[Congressional Record Volume 156, Number 76 (Wednesday, May 19, 2010)]
[Senate]
[Pages S3955-S3961]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FINANCIAL REGULATORY REFORM
Mr. FRANKEN. Mr. President, I rise today to clarify some confusion
regarding two amendments adopted by the
[[Page S3956]]
Senate last week to the Wall Street reform bill. Some in the media have
characterized the two amendments as conflicting, incompatible, or
rendering one another moot, and I wish to put a quick end to that
misunderstanding.
To draw these conclusions means you think there is only one problem
with the credit rating industry. In fact, there have been many problems
with the credit rating industry, and the two amendments passed last
week tackle two different problems. In the end, these two amendments
can be implemented concurrently and effectively.
My colleague from Florida offered an amendment that he stated
``writes NRSROs out of the law.'' NRSROs are a select group of credit
rating agencies recognized by the SEC. But in fact his amendment does
not get rid of credit rating agencies and it does not get rid of the
category of NRSROs. This is based on our reading of the text in our
office, the Senate legislative counsel's office has confirmed this, and
several academics in the field have further confirmed it. The amendment
simply does not eliminate NRSROs. Instead, the LeMieux amendment
eliminates provisions in Federal laws that require reliance upon
ratings from NRSROs.
For example, this amendment eliminates a provision that requires
certain State-chartered banks to only buy securities with top NRSRO
ratings. It replaces this provision with a requirement that banks may
only acquire securities which meet ``creditworthiness standards''
established by the FDIC.
The amendment also changes a provision in which the Director of the
Federal Housing Finance Agency may hire an NRSRO to conduct a review of
Fannie Mae, Freddie Mac, or the Federal Home Loan Bank. Under Senator
LeMieux's amendment, the reviewer need not be an NRSRO. So while the
amendment eliminates reliance upon NRSROs, it does not eliminate the
NRSRO designation or eliminate credit rating agencies.
One can argue that there are benefits to reducing overreliance on
NRSROs. Regulators gave little thought to the types of debt held by
banks because they were rated AAA. Perhaps the regulators should have
looked at factors other than the AAA rating before waving through these
volatile securities. This is all true, and the LeMieux amendment seeks
to address it.
But here is the problem. Here is the problem. Eliminating federally
mandated reliance on NRSRO credit ratings doesn't change the fact that
State laws, pension fund policies, and other private market actors will
still explicitly rely on NRSRO ratings. Eliminating blind overreliance
on NRSRO ratings is a respectable goal, but the amendment will not
eliminate reliance on credit ratings entirely, nor should it.
For example, at least 5 of the 10 largest pension funds--California
Public Employees, California State Teachers, Texas Teachers, Wisconsin
Investment Board, and New Jersey Retirement funds--are required by
State law or internal policy to use NRSRO ratings. These are funds
totaling over $\1/2\ trillion--and that is just the top 10. In fact, in
my colleague's home State of Florida, the Local Government Surplus
Funds Trust Fund controls $6 billion in assets from 954 local
governments and school districts, and the fund explicitly conditions
purchases of asset-backed securities on NRSRO credit ratings.
In fact, 42 States, plus the District of Columbia, incorporate NRSRO
ratings into their State laws. So NRSRO ratings are not going anywhere.
The LeMieux amendment has absolutely no effect on those requirements.
The simple fact is that credit rating agencies have a place in the
market and they perform a needed function.
Most institutional investors simply lack the capacity to perform the
analysis that credit rating agencies perform. For many small
institutional investors, such as a school district's pension fund,
researching its own investments would be cost prohibitive. It needs to
rely at least in part on credit ratings issued by a rating agency.
Let's say we want the LeMieux amendment implemented into law as has
been passed. After its implementation we still have the issue of States
and pension funds and other investors relying on NRSRO ratings.
I should say, the amendment wasn't passed into law, but it was passed
as an amendment to this bill. So we still will have to rely on NRSRO
ratings. But not only that, it is also very likely that Federal
regulators will continue to use credit ratings as part of their new
creditworthiness standards. So it is safe to say that the credit rating
agencies will still be very much a part of the market. What is being
done to ensure the accuracy of these ratings?
That is where my amendment comes in. Eliminating government-mandated
reliance on NRSRO ratings is one thing, but actually changing the way
they play the game to eliminate conflicts of interest is entirely
another. My amendment gets to the heart of how they play the game.
Right now, credit rating agencies have incentives to hand out top AAA
ratings to every product because they need to maintain their business.
If they hand out low ratings, issuers of financial products can go shop
around for a higher rating from a different rating agency. My amendment
finally puts a stop to the rating shopping process and implements a
system that would finally reward accuracy instead of grade inflation.
The board created by my amendment--and contrary to some claims, this
board will be a self-regulatory organization, not a part of the
government--will create a process to assign a credit rating agency to
provide a product's initial rating. This will eliminate the rating
shopping process and the conflict of interest it creates. The board can
take past performance into account in handing out further assignments
and finally incentivize accuracy in the market.
The amendment offered by my colleague from Florida has an admirable
goal--to eliminate blind overreliance on credit ratings. But it does
not go far enough and does not get to the heart of the problem. The
heart of the problem is that the current market incentivizes inaccurate
ratings, which contributed to the financial crisis--which was a huge
part of the financial crisis.
Alone, my colleague's amendment doesn't respond to the reality that
the market will still demand credit ratings, whether the Federal
Government mandates it or not. State laws, pension fund policies, and
private investors will continue to exist and continue to need the
expertise credit rating agencies can supply, if given proper
incentives.
Our amendments each tackle a different part of the problem, and there
is nothing about them that would prevent them from both being
implemented. That is why this body passed both of them. Together, these
two amendments will both reduce the blind overreliance on credit
ratings and ensure that the ratings demanded by the marketplace will
finally be accurate.
Any assertion implying that these two amendments cannot be reconciled
or are contradictory is ill-informed. In fact, these amendments will go
a long way in addressing the multiple problems plaguing the credit
rating industry. Together, they will create more stability and
certainty in our economy.
Mr. President, I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Rhode Island is
recognized.
Mr. WHITEHOUSE. Mr. President, I wanted to share with my colleagues
an update on where we are with the bipartisan amendment on which I have
been working so hard. I see Senator Sanders of Vermont is here, and he
is one of my cosponsors, as is the Presiding Officer, Senator Udall of
New Mexico.
The amendment, as you know, would allow States to protect their
citizens from exorbitant interest rates that are charged by out-of-
State banks. There is a trick to this. Years ago, the Supreme Court
made a decision saying when a bank is in one State and a consumer in
another, the transaction between them is governed by the laws--and here
they had to pick one State or the other--the bank's State. It didn't
seem like a big deal at the time, but it opened a loophole that crafty
bank lawyers figured out, and that is that you could move and
redomicile a bank's headquarters in the State with the worst consumer
protection laws in the country. Then, from that State, you could market
back to other States which have consumer protections, which have
interest rate limits honoring the tradition of usury restriction that
was at the founding of this country and that lasted for hundreds of
years but goes back to all our ancient religions and which is a
constant in human civilized
[[Page S3957]]
legal codes. This overruled all of that, allowing them to sneak right
by it because they have either gone to or perhaps even cut a deal with
their home State to have the worst consumer protection and be able to
take advantage of people in other States. It is the proverbial race to
the bottom. I am confident if you called up on the Senate floor as the
government's policy proposal the way it is right now, you would not get
a single vote. Who would vote for the notion that the consumer
protection policy of the country is going to be set by the worst State
and have that be a situation in which the worst State is usually
getting rewarded by the industry for being the worst State?
It is a bad situation. This amendment has gotten a lot of attention.
It has gotten a lot of support--it has bipartisan support. It is a very
practical thing we can do for American consumers.
This is a pretty esoteric piece of legislation in a lot of ways, this
Wall Street reform bill. This does things like trying to rebuild the
Glass-Steagall firewall. Until I got in the middle of this debate, I
couldn't tell what that was. This changes the leverage limits and puts
restrictions on what banks can do. That is pretty esoteric stuff. This
deals with the regulation of derivatives and collateralized debt
obligations and credit default swaps and things that nobody ever heard
of until we were drilled into this legislation--esoteric, preventive
stuff. But this piece of the bill, this amendment would enable all of
us to go home and tell our constituents: You know those 30 percent
penalty rates that your out-of-State credit card company drops you into
if you make a mistake, if you are late in a payment, for no reason at
all? We have done something to protect you against that--consistent
with the traditions of our country, our laws, consistent with the
doctrine of federalism and States rights, consistent with the Founding
Fathers' delegation to the States, the ability to protect consumers in
this way. We have restored the States rights. They are no longer
trumped by an out-of-State corporation. Now they have the sovereign
right they should to protect consumers.
I think it is a meritorious piece of legislation. I think it is an
amendment that deserves consideration on the floor. It is beginning to
appear that it may not actually even get a vote, notwithstanding that
it is pending. We may be edged right out.
I want to explain why. People who have been watching this debate have
seen long hours of nothing happening on this floor. There has been a
lot of delay. There has been a lot of delay allowing us to get to
amendments. Why is that? We are up against a time restriction on this
bill. It is a practical time restriction. The leader needs to make sure
we pass the supplemental Defense appropriations bill that funds our
troops. What could be more important than, when we have troops in the
field, overseas, serving our country, putting themselves in harm's way,
that we provide them the resources they need to be successful? We have
to do that.
We have to do something to increase the strength of our economy. In
Rhode Island we are at 12.6 percent unemployment. We have been in the
top three States for unemployment every single month of the Obama
administration.
I think we are in the 28th month of severe recession. So we know how
bad this economy is and how much more we need to do to try to bolster
it. So we need to get to the next jobs bill, the jobs and tax extenders
bill, to make sure we are providing the necessary support to our
economy.
We have to get to those things. Because of all the delay that our
friends on the other side have built into the process we are now
getting into the end point where we are starting to be squeezed for
time.
Now that we are squeezed for time, they are refusing to give time
agreements to amendments like mine that would actually make a
difference. They do not want to vote in favor of out-of-State
corporations and against their home State's ability to protect their
home State's fellow citizens. But they do want the out-of-State
corporations to win. They don't want to vote in their favor, but they
want them to win.
If that is your position, the perfect thing is to delay and delay
until it gets to be here at the end, crunch time, then take the
amendments that worry you, the amendments that will get after the big
banks, the amendments that will be fair to consumers, and refuse to
give time agreements and vote agreements on those and basically run out
the clock.
That is the position we are in right now. It appears there is no
willingness on the other side of the aisle to give this a vote--not
just at a 50-vote margin, even at a 60-vote margin. They don't want to
be on record supporting these out-of-State credit card companies that
are gouging their own citizens. They just want them to win, and they
figured out this way to do it.
The only alternative is to call up the bill, what is called
postcloture, which means I have to be technically something called
germane. Right now we are working with the Parliamentarian to argue as
strongly as we can that we are indeed germane. It is an open question
whether we are indeed germane, and I hope it gets resolved in our favor
before the bill comes up in its regular order postcloture.
That is the situation. If people are wondering why this amendment
does not appear to be on any list, is not going anywhere, it is because
there is a blockade of it on the other side. They are taking advantage
of the time crunch that they created with all the delays that led us to
this time crunch to squeeze out the amendments where they do not want
to vote for the big banks, they don't want to vote for the big credit
card companies, but they do want the big banks and the big credit card
companies to win. So it is the squeeze play at the end to try to drive
these impactful amendments that will make a tangible, immediate
difference in the lives of Rhode Islanders and the lives of their home
State citizens, the ones paying that 30-plus percent interest rate that
until very recently would be a matter to bring to the authorities of
this country, not a matter that the Senate tried to defend. So that is
where we are.
I will continue to work with the Parliamentarian to make sure we are
germane postcloture, and I will continue to argue to try to get a vote.
But forces are arrayed against us at this point, and I want to be
perfectly candid about it.
I yield the floor.
Mr. MERKLEY. Mr. President, I suggest the absence of a quorum.
The ACTING PRESIDENT pro tempore. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. BOND. I ask unanimous consent that the order for the quorum call
be rescinded.
The PRESIDING OFFICER (Mr. Begich.) Without objection, it is so
ordered.
Mr. BOND. Mr. President, I ask unanimous consent to speak as in
morning business for 10 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. BOND. Mr. President, for weeks now we have been debating the
financial reform bill, which is being sold to the American people as
the solution to holding Wall Street accountable for the economic crisis
that hurt every American family and business in every community across
the Nation.
Unfortunately, in this current form, the so-called reform bill will
actually punish Main Street America, the families who suffered from and
did not cause the financial meltdown. It should be a wakeup call when
Lloyd Blankfein of Goldman Sachs says Wall Street will be the big
winner under this bill, and we know the people who provide jobs,
essentially small business, and the people who provide credit to the
rest of America are warning of dire consequences.
Let me make this clear. This bill was meant to rein in Wall Street.
Yet it is supported by Goldman Sachs and Citigroup. It is opposed by
small business and community bankers. I think that tells you all you
need to know about this bill. That is why I rise today in strong
opposition to cloture on this bill. Yes, we made some improvements on
the bill, and I congratulate the leadership for allowing us to have
amendments and debate them, and I thank and I am grateful to my
colleague from Connecticut, Senator Dodd, for working across the aisle
to remove an onerous provision that unintentionally
[[Page S3958]]
would have killed small business startups. Senator Dodd has worked in
good faith in a bipartisan fashion to make real changes in the bill.
But despite the progress we have made, the provisions most destructive
and harmful to taxpayers, families, and small business still remain.
First, it is completely unbelievable and unacceptable that so many of
my colleagues want to turn a blind eye to the government-sponsored
enterprises Fannie Mae and Freddie Mac which contributed to the
financial meltdown by buying the high-risk loans that banks were pushed
to make to people who could not afford them.
They were the enablers of the issuance of bad mortgages. Everyone
here knows what I am talking about. Despite the bill's 1,400-plus
pages, it completely ignored the 900-pound gorilla in the room. The
need to reform Fannie Mae and Freddie Mac, or the ``toxic twins'' as I
refer to them, is completely ignored. How can you ignore the major
government-sponsored enterprises that were the enablers for the bad
mortgages that brought our system and much of the world's system down?
To add insult, Fannie Mae and Freddie Mac devastated entire
neighborhoods and communities as property values diminished. But when
they bought up loans and encouraged issuance of loans to people who
could not afford them, that turned the American dream of home ownership
into the American nightmare for far too many families.
Fannie Mae and Freddie Mac went belly up, and now it is the very
Americans who suffered from their irresponsible actions who are left
footing the bill for them, because, if it were not bad enough, unless
we act now to reform the toxic twins, over the next 10 years, Fannie
Mae and Freddie Mac will run up hundreds of billions of dollars.
Let me put that into perspective. Freddie Mac lost $8 billion in the
first quarter, one quarter of this year, and an additional $10 billion
from taxpayers, and warned that it will need more in the future. That
comes on top of the $126 billion that Fannie Mae and Freddie Mac had
already lost through the end of 2009.
To make matters worse, this administration has taken off the $400
billion credit card limit on Fannie Mae and Freddie Mac, and it is our
credit card they took the limit off. How much more does the
administration think Freddie Mac and Fannie Mae can lose? How much more
are they going to force not just us as taxpayers but our children and
grandchildren to pay to bail out these toxic twins?
Next, a great concern I have is that this bill lumps in the good guys
with the bad guys and treats them all the same, particularly when it
comes to derivatives. When it comes to derivatives, this bill lumps in
those folks who try to manage risk and control costs by making long-
term contracts with their suppliers or with their purchasers to even
out the prices at which goods are exchanged. These are normal hedging
contracts, and they are very different from the people who are
speculating in the market to make a buck by shady bets with money they
did not have or they were making insurance bets on property they did
not own.
I would urge my colleagues, if they have not read it, to read ``The
Big Short'' which talks about how this whole scam unfolded with the bad
underlying mortgages that caused the meltdown.
I have heard some folks say, what actually does this bill mean to you
and me? Well, it means, for instance, that utility companies may not be
able to lock in steady rates for their customers, leaving them instead
at the whim of the volatile market. They will have to clear all of
their long-term contracts and pay billions of dollars to Wall Street or
Chicago to clear the normal long-term contracts with energy suppliers
whom they work with on a regular basis, and whose contracts never
contributed a nickel to the volatility.
As a matter of fact, by locking in prices, they were able to produce
their energy at a reasonable rate. The billions of dollars these
utility companies will be forced to cough up to Wall Street and Chicago
will come down to each and every one of us on our utility bills. When
the utility companies have to pay more, guess what. We, as ratepayers,
get it in the wallet. That is where we will feel it, and that is what
it means in every community in this country. You will be paying a
higher cost every time you flip on the light switch, turn on the air
conditioning, or use a computer. You will pay more for that energy.
For family farms, the backbone, the agricultural backbone of our
country, they will not be able to get long-term financing. That may
force some of them to quit farming and prevent others from even getting
started.
Frankly, I am stunned that any Senator in good conscience would vote
for a bill that would increase costs for every American, especially at
a time when working families are struggling to make ends meet. What
will this do to business? These businesses, who will be forced to pay
higher energy costs, who will have requirements on derivatives that
have to be cleared, may not create the jobs.
The community bankers who make the loans that families need or that
small businesses need may be so strapped they cannot make the loans.
That credit will dry up. I cannot vote for a bill that creates a
massive new superbureaucracy with unprecedented authority to impose
government mandates and micromanage any entity that extends credit.
We are not talking just about the Goldman Sachs and AIGs of the
world, the ones at the center of this crisis. No, in the real world we
are talking about this organization, this Consumer Finance Protection
Board or Bureau, regulating the community banks, your car dealers, even
your dentist or orthodontist who has to extend some credit to a few
people for expensive orthodontic features.
Don't be fooled. Any of the new costs as a result of the new mandates
and regulations will be passed on to the consumers. The very people the
bill was supposed to protect--you and I--will get to pay for it.
Under this new superbureaucracy misnamed the Consumer Financial
Protection Bureau, will safety and soundness requirements for healthy
banks give way to a prevailing agenda of the new bureaucracy? There
will be political appointees of the President who will be looking over
everything as consumer protectors.
Some of these consumer protectors were the ones who forced banks to
make loans to people who could not afford them in the past. Will the
safety and soundness which is key to assuring a sound banking system be
overridden by these rules and regulations?
These regulations can be enforced by every attorney general in the
Nation. Attorneys general may decide it is an abusive practice if a
community bank does not follow the mandates, the credit allocations,
mandated to this CFPB. How would the community banks be able to operate
if the attorneys general are suing them? This bill, regrettably, is
much like the health care bill recently signed into law, because I fear
that small businesses will soon learn that there are many more
unintended consequences which have yet to be seen.
I ask unanimous consent that at the end of my remarks, I have printed
in the Record an article by Meredith Whitney that appeared in
yesterday's Wall Street Journal, one of the people who foresaw this
crisis coming, who warned of the impact on small business.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 1.)
Mr. BOND. To sum up my view on this bill, if the goal here is to
enact real reform that ensures we never have another financial crisis
such as the one we had 18 months ago, this bill falls woefully short of
the goal. The bill is light on reform of Wall Street and the bad
actors, it is heavy on overreach and unintended consequences throughout
our economy, which will affect the ability of people to get and hold
jobs.
It will affect the budgets of every family. My colleagues I hope will
oppose cloture and continue to work to pass bipartisan amendments that
will make changes to the destructive provisions I have outlined above.
Let us not forget about the rating agencies. The book I mentioned,
``The Big Short,'' pointed out that the brain-dead analysts at the
ratings firms routinely put AAA ratings on some of the
[[Page S3959]]
most toxic, worthless paper, and then other people managed to buy
insurance on those bad contracts even though they did not have any
interest in them and made millions.
This amendment takes out the rating agencies, but the rating agencies
still need to be overlooked and they ought to be funded not by the
people who issue the paper but by the people who are buying the paper.
There is no doubt that everybody here knows we need to protect
Americans from falling victim to another Wall Street gone wild. This is
government gone wild. It benefits Wall Street. It harms small business,
community bankers, your local utility company, which sends you your
utility bill. Is that on the right track? I do not see how anybody can
say it is.
We do not want--and this is why this debate is so important--to
punish the everyday Americans for a crisis they did not cause and whose
impact they feel the burden, and our children will feel it, for years
to come. Unless we succeed in it, the Democrats' bill will do just
that. The cost will be paid by Main Street and by each and every one of
us. Therefore, I urge my colleagues to oppose cloture and let us get to
work on regulating what went bad and not messing with things that work.
I yield the floor.
Exhibit 1
[From the Wall Street Journal, May 17, 2010]
The Small Business Credit Crunch
(By Meredith Whitney)
The next several weeks will be critically important for
politicians, regulators and the larger U.S. economy. First,
over the next week Capitol Hill will decide on potentially
game-changing regulatory reform that could result in the
unintended consequences of restricting credit and further
damaging small businesses.
Second, states will approach their June fiscal year-ends
and, as a result of staggering budget gaps, soon announce
austerity measures that by my estimates will cost between one
million to two million jobs for state and local government
workers over the next 12 months.
Typically, government hiring provides a nice tailwind at
this point in an economic recovery. Governments have employed
this tool through most downturns since 1955, so much so that
state and local government jobs have ballooned to 15% of
total U.S. employment.
However, over the next 12 months, disappearing state and
local government jobs will prove to be a meaningful headwind
to an already fragile economic recovery. This is simply how
the math shakes out. Collectively, over 40 states face
hundreds of billions of dollars in budget gaps over the next
two years, and 49 states are constitutionally required to
balance their accounts annually. States will raise taxes, but
higher taxes alone will not be enough to make up for the vast
shortfall in state budgets. Accordingly, 42 states and the
District of Columbia have already articulated plans to cut
government jobs.
So the burden on the private sector to create jobs becomes
that much more crucial. Just to maintain a steady level of
unemployment, the private sector will have to create one
million to two million jobs to offset government job losses.
Herein lies the challenge: Small businesses, half of the
private sector (and the most important part as far as jobs
are concerned), have been heavily impacted by this credit
crisis. Small businesses created 64% of new jobs over the
past 15 years, but they have cut five million jobs since the
onset of this credit crisis. Large businesses, by comparison,
have shed three million jobs in the past two years.
Small businesses continue to struggle to gain access to
credit and cannot hire in this environment. Thus, the full
weight of job creation falls upon large businesses. It would
take large businesses rehiring 100% of the three million
workers laid off over the past two years to make a
substantial change in jobless numbers. Given the productivity
gains enjoyed recently, it is improbable that anything near
this will occur.
Unless real focus is afforded to re-engaging small
businesses in this country, we will have a tragic and
dangerous unemployment level for an extended period of time.
Small businesses fund themselves exactly the way consumers
do, with credit cards and home equity lines. Over the past
two years, more than $1.5 trillion in credit-card lines have
been cut, and those cuts are increasing by the day. Due to
dramatic declines in home values, home-equity lines as a
funding option are effectively off the table. Proposed
regulatory reform--specifically interest-rate caps and
interchange fees--will merely exacerbate the cycle of credit
contraction plaguing small businesses.
If banks are not allowed to effectively price for risk,
they will not take the risk. Right now we need banks, and
particularly community banks, more than ever to step in and
provide liquidity to small businesses. Interest-rate caps and
interchange fees will more likely drive consumer credit out
of the market and many community banks out of business.
Clearly, the issue of recharging the securitization market
as an alternative source of liquidity is one that needs to be
addressed over time, but politicians should not force rash
regulatory reforms when significant portions of our economy
remain fragile. The very actions designed to ``protect'' the
consumer, such as rate caps and interchange fees, will
undoubtedly take more credit away from the consumer.
It is important now to support any and all lending
activities that would enable small businesses to begin hiring
again. If the regulatory reform passes with rate-cap and
interchange regulation amendments incorporated, small
businesses will be hurt rather than helped. Politicians and
regulators need to appreciate the core structural challenges
facing unemployment in the U.S.
Elected officials know better than most that an employed
voter is better than an unemployed voter. They should improve
their odds of re-election and do the right thing on
regulatory reform.
Mr. HATCH. Mr. President, I rise today to express my opposition to S.
3217, the Restoring American Financial Stability Act. I am not opposed
to financial regulatory reform, but there is precious little of that in
this misnamed bill.
No, real financial regulatory reform is something that should have
been done a year ago, but, instead, Democratic leaders and the Obama
administration opted to focus on a Washington takeover of our Nation's
health care system.
There are a few parts to the Restoring American Financial Stability
Act that are worthy of support. In particular, I believe we need to
monitor derivatives to require more capitalization and demand issuers
maintain a stake in the game when creating and selling certain
financial instruments. However, I think this bill is going to do more
harm than good to our economy. It will weaken our financial system
rather than strengthen it. Furthermore, it not only preserves the
fragmented financial regulatory structure that is already in place but
adds even more burdensome, costly, and misguided regulations. Before I
list my concerns about the bill, I am going to address the specious
accusations I have heard from the other side of the aisle that
Republicans are being obstructionist or trying to protect the interests
of Wall Street over those of Main Street. Give me a break.
These accusations are not only false, they are aimed at diverting
attention from our solutions to a bad bill by attacking our credibility
and motivations. We are not trying to protect anyone except the
American people who are the victims of this economic collapse.
Let me be clear that every Senate Republican and I want financial
regulatory reform in order to prevent a recurrence of what happened a
couple of years ago with the collapse of our financial markets. But the
problem with this proposal is that it not only regulates Wall Street
but also Main Street. It goes beyond regulating large financial
institutions that caused the problem and proposes to regulate community
banks and credit unions, payday lenders, and other small businesses and
almost any business that provides financing to their customers. If the
other side is implying that we are trying to protect Wall Street
because we have some sort of special relationship with large financial
institutions, that is blatantly false on its face and simply not true.
Large financial institutions contributed way more to Democrats than
Republicans in the last election and elections before that. If anyone
is guilty of trying to do a special favor for Wall Street, it certainly
isn't this side. That is all I can say. If you look at the financial
filings, it is pretty darn clear who Wall Street supported.
If anything, I believe this bill will benefit Wall Street in the
sense that it is something they can always get around. It would provide
a perpetual bailout for large financial institutions. I know there is
an argument against that, but look at the bill. It would require higher
capitalization for many of the companies in which these institutions
invest and place larger financial institutions at an unfair advantage
over smaller financial institutions.
But don't take it from me. Take it from the CEO of Goldman Sachs,
Lloyd Blankfein, who said ``the biggest beneficiary of reform is Wall
Street itself.'' He is a smart guy. He deserves to be the president of
Goldman Sachs, one of
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the more important companies on Wall Street. There isn't any way they
would not get around whatever we do today. They are the smartest people
on Earth. So the claim that Republicans are trying to protect Wall
Street doesn't hold very much water at all.
Some on the other side of the aisle have claimed our objective is to
obstruct passage of any financial regulatory reform bill. I can't agree
with that. In fact, I cannot disagree more. Not only did a Democrat
join Republicans in voting against proceeding to this bill, another
Democrat who serves on the Banking Committee and has been involved in
negotiations noted that the concerns being raised by Republicans about
potential bailouts of large financial institutions are legitimate. He
validated our concerns by stating that ``there are parts that need to
be tightened.'' So at the very least, both Democrats and Republicans
believe this bill leaves a lot of room for improvement.
I would like to turn my attention to the substance of the bill. The
reasons I am opposed to this legislation are because, along with many
others, I have serious misgivings about its effectiveness, specifically
the FDIC's orderly liquidation authority, the overregulation of the
consumer protection agency, and the lack of reforming Freddie Mac and
Fannie Mae. The meltdown of our financial markets highlights a major
flaw in our financial regulatory system--the expeditious dissolution of
a financial institution.
I recently finished reading former Treasury Secretary Hank Paulson's
book, ``On The Brink,'' which details the time leading up to the
catastrophic failures and the handling of the crisis. I would like to
read a short passage:
Back in my temporary office on the 13th floor, a jolt of
fear suddenly overcame me as I thought of what lay ahead of
us. Lehman was as good as dead, and AIG's problems were
spiraling out of control. With the U.S. sinking deeper into
recession, the failure of a large financial institution would
reverberate throughout the country--and far beyond our
shores. It would take years for us to dig ourselves out from
under such a disaster.
What I took away from this book was the enormity and complexity of
trying to dissolve these large financial institutions before their
assets disappeared. There is no doubt that our current system is
incapable of handling such a complicated task. In fact, over the last
few weeks, I not only read ``On The Brink,'' but I read ``The Ascent of
Money.'' I read ``The Panic of 1907'' and was amazed at the correlation
between 1907 and 2007. I read ``On The Brink'' by Hank Paulson. I read
Sorkin's book, ``Too Big To Fail.'' Just last weekend I read the book,
``The Big Short,'' by Michael Lewis, which is an excellent read. They
have all been excellent reads. That is in the last few weeks.
The Federal Deposit Insurance Corporation, or FDIC, was established
in 1933 to insure bank deposits. It mainly deals with the common brick-
and-mortar bank that most of us use on a daily basis. It oversees
roughly 8,000 depository institutions and $9 trillion in deposits. In
the aftermath of the economic collapse, the FDIC administered 25 bank
failures in 2008 and 140 in 2009. That is approximately 2 percent of
all the banks they oversee.
Despite such a low percentage, the FDIC's deposit insurance fund was
nearly depleted. According to the Federal Reserve, there are
approximately 5,000 top-tier bank holding companies with roughly $17
trillion in assets. The top 10 largest financial institutions hold $9
trillion in assets. The current financial regulatory reform bill
proposes to provide the FDIC with an orderly liquidation authority to
unwind not only depository institutions but now large financial
institutions that pose a systemic risk to our financial system.
With the passage of this bill, the FDIC would be responsible for
unwinding nearly double the total number of assets. However, the
magnitude of the task is the least of my concerns. By taking the
resolution out of the bankruptcy courts, with all of their expertise,
and putting it in an executive branch administrative proceeding
conducted by politically appointed bureaucrats, we definitely lose
transparency and accountability. It is ridiculous.
If you would like to see a glimpse of the consequences of losing
transparency and accountability, just look at the FDIC's behind-closed-
doors handling of Washington Mutual. During a Senate investigatory
hearing last month, former Washington Mutual Chief Executive Kerry
Killinger denounced the FDIC's handling of the bank failure as
``unnecessary'' and ``unfair,'' partly because the thrift was shut out
of hundreds of meetings and phone calls with financial industry
executives who determined the ``winners and losers'' in the crisis.
Our current bankruptcy courts avoid many of the problems associated
with creating a government resolution authority and are a superior way
of dealing with failed or failing nonbank financial firms. The
bankruptcy courts make dissolving large institutions transparent. That
is why we have them. They are experts at it. They know what they are
doing. We can all watch what they are doing. We can read the pleadings.
We can do a lot of things that bring transparency. The other way will
not.
That brings me to my next concern with this bill, the creation of the
Consumer Financial Protection Agency. Of course, I think we can all
agree we need to strengthen consumer protection within our financial
system. But I first believe we need to ask what went wrong with the
current system before we create yet another government agency to create
more regulations and oversight.
This will only make it more difficult for consumers and small
businesses to obtain a loan, a line of credit, or a credit card. The
entire alphabet soup of Federal Government agencies--the FDIC, OCC,
SEC, FTC, and the Fed--all have consumer protection divisions. However,
these divisions did not meet the standard of protection we need.
Extracting these consumer protection arms from each of the agencies and
putting them in a new agency is like taking the worn parts from several
clunkers and using them to build another car. You will still have a
clunker.
Furthermore, think of the costs that new local banks, credit unions,
payday lenders, and other industries that deal with credit, such as
auto dealers and other small businesses, will incur when trying to
comply with all these new, overly burdensome regulations.
But the worst part of this legislation is what it is missing--reform
of Fannie Mae and Freddie Mac. These two mortgage agencies caused the
financial crisis by backing loans to people who couldn't afford them.
But that certainly didn't stop Uncle Sam from bailing them out at a
cost to taxpayers of some $145 billion. This financial abuse is swept
under the rug because the debt is not put on our books. These
companies, which the government now fully owns, are not considered
government agencies and, therefore, are not included when tallying up
our outrageous trillion-dollar deficits. I might add, that is just the
beginning. We all know Fannie and Freddie are about to explode into all
kinds of bigger problems, some estimate as much as $500 billion. That
is scary. Yet we are not doing a doggone thing about it in this bill.
We should have faced the music and done whatever we could. A lot of
games are played with the budget.
As I said before, I support financial regulatory reform. However,
this bill falls short of reform and opens the way for another economic
collapse to occur. It will unjustly protect companies that are deemed
too big to fail by providing them preferential treatment during FDIC-
conducted liquidations. It will create costly burdens for the 99
percent of financial institutions that did not cause the financial
collapse, and it misses the mark by not addressing the reform of Fannie
Mae and Freddie Mac.
There are other reasons, but I think I will limit my remarks today to
those few. Those few involve trillions of dollars, involve all kinds of
future problems for our country, and I think will lead us even further
down the path of poor economics, higher debt, higher spending, more and
more government, and less and less control by the people.
I yield the floor and suggest the absence of a quorum.
The PRESIDING OFFICER (Mr. Burris). The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. DODD. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
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