they provide a benefit, I hope the study's recommendations will
make these loans more fair and reasonable to borrowers.
If not, the study should review and recommend alternative credit
options for the unemployed.
[[Page S3085]]
As I mentioned, we all agree this is not the time to be exploiting
the unemployed. Many of the unemployed are experiencing some desperate
financial straits right now.
I believe policymakers should be provided with clear options to help
improve the financial situation for them.
Mr. WYDEN. Mr. President, along with Senator Grassley, I am
introducing as an amendment to the financial reform bill, S. 3217, our
bipartisan resolution to amend Senate rules to eliminate secret holds.
The legislation now before the Senate is intended to bring greater
openness and accountability to Wall Street and other financial
institutions. At the same time the Senate is reforming how financial
markets do business, there is no better time for the Senate to reform
the process for how the Senate conducts its own business.
Under current Senate rules, it is still possible for Senators to use
secret holds to block legislation or nominations from coming to the
floor without having to give any reason. There is no openness or
accountability to anyone when a Senator places a secret hold.
The Senate should not have a double standard that requires greater
openness and accountability on Wall Street while tolerating a practice
that keeps both the public and colleagues in the dark with no
accountability to anyone.
That is why Senator Grassley and I are offering our bipartisan
proposal to end the practice of secret Senate holds as an amendment to
the financial reform bill. Because our amendment would eliminate secret
holds by amending Senate rules, I hereby give notice of our intent to
amend the Senate rules by filing the Wyden-Grassley amendment to S.
3217.
I urge colleagues to support this bipartisan reform of Senate rules.
The PRESIDING OFFICER. The Senator from Delaware is recognized.
IN PRAISE OF KENNETH CONCEPCION
Mr. KAUFMAN. Mr. President, I rise once again to recognize the
service of one of America's Great Federal Employees.
So many of our outstanding Federal employees spend their careers in
our uniformed services, standing at the ready to guard our liberties
and protect lives. One of these services has a unique mission that
combines coastal defense, maritime search and rescue, and environmental
protection.
I am speaking about the U.S. Coast Guard.
The 42,000 men and women who serve in the Coast Guard embody the
highest principles of our nation. Their dual responsibilities in both
civil and military matters require Guardians to demonstrate
flexibility, patience, and resolve.
This year is 95th anniversary of the Coast Guard's creation from the
old Revenue Cutter Service. That earlier service evolved from our
nation's first maritime force in the infant years of our republic.
The Federal employee I have selected to honor this week served as
Chief of U.S. Flag Deepdraft Vessels and Plan Review for the Coast
Guard at the time of the September 11 attacks.
Kenneth Concepcion was based on Staten Island, within view of the
twin towers of the World Trade Center. On that fateful morning, Kenneth
was the first Coast Guard employee on the scene, arriving at New York's
Pier Eleven just 20 minutes after the collapse of the second tower.
What he found there was disorder and masses of frightened people with
no way to get home. Kenneth took charge and recruited NYPD officers and
Transportation Department officials to help him organize the crowds
into lines based on intended destination. He assumed control of all the
vessels at the pier and prioritized the safe evacuation of first-
responders who had been injured in the attacks.
Thanks to Kenneth's leadership and steady hand, the Coast Guard was
able to evacuate 70,000 people from Lower Manhattan that morning to
points across the Hudson River. In addition, he made sure that
commercial ships continued to have safe passage in and out of New York
Harbor, keeping some of America's vital ports open for business.
But Kenneth's heroism doesn't end there. Two months after the
attacks, American Airlines flight 587 crashed tragically near JFK
airport in Queens. Kenneth served as the on-scene coordinator for the
maritime recovery of debris. Under his leadership, and as a result of
his ability to get different agencies to work well together, all
significant debris from the crash was recovered in less than 2 days.
Our Coast Guard members, like Kenneth Concepcion, stand ever at the
ready to keep our maritime interests safe and to serve as our Nation's
first line of search and rescue when disaster strikes. We rely on them
to protect us, and I hope my colleagues will join me in thanking
Kenneth and all members of the Coast Guard for their service to our
Nation.
They are all truly great Federal employees.
REMEMBERING KENNETH EDWARD CARFINE
Before I yield the floor, I want to note with sadness the passing of
one of my previous honorees.
On October 19 of last year, I stood at this desk and spoke about an
outstanding employee from the Department of the Treasury, Kenneth
Edward Carfine.
He served in the Treasury Department since 1973 and worked over the
last 37 years in banking, cash management, payments, check claims, and
government-wide accounting.
Recently, he had served under the Fiscal Assistant Secretary as an
adviser to senior department officials. Ken's intellect and diligence
had been critical to the Treasury's economic recovery efforts. He
helped shape how the Treasury deals with debt financing, cash
management, trust fund administration, and a range of services.
One of his lasting legacies will be the ability to use a national
debit card to receive Social Security benefits--a program he helped
implement.
Kenneth Edward Carfine lost his battle to cancer last week. He is
survived by his wife of over 40 years, Deborah, as well as by his two
sons, Ken Jr. and Greg, their families, and his two granddaughters.
Ken worked at the Treasury Department for 37 years, and I know there
literally must be hundreds of Treasury employees, past and present, who
are grieving deeply today for this incredibly fine person and dedicated
public servant. His passing is a great loss for all of them, the
Department and for the nation he served so ably.
My thoughts are with his family, friends and colleagues at the
Treasury Department, and I hope my Senate colleagues will join me in
offering our condolences.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The clerk proceeded to call the roll.
Mr. INHOFE. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. INHOFE. Mr. President, with all of the trauma that is going on
right now with the oilspill and all of the other problems that are out
there and, of course, the bill under consideration, I ask unanimous
consent that I be recognized as in morning business for 15 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
EPA Lead Paint Rules
Mr. INHOFE. On April 22, a new EPA lead-based paint rule went into
effect that has caused all kinds of serious problems, not just in my
State of Oklahoma but throughout the country. My office has received an
incredible number of calls and e-mails from constituents, from
homeowners, from contractors, to landlords, to plumbers, all trying to
get information about a rule that, in most cases, they had never heard
of until last week. I think everyone in this Chamber stands strongly
behind the intent of the rule, which is to protect women who might be
pregnant, children, and others from harmful effects of lead. With over
20 kids and grandkids, I understand that. I appreciate the importance
of the rule and the potential it has to future decrease lead exposure.
But, as even the Obama administration admits, implementation of the
rule has been painfully slow and seriously flawed.
Specifically, the rule requires that renovations to homes built
before 1978 that disturb more than 6 square feet of surface area have
to be supervised by a certified renovator and conducted by a certified
renovation firm. In order to be certified, contractors have to submit
an application with a fee to the
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EPA and complete a training course for instruction on lead-safe
workplaces. Now, that sounds simple enough. There is one serious
problem; that is, there aren't any instructors around to certify these
people.
What is worse than that, those who violate the rule; that is, they go
and they try to do something to their own home, if it was a home that
was built prior to 1978, if they violate this, they can be fined up to
$37,500 a day. Just imagine how hysterical people are, not just in
Oklahoma but throughout the country.
There are not nearly enough contractors who have been certified, and
that is because there are far too few people certified to teach the
classes.
That is why today, with 23 cosponsors, I am introducing legislation,
S. 3296, to remedy this implementation travesty. This bill provides
additional time for contractors and others to get certified so they can
become qualified to go ahead and do these things and not be subjected
to fines. It actually extends the time for a period of 1 year or until
the EPA can have enough people to certify people around the country so
that this can be done.
The need for the bill is on display in Oklahoma, where, until
yesterday, no one was teaching classes publicly. Keep in mind, no one
is teaching these classes. Yet, if they try to do any renovation, they
can be fined up to $37,500 a day.
I am pleased to hear that Metro Tech of Oklahoma City has finally
received its certification from the EPA and will begin teaching classes
on May 13. I should note that because the demand is so high, they
anticipate having full classes until July.
Because access to courses is so limited, renovators and contractors
cannot be trained and they cannot pass along the benefits of their
lead-safe work practices to homeowners and help protect pregnant women
and children from further lead exposure. Without enough certified
renovators, we will simply not get the benefits this rule can provide.
Let me give you a couple of statistics to help illustrate the
problem. As of April 22--that was implementation day--the EPA had only
accredited 204 training providers. Those providers have conducted more
than 6,900 courses. They trained an estimated 160,000 people in the
construction and remodeling industries to use lead-safe work practices.
This is far too few people to ensure everyone who works on a pre-1978
home, including roofers, plumbers, painters, general contractors, or
just individual homeowners, can have access to training to get
certification they have to have.
Let me share with you a few examples from Oklahoma.
Paul Kane, executive vice president and CEO of the Home Builders
Association of Greater Tulsa, was in my office with a number of
Oklahoma homebuilders the day before the rule was implemented. That
would have been April 21. During our meeting, I was pleased that Cass
Sunstein, head of the Obama administration's Office of Information and
Regulatory Affairs, was available to hear from my constituents about
their concerns with the rule.
As the Tulsa World reported:
Kane explained the difficulty local contractors are having
in getting certified, adding that only one trainer in the
entire State of Oklahoma has been certified, and that that
person has been certified only a few weeks. Moreover, he told
Sunstein, that person is not offering training to the public
but is limiting his classes to his own organization.
So we have one guy who can teach these classes in the State of
Oklahoma. Yet there are literally thousands out there who are out of
work until such time as they can go back and start working again.
I really appreciate the fact that Mr. Sunstein was listening to the
concerns of my Oklahoma constituents. He told us he recognized that the
implementation of the rule was causing economic hardship. He raised the
possibility of providing a 60-day delay to help sort out of some of the
implementation problems. In the end, however, this option was not
workable, and we simply ran out of options to stop the rule from going
into effect. Now, that was the day before the rule became finalized.
But we certainly appreciate his attention, looking into it, and we are
going to try to work with his staff.
My staff also spoke with a property owner who rents homes to low-
income residents in Tulsa. He has been unable to get contractors out to
his properties to replace carpet or even paint because they do not have
EPA certification, which means they can get fined by the agency if they
work without it. So it is no surprise that my constituent is concerned
that his housing units could fall into disrepair and that people would
lose their access to affordable housing--not not only losing access to
affordable housing but exposing people to lead paint.
Additionally, we heard from a painter in Oklahoma City who has
experienced delays in getting trained for the simple reason that his
trainer has not yet been certified by the EPA. This issue reaches far
beyond Oklahoma. There are a number of Senators, Republicans and
Democrats, who have expressed concerns about the implementation of the
rule. Several Members weighed in before the rule went into effect.
Senators Byron Dorgan and Kent Conrad of North Dakota and a bipartisan
group of Members of the House of Representatives sent a letter
outlining these concerns to the EPA.
During a recent EPW subcommittee hearing, Senator Amy Klobuchar urged
the EPA to come up with a solution that will ensure contractors have
the opportunity to come into compliance with this rule. We are talking
about everybody, Members of the House, the Senate, Democrats,
Republicans. They are all affected the same.
The issue has also been raised before the Senate Energy and Natural
Resources Committee. In testimony before the committee on March 11, Bob
Hanbury, speaking on behalf of the National Association of Home
Builders, raised concerns about potential conflicts between Homestar
and the lead rule. Members may recall that Homestar is one of President
Obama's signature issues. It is a program that helps homeowners
increase the energy efficiency of their homes. But Mr. Hanbury believes
the lead rule won't allow the Star program to move forward.
As we can see, there were plenty of concerns raised about the lead
rule implementation before it went into effect. Nevertheless, EPA
repeatedly said, in the 2-year period leading up to the rule, that it
could meet these implementation challenges. As the ranking member of
the committee with jurisdiction over the EPA, I wrote to the EPA two
times that I believed EPA appeared to be far from prepared. In both
cases, EPA said they were ready. In a June 3, 2009 letter responding to
my concerns, the EPA wrote:
I agree that both EPA and the regulated community have a
great deal of preparation in front of us as we approach next
April's deadline. I am confident, however, that the ten
months between now and April of 2010 will allow us to meet
these deadlines.
That was a year ago. Of course, it didn't happen.
In a letter dated December 1, 2009, EPA wrote me explaining:
We are confident there will be enough training providers to
meet the demand. EPA does not plan to revise the April 2010
effective date [for the] rule.
The EPA also stated in the letter:
Currently, the capacity for training is in excess of the
demand as several training courses have been canceled for
lack of attendance.
What they are saying is they have been providing all these people,
but it is just flat not true. In light of this situation, what can
lawmakers do to help provide guidance for constituents back home?
First and foremost, we have to get out the word. I have raised the
issue both in my travel around Oklahoma and on Oklahoma radio. Last
week I sent out a ``Dear Colleague'' letter to all Senators with
information to help them navigate the confusion associated with the
rule's implementation. Included are Web links to EPA's Web site which
take constituents to important information about the lead rule as well
as the rule itself. It also provides a link to the EPA and the Ad
Council's new Web site, www. Leadfreekids.org, which is a consumer
friendly Web page with information on protecting yourself from lead. I
wish also to commend the coverage of the rule by the Tulsa World. The
paper's reporting has informed the public and even resulted in more
classes being taught throughout Oklahoma.
Further, along with Senator Coburn and some 23 of my fellow Senators,
I
[[Page S3087]]
have introduced S. 3296 to delay the implementation of the rule by
several months, giving contractors, trainers, and the EPA breathing
room to get more people through classes. The EPA has said the people
have had a year to get ready for this rule. However, the first training
class wasn't even held until June 16, 2009. Renovation firms could not
apply for certification until October of last year. Our bill would
delay the implementation and give people time to comply with this.
This is in a way bureaucracy at its worst. We say we are going to
demand that no one is going to be able to do something to their very
own home if it disturbs as much as 6 square feet. And if they do, they
could be fined $37,500 a day. Imagine how frightening that is. Yet they
don't have enough instructors to teach people to be certificated. This
is one we have to address.
I think the only thing we can do right now is to get an extension.
That is what I am doing with this Senate bill. I certainly call on my
colleagues, Democrats and Republicans. The problem I am pointing out in
Oklahoma is not just in Oklahoma; it is in all States. We will have to
address this thing, get something done, or we have a lot of risk out
there. We have children and pregnant women who could be at risk of
exposure to lead and lead paint. Of course, one of the things that is
almost as bad is the fact that we have literally, only in Oklahoma,
thousands of people out of work because they cannot do renovation. Most
of the homes they deal with are pre-1978. It is something that will
have to be dealt with. I certainly encourage others to join the cause
to relieve us of this problem. The rule will affect more than 70
million homes. The implementation of this rule to date has been a
disaster. Congress will have to ensure that enough people are trained
and certified. That way, the rule can do what it is supposed to do--
protect the health of young people and pregnant women.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. REID. I ask unanimous consent that the order for the quorum call
be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. REID. Mr. President, I am forever amazed at my friends on the
other side of the aisle. They have clearly established themselves as
the party of no. America knows that. But what they have done on this
bill dealing with Wall Street reform is hard to comprehend. We started
on this bill a week before last. We filed cloture on it. On Monday, we
had a cloture vote last week; Tuesday, a cloture vote last week;
Wednesday, a cloture vote last week. Finally, they said: OK, we don't
need any more cloture votes. Let's start legislating on the bill.
Tomorrow is Wednesday. It has been a week. Nothing has happened. Why?
Because the party of no says no to everything we try. Listen to this
one. This is something. They will not let us vote on amendments the
Republicans have offered and amendments we have agreed to they would
not let us vote on.
I came to the floor of the Senate today to let everyone know the
frustration the American people must feel and the frustration many
people feel in the Senate as a result of the party of no continually
doing what they are doing. I want to make sure everyone understands the
facts in more detail than what I have given.
On Thursday, April 15, Wall Street reform legislation was introduced
and placed on the Legislative Calendar. Thursday, April 22, I sought
consent to proceed to that bill. The Republicans objected, and I was
forced to file cloture. I don't want to get into a lot of the
procedural problems we have, but remember, the Republicans have caused
us to file cloture almost 100 times this Congress. So everyone
understands, it is more than just a word--``filibustering.'' That is
what they have done almost 100 times.
I moved to the bill. They would not let me--I had taken it off the
calendar and tried to bring it to the floor. They said no. I had to
file a motion signed by 17 or 18 Senators. It took 2 days for that to
ripen before we could vote on it. Once we voted on it and we got
cloture, they got another 30 hours. So in this instance, they had a new
game.
They said: Go ahead and move to the bill. We are not going to use the
30 hours. We are going to use a week. We have done nothing for a week
waiting for this phantom amendment they think is floating around here
someplace, this so-called Shelby amendment.
Monday, April 26, when my cloture motion had ripened, we failed to
get cloture 57 to 41. We did some other things--moved to reconsider,
some parliamentary maneuvers so we could get this bill moving along.
Tuesday, April 27, cloture failed, 57 to 41, the same vote as the day
before. Wednesday, April 28, cloture vote failed, 56 to 42. One of
their Members, I guess, was gone or maybe somebody switched a vote. I
really don't know. Remember, each time I voted on the prevailing side.
I had to change my vote so I could move to reconsider.
So on April 28, after the cloture vote failed, they said: OK, we give
up. You can start legislating for the American people. But that wasn't
being fair and square with the American people. They had no intention
of doing that. They are stalling on everything we do. We know they have
said publicly they want health care to be Obama's Waterloo.
So just to be very clear, we were ready to start debate on this last
Monday--actually, frankly, the Thursday before that. Even though we
were able to overcome the objections to begin this debate, we now find
many of the same parties are preventing us from making any progress on
this important legislation.
One Senator I saw quoted in the newspaper last week said I had
stopped--I had told that person I was going to move to a certain bill--
a Republican Senator--and that Senator said: He hasn't done that. I
wrote that person a letter today going over the long list of
filibusters to prevent us from moving to that and many other pieces of
legislation.
We haven't had a single vote on this legislation, not a single vote.
People are waiting around on both sides, I am told, to offer
amendments. We can't get votes on even the amendments we have agreed to
and one Senator Snowe has offered.
We have to finish this legislation. We have provisions that are
expiring at the end of this month that are extremely important. A jobs
bill--the expiring provisions and all the stuff we have put in that
bill that we passed once before are extremely important to our country
and will create lots and lots of jobs. But we can't get to that because
of what is going on here. Food safety--we can't get to that. Why?
Because the Republicans are stopping us from moving to anything.
I had a conference call just from the sparsely populated State of
Nevada with a few of the people who have suffered terrible injuries as
a result of eating contaminated food.
One little girl has missed a year of school. Her growth is stunted.
People have spent--one woman I talked to--or I talked to her husband
because they were getting first aid. They went home. She had been in
the hospital for months and months from eating contaminated food. We
are trying to do something about that. We can't do that. It is a
bipartisan bill. It is nothing the Democrats are trying to jam down the
throats of the Republicans. They won't let us move to anything.
Scores of nominations. The House has passed more than 300 measures
that are stuck over here because the Republicans won't let us move to
them, measures in years passed that would pass by unanimous consent.
I hope everyone understands. I know my caucus understands what is
going on, but I hope the Republicans will accept reality and understand
why we are not going to have all of the amendments they want to offer
be able to be offered. We are not going to be on the bill that long. We
can't be. We are trying to do something with this legislation that will
change America forever for the better. What has happened as a result of
Wall Street doing business not in the shadows but in the dark of night,
the blackest dark you could ever see is where they have been doing
their work, causing people in Colorado, in Nevada, and all over this
country to suffer irreparable damage. People have lost their homes,
their jobs as a result of what went on in Wall Street, the shady deals
that are worse than any illegal
[[Page S3088]]
gambling game that was ever conducted in America. That is what they
were doing up there: betting our money--our money. If they win, they
keep our money. If they lose, they want more of our money. We are
trying to stop that. That is what this legislation is all about. This
is a good bill.
Obviously, from the shenanigans the Republicans have performed on
this legislation, they don't want us to do anything about Wall Street
reform; otherwise, they wouldn't have done all of these efforts to stop
us from moving to the bill. We want to hold Wall Street accountable. We
want to end taxpayer bailouts. We want to guarantee the taxpayers will
never again be forced to bail out reckless Wall Street. We want to end
too big to fail, restrict new capital and leverage requirements to
prevent firms from becoming too big to fail.
As I said before, and I say again: We want to bring sunlight and
transparency to these shadowy markets where Wall Street executives make
gambles that threaten our entire economy, the same laws that are in
effect basically today that were in effect when Wall Street crashed and
caused us all this harm. We are trying to change that so it can't
happen again. We want to rein in these big shots who have unlimited
control of money and get these huge bonuses--not bonuses of $50,000,
which is huge in most people's lives, but they get bonuses in the
hundreds of millions of dollars.
We want to protect consumers. We want to put a new cop on the beat, a
consumer protection entity that will look at all of these different
financial shenanigans that are going on. We want to make sure people
who get something in the mail from--however they get it. They take them
out and they look at it, they can't understand it. We want it in plain,
simple English so the American people can understand what they are
being asked to sign. We want to protect consumers from these hidden
fees, abusive terms, and deceptive practices that are running rampant
in America.
So despite the party of no saying no again and again, we are going to
be patient and do our best to work through this. Chairman Dodd is
working with, it seems, this never-ending amendment the ranking member
wants. It has been weeks and weeks. Remember, there have been
negotiations going on in this matter for months--not weeks, not days--
months. I guess the Republicans are saying, until that amendment comes,
there is not going to be anything else happening on this bill. That is
the decision they have made. They won't even let us set amendments
aside and move to amendments that are agreed upon.
There is only so much I can do--we can do--in the face of determined
obstructionism that is so clearly the brand the Republicans have now.
I yield the floor, Mr. President.
The PRESIDING OFFICER. The majority leader.
____________________