[Congressional Record Volume 156, Number 77 (Thursday, May 20, 2010)]
[Senate]
[Pages S4027-S4034]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
RESTORING AMERICAN FINANCIAL STABILITY ACT OF 2010
The ACTING PRESIDENT pro tempore. Under the previous order, the
Senate will resume consideration of S. 3217, which the clerk will
report.
The bill clerk read as follows:
A bill (S. 3217) to promote the financial stability of the
United States by improving accountability and transparency in
the financial system, to end ``too big to fail,'' to protect
the American taxpayer by ending bailouts, to protect
consumers from abusive financial services practices, and for
other purposes.
Pending:
Reid (for Dodd/Lincoln) amendment No. 3739, in the nature
of a substitute.
Brownback further modified amendment No. 3789 (to amendment
No. 3739), to provide for an exclusion from the authority of
the Bureau of Consumer Financial Protection for certain
automobile manufacturers.
Specter modified amendment No. 3776 (to amendment No.
3739), to amend section 20 of the Securities Exchange Act of
1934 to allow for a private civil action against a person
that provides substantial assistance in violation of such
act.
Dodd (for Leahy) amendment No. 3823 (to amendment No.
3739), to restore the application of the Federal antitrust
laws to the business of health insurance to protect
competition and consumers.
Dodd (for Cantwell) modified amendment No. 3884 (to
amendment No. 3739), to impose appropriate limitations on
affiliations with certain member banks.
Cardin amendment No. 4050 (to amendment No. 3739), to
require the disclosure of payments by resource extraction
issuers.
Merkley/Levin amendment No. 4115 (to amendment No. 3789),
to prohibit certain forms of proprietary trading.
Mr. REID. Madam President, I note the absence of a quorum.
The ACTING PRESIDENT pro tempore. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. McCONNELL. Madam President, I ask unanimous consent that the
order for the quorum call be rescinded.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
New Health Care Law
Mr. McCONNELL. Madam President, ever since they passed their new
health
[[Page S4028]]
care bill, Democrats promised to help small businesses offset some of
the costs of the new taxes and mandates it will impose.
Yet, according to an AP story this morning, that is looking like yet
another empty promise.
According to the story, a furniture supply store owner in
Springfield, IL, Zach Hoffman, was confident he qualified for the new
small business tax credit. Yet buried in the new law's fine print was
language disqualifying his 24 employees from this needed help.
According to the law, Mr. Hoffman created too many jobs to get help,
and he paid them too much, even though his average employees only made
$35,000 a year.
Mr. Hoffman called this a bait and switch and noted that in order to
get the most out of the new credit, he would have to cut his workforce
to 10 employees and slash their wages.
``That seems like a strange outcome,'' he said, ``given we've got 10
percent unemployment.''
Speaker Pelosi told Americans we had to pass the health care bill so
we could know what was in it. Now that Americans are learning what was
buried in the fine print, they are rightly upset.
They see that small businesses are denied the help they were
promised, while facing new job-killing taxes and government mandates.
They have learned that health care costs will go up, not down, as the
administration and Democrats in Congress promised.
Americans want this bill repealed and replaced with something that
will work for people such as Zach Hoffman and all the Nation's job
creators and small businesses.
Madam President, what is the pending business?
The ACTING PRESIDENT pro tempore. The Merkley second-degree amendment
to the Brownback amendment.
Mr. McCONNELL. Madam President, I ask for the yeas and nays.
The ACTING PRESIDENT pro tempore. Is there a sufficient second? There
is a sufficient second.
The yeas and nays were ordered.
The ACTING PRESIDENT pro tempore. The Senator from Iowa is
recognized.
Mr. HARKIN. Madam President, parliamentary inquiry: What is before
the Senate at the present time?
The ACTING PRESIDENT pro tempore. The Merkley second-degree
amendment.
Mr. HARKIN. Madam President, I have been, for some time, trying to
bring up an amendment that has been filed which deals with a kind of,
some might say, a little-known part of the insurance industry, called
indexed annuities.
A little bit of background. Indexed annuities have been sold for some
time. They are an annuity that people would buy, and there is an upside
limit. In other words, if the S&P index goes up by, let's say, 500
percent, the holder of the annuity does not get all of that 500
percent; the insurance company gets a big portion of that. But in
exchange for that, there is no downside risk. The holder of that
annuity, if the S&P goes down 500 percent, doesn't lose anything if
held to its term. It has been a very valuable instrument for a lot of
people to have these indexed annuities.
During the recent recession of 2008 and 2009, no one lost any capital
in any of their indexed annuities based on the stock market going down.
They lost nothing because they had that downside protection. That was
not true of other instruments, obviously. If you had a security,
obviously, you lost a lot of money in the downturn of the stock market.
Owners of the indexed annuities didn't lose any principal whatsoever
when they held it to term. That is the value of these indexed
annuities.
Two years ago in the waning days of the last administration, the
Securities and Exchange Commission decided they wanted to have
jurisdiction over these. There had been some abuses by sellers of
indexed annuities sold to individuals--mostly elderly individuals--when
it was not the best investment for them. They were sold an annuity
instrument that was not in their best interest.
The SEC, under Chairman Cox, decided they were going to take
jurisdiction of this. They were going to have this within their
jurisdiction. It was a divided vote at the SEC as to whether they would
do this, but the vote was in favor, so the SEC pulled this under their
umbrella. The SEC was taken to court by certain companies. It went to
the district court and then it was appealed to the circuit court of
appeals in the District of Columbia.
The circuit court of appeals decided this on July 21, 2009, not even
1 year ago.
The circuit court said:
We hold that the Commission's consideration--
That is the Securities and Exchange Commission, SEC--
We hold that the Commission's consideration of the effect
of Rule 151A--
That was the rule that would govern the indexed annuities over which
the SEC now wants to have jurisdiction, which they never had before.
We hold that the Commission's consideration of the effect
of Rule 151A on efficiency, competition, and capital
formation was arbitrary and capricious.
``Arbitrary and capricious,'' held by the circuit court.
What did the circuit court say? They said: We remand this. Having
determined that their analysis is lacking, ``we conclude that this
matter should be remanded to the SEC to address the deficiencies with
its 2(b) analysis.''
It is back at the SEC. The SEC could at some point jiggle things
around and decide, yes, now they have a better analysis and now they
have jurisdiction. They will be taken to court again, and this will go
on and on. In the meantime, the status of the companies selling indexed
annuities, are in limbo.
Again, if someone says: We had some problems with this in the past, I
understand that. But the insurance commissioners who have jurisdiction
over insurance fix the problems. In fact, the National Association of
Insurance Commissioners, in a letter to Senator Dodd, the chairman of
the committee, dated April 30, basically points out what they have done
to fix this problem.
The insurance commissioners said: Yes, there is a problem. Let's get
together. Let's change the rules and regulations under which these are
sold. And they did.
Some might say: Why shouldn't we give this to the SEC? Is the SEC the
final and best word and the best protector of consumers, I ask you? Is
the SEC the best protector of consumers in this country when it comes
to financial instruments? Ask Bernie Madoff's customers.
Did we say because of Bernie Madoff and all the money he cheated and
stole from people--and he was under the jurisdiction of the SEC--we
have to take that jurisdiction away from the SEC now and give it to
somebody else? No. We said: SEC, change your policies and change your
regulations so a Bernie Madoff cannot happen again. That is what we are
doing.
These indexed annuities have always been insurance products, governed
by the insurance commissioners in each State and the National
Association of Insurance Commissioners. If there was a problem, it went
to them. They addressed the problem. They fixed it. We have a new
regulatory regime in which indexed annuities can be sold so the
problems that occurred in the past will not happen again. Will there be
violations? Yes, but now there are strong enforced regulatory rules in
place.
The SEC wants the oversight shared. But, two regulators in conflict
create problems and considerable costs.
I am not one who says to protect the consumer against everything we
have to give it to the SEC. The SEC did a lousy job--a lousy job--in
protecting consumers who held securities. I mean stocks, securities.
Not one person who had an indexed annuity lost one single dime in the
downturn in 2008, 2009. We cannot say that about Bernie Madoff's
accounts, can we?
I have been trying to get my amendment up to basically say: Look, the
SEC does not have jurisdiction right now over these insurance
instruments--that is what they principally are, insurance instruments.
We left insurance to the States. If the SEC is able to grab hold of
this kind of an instrument, what is to keep them from whole life? Now
we are going to take over whole life insurance policies, too, because
we have had problems in whole life policies, too and the value of their
cash value can change with the markets, I say to my colleagues.
Insurance
[[Page S4029]]
commissioners keep track of this, they strengthened their regulation.
They change their rules and regulations to cover these kinds of
happenings.
Unless we are to the point where we are saying we are going to have
federal regulation of insurance in America, if we are there, OK. I
would like to see that vote happen. This is one more overreaching by a
Federal department to gain jurisdiction over an area of State
regulation over which they have never had jurisdiction. SEC has never
had jurisdiction, and the circuit court said the analysis on which they
reached their basis to grab this was ``arbitrary and capricious.''
I have an amendment, amendment No. 3920, at the desk. It has broad
cosponsorship on both sides of the aisle--Democrats, Republicans,
conservatives, liberals, up and down--to say, no, this ought to stay
with the insurance commissioners because it is, in its essence, an
insurance product.
The new rules that have been promulgated by the insurance
commissioners basically cover the problems that happened in the past.
The rules require certain amounts of liquidity and take into account
the age of the consumer. That was the problem in the past. They were
selling these to people who were way too old who would not live long
enough to get their annuities. They look at the tax status, the
financial objectives of the consumer, and whether this is some kind of
churning policies. These are all new regulations instituted by the
insurance commissioners to answer a problem that came up because of,
let's face it, some agents out there who were taking advantage of
elderly people.
There are always going to be some bad actors. I do not care if it is
under SEC or the insurance commissioners, there is always going to be
someone trying to game the system. This has always been under the
insurance commissioners' jurisdictions. They have taken these steps.
We have a letter from the AARP saying they were opposed to my
amendment. I have a great deal of respect for the AARP. I do a lot of
work with them. More often than not, they do good things. But here is
an article from the April 10, 2007, New York Times, titled ``Income for
Life? Sounds Good, But Do Your Homework.''
It points out that AARP has teamed up with New York Life Insurance
to--guess what--to sell annuities. I detect, I smell a little bit of a
flavor of a conflict of interest.
Oh, the AARP does not want the indexed annuities sold out there. They
want the elderly to buy their annuities. I don't care. Fine. If they
want to be in the business of selling annuities, I don't care if AARP
does that. But to send out a letter dated May 19 to the chairman of the
Banking Committee talking about how bad my amendment is--did they say
in their letter to the chairman of the committee, in all due candor,
the AARP has joined with New York Life Insurance to sell annuities? No,
they did not say that at all. So there is a little hint of a conflict
of interest.
Madam President, I ask unanimous consent to have printed in the
Record two items: a letter from AARP dated May 19 to the Honorable
Christopher Dodd; and immediately following that, an article from the
New York Times dated April 10, 2007.
There being no objection, the material was ordered to be printed in
the Record, as follows:
AARP,
Washington, DC, May 19, 2010.
Hon. Christopher Dodd,
U.S. Senate, Committee on Banking, Housing and Urban Affairs,
Dirksen Senate Office Building, Washington, DC.
Dear Senator Dodd: AARP writes to strongly oppose Harkin
Amendment #3920, which would deprive investors in equity-
indexed annuities of needed protections provided by state and
federal securities laws.
These hybrid products combine elements of insurance and
securities, but they are sold primarily as investments, not
insurance, especially to people who are investing for their
own retirement. Growth in equity-indexed annuity value is
tied to one of several securities indexes (e.g. the S&P 500
or the Dow Jones Industrial Average), and comparing and
choosing suitable products can be difficult for investors.
These products also come with high fees and have long
surrender periods, which may make them unsuitable as
investments for most seniors.
In the fall of 2008, the Securities and Exchange Commission
adopted a rule to regulate equity-indexed annuities as
securities (Rule 151A). The rule was later challenged, and
the Court of Appeals for the District of Columbia Circuit
upheld the legal foundation for the SEC's action.
Because seniors are a target audience for these products,
AARP submitted comments to the SEC supporting the rule,
stating it was important that Rule 151A supplement, not
supplant, state insurance law. In fact, the rule applies
specifically to annuities regulated under state insurance
law. AARP also submitted a joint amicus brief, along with the
North American Securities Administrators Association and
MetLife, supporting Rule 151A.
The Harkin amendment would overturn the SEC rule, which is
designed to provide disclosure, suitability, and sales
practice protections afforded by state and federal securities
laws. The amendment would preempt any further ability of the
SEC to regulate in this area. This not only deprives
investors of needed protections against widespread abusive
sales practices associated with these complex financial
products, it also sets a dangerous precedent. If this
amendment is adopted, the industry will be encouraged to
develop hybrid products in the future specifically designed
to evade a regulatory regime designed to protect consumers.
Regulating indexed annuities as securities is long overdue
and vitally important for our nation's investors saving for a
secure retirement.
The SEC's rule on indexed annuities accomplishes this goal
in a thoughtful and reasonable fashion, and it should be
allowed to take effect. AARP therefore opposes the Harkin
amendment.
Sincerely,
David Sloane,
Senior Vice President,
Government Relations and Advocacy.
____
[From the New York Times, Apr. 10, 2007]
Income for Life? Sounds Good, but Do Your Homework
(By Jan M. Rosen)
What if I outlive my money? The fear of such a thing
happening haunts many older Americans. So when a reputable
company, New York Life Insurance, teams up with AARP to offer
an investment with the absolute promise of lifetime income,
it can sound like an answered prayer.
Indeed, the investment, an immediate annuity, may be ideal
for some retirees, but financial advisers say it is not for
everyone. Prospective buyers need to do some homework--
studying both their own finances and the annuities available
in comparison with other investments.
After all, an immediate annuity is an investment for the
rest of a person's life or a couple's lives, and it is not
easily liquidated if either personal circumstances or
financial markets change.
``If you live beyond your life expectancy, you win,'' said
Avery E. Neumark, a partner in the New York accounting firm
Rosen Seymour Shapss Martin & Company, who specializes in
retirement planning. ``If you die early, you lose and your
heirs lose.'' The reason is that annuities, like life
insurance, are based on pooling of risks and average life
expectancies. Three trends have converged to make immediate
annuities especially attractive to retirees: Americans'
increased longevity, the decline of traditional defined
benefit pension plans that make secure monthly payments, and
early--thus longer--retirements.
Larry C. Renfro, the president of AARP Financial, a
subsidiary of AARP Services, said, ``Mindful that they run
the risk of outliving their assets without ongoing income,
many AARP members have expressed interest in the potential of
annuities to help fill their income gap.''
According to the National Center for Health Statistics, an
American's life expectancy at birth is 77.8 years, up from
69.7 years in 1960. Those who live until age 65 will on
average live until age 83.7, up from 79.3 in 1960. As people
age, their life expectancies increase, so a 75-year-old today
can expect to live until age 86.9. Depending on their health,
family history and genetics, some people can expect to live
far longer than average.
In its basic form, an immediate annuity is bought with a
single upfront payment; for the AARP Lifetime Income Program,
that can be as little as $5,000. Then the annuity holder
receives monthly payments for life. The size of the payment
depends on how much money is invested, the investors' age and
sex and whether the annuity is for an individual or a couple.
Buyers may also choose optional features, including
inflation protection and a withdrawal benefit in an
emergency. There are also various payment choices; under one,
if the annuitant dies before receiving an amount equal to the
initial premium, a beneficiary receives the difference. When
optional features are added, the monthly payout is reduced.
A 65-year-old man who buys a $100,000 AARP-New York Life
annuity can expect payments of 6.5 to 8 percent a year, or
$542 to $667 a month, depending on the features chosen. At
age 75, the payout rate would be 7 to 10 percent.
``Returns are very conservative, but you can sleep at night
knowing this much is coming in,'' Mr. Neumark said. ``It's
reliable income and provides an opportunity for flexibility
with your other investments. You can be in stocks with less
worry when you have that secure monthly income stream.''
[[Page S4030]]
Martha Priddy Patterson, a retirement expert and director
of Deloitte Consulting in Washington, said, ``In retirement
we would feel more secure and happy if we knew that every
month, X number of dollars will be rolling through the
door.'' But, she said, ``you wouldn't want to make that your
only investment,'' for several reasons.
It is always good to diversify investments, she said,
adding, ``Inflation is my No. 1 fear, so I would want some
TIPS,'' or Treasury inflation-protected securities. And, she
said, annuities are relatively illiquid; surrender or unwind
charges may be steep.
Among the other highly rated life insurance companies that
offer immediate annuities are AIG, Genworth, Hartford,
Integrity, John Hancock, Metropolitan, Mutual of Omaha,
Principal and Prudential.
Comparison shopping can be difficult ``because so many
bells and whistles are available,'' Ms. Patterson said, and
they are costly. ``Decide what you want and what your goals
are, and when you talk to sellers be firm about what you want
and resist the others,'' she added.
Kim Holland, the Oklahoma insurance commissioner, said,
``There are certain benefits that you just can't get from
other products,'' notably the assurance of lifetime income
and a greater payout rate than would be available from
certificates of deposit or bonds at present. And income is
not taxed until it is paid out.
Still, Ms. Holland, who has waged an aggressive campaign to
root out and prosecute insurance fraud, said that ``seniors
are vulnerable--they are often targeted by scam artists.''
She stressed the need to check the rating of the insurance
company issuing an annuity, the reputation of the individual
agent selling it and whether the annuity is appropriate for
the prospective buyer.
Two years ago, she enlisted AARP in a consumer education
campaign on annuities, warning of ``predatory sales practices
and the solicitation of unsuitable annuity products.'' In one
case, an agent sold a lifetime annuity to a 104-year-old man,
Ms. Holland said. and, in another, an agent brought cookies
to a woman and planted flowers in her garden to win her
confidence.
When approached by an agent, do not provide any
information, Ms. Holland said. Instead, if you are
interested, get the person's card and ``do your homework.''
She added: ``Check with peers, friends, relatives, bankers,
your accountant. Don't respond to telephone solicitations or
ads for free seminars or dinners.''
``New York Life is a very fine company, and AARP and New
York Life have very fine products,'' Ms. Holland said, ``but
that doesn't mean they are appropriate for every
individual.''
An immediate annuity can be right for people who need a
monthly income, just as they had when they were working, and
as their parents' generation had with payments from defined
benefit pensions, which only a fifth of Americans have today.
They also appeal to people who fear they lack the financial
expertise to make their savings last a lifetime.
On the other hand, the very rich do not need immediate
annuities, said Paul Pasteris, New York Life's senior vice
president in charge of retirement income. They could put
their capital into Treasury bonds and live on the income.
Studies have shown that it is safe to take about 4 percent a
year from a retirement portfolio, he said. But relatively few
people are in that position.
``For the last 20 or 30 years, the financial services
sector has been telling people to save for retirement,'' Mr.
Pasteris said, but once people retire they ``face a new
discipline called retirement income planning.''
Immediate annuities can provide income and help people cope
financially with several risks.
``The first risk is longevity,'' he said, ``the risk that
you could be in a pickle if you live too long.
``The next is market risk. With a portfolio of stocks,
bonds and cash, what are the returns going to be? More than
just returns--the timing is critical.'' Suppose the market
tumbles just when a person retires. ``Losses early can have a
devastating effect,'' he said, because a shrunken portfolio
will not produce enough income. ``If a poor return period is
later, everything can be fine.''
Inflation is the third risk, and on annuities, inflation
protection is available as an option. ``Even if it is only 2
or 3 percent, if you retire at 65 and live till 85, 90 or 95,
inflation could have a huge impact,'' Mr. Pasteris said.
Health problems are another risk. A comfortable monthly
income stream can ease those costs not covered by Medicare
and secondary insurance.
Overspending is a risk for some retirees who have been
looking forward to travel and the good life. ``Can you resist
the urge to dip into your nest egg and withdraw too much too
early?'' he asked. If not, putting the principal into an
immediate annuity and living on the cash flow will require
some financial discipline.
The median policy size is around $60,000, Mr. Pasteris
said, and about half the policies are bought through I.R.A.'s
or retirement plan rollovers, continuing the tax-deferment on
those plans until income is paid out. If an annuity is bought
with after-tax money, part of the payout is considered a
return of principal and is not taxed.
Mr. Pasteris said, ``We work with customers to figure their
basic income expenses--food, clothing, rent, medical.'' The
next step is to calculate how much will be met by pensions
and Social Security. If the amount is not enough, a lifetime
annuity can be purchased to make up the difference. ``With
the remainder of their savings, people can get more
aggressive if they want,'' he said.
His colleague, Michael Gallo, who is also a senior vice
president, said: ``We don't encourage people to be more
aggressive. In general it's better to be more conservative.''
Mr. Gallo added, ``We don't want people putting all their
money into this.'' The general recommendation is 25 to 50
percent of assets available for investment, although more
could sometimes be appropriate. People should hold some cash
in more liquid investments for emergencies, he said, and they
may want to try a laddering approach, buying more annuities
as they age and costs rise.
Tim Kochis, the president of Kochis Fitz, a San Francisco
wealth management firm, would put far less into it. ``I would
devote no more than 10 percent at the outside,'' he said.
``It is a function of risk tolerance, risk management--it can
be for someone who is very risk averse and would otherwise be
paralyzed.''
``It's much better than a money market fund,'' Mr. Kochis
added, but he advises putting the bulk of a portfolio into
stocks. ``There's so much opportunity for long-term growth if
you can withstand the short-term volatility. That's the price
you pay for long-term performance, the price of entry. Most
people need to make a portfolio grow.''
Of course, they also need to sleep at night.
Mr. HARKIN. Madam President, I also ask unanimous consent to have
printed in the Record a letter dated April 30 from the National
Association of Insurance Commissioners.
There being no objection, the material was ordered to be printed in
the Record, as follows:
National Association of Insurance Commissioners, The
Center for Insurance Policy and Research,
Washington, DC, Apr. 30, 2010.
Hon. Christopher Dodd
Russell Senate Office Building,
Washington, DC.
Dear Senator Dodd: We are writing to convey the support of
the National Association of Insurance Commissioners (NAIC)
for efforts to preserve state regulatory authority over
indexed annuities inherent in S. 1389, the Fixed Indexed
Annuities and Insurance Products Classification Act of 2009.
This legislation, which would nullify the Securities and
Exchange Commission's (SEC) Rule 151A and clarify the scope
of the exemption for annuities and insurance contracts from
federal regulation, will help ensure that consumers continue
to benefit from the vital consumer protections provided by
state insurance regulators.
The NAIC represents the chief insurance regulators from the
50 states, the District of Columbia, and five U.S.
territories, whose primary objectives are to protect
consumers and promote healthy insurance markets. As
regulators vigilantly working towards these goals, we
strongly believe that this SEC rule is unnecessary and
distracts from important ongoing efforts at the NAIC and in
the states to address emerging issues concerning indexed
annuities.
Rule 151A ignores the fact that, at their core, indexed
annuities are insurance products that guarantee purchasers'
principal and a minimum rate of return. Though index
performance may reduce payments above the minimum rate of
return, the consumer still has a guaranteed benefit and the
fundamental risk lies with the company, not the consumer. For
this reason, indexed annuities are fundamentally insurance
products and should be regulated by state insurance
regulators who can approve annuities contracts before they
can be introduced to the market, monitor individuals involved
with the sales and marketing of the annuities, and regulate
the investments and financial strength of the issuing
company. We believe that the uncertainties and ambiguities
created by the new SEC regulatory scheme could greatly hinder
these rigorous consumer protections.
Additionally, Rule 151A will greatly constrain the product
distribution channel. Indexed annuities can be sold through
several distribution channels by companies, but under Rule
151 A indexed annuities would only be sold through one
distribution system--the broker dealer channel. Since fewer
people have a broker dealer connection, especially in the
less populated areas, whereas almost all have an insurance
representative, this product will become less available to
consumers.
Thank you for your efforts to ensure that states can
continue to protect consumers of annuities. We look forward
to working with you to enact this important piece of
legislation.
Sincerely,
Jane L. Cline,
West Virginia Insurance Commissioner, NAIC President.
Susan E. Voss,
Iowa Insurance Commissioner, NAIC President-Elect.
Kevin McCarty,
Florida Insurance Commissioner, NAIC Vice President.
Kim Holland,
[[Page S4031]]
Oklahoma Insurance Commissioner, NAIC Secretary-Treasurer.
Therese M. Vaughan, PhD,
NAIC Chief Executive Officer.
Mr. HARKIN. Madam President, AARP does not come to this in a neutral
position, not a neutral position at all. They have their own annuities,
but they are not indexed annuities. With their product. When the
downturn comes, people can lose. People can lose money in annuities but
not in indexed annuities if held to term. They do not get the upside;
the insurance companies get that. But they are protected. If the market
goes down, they lose none of their annuity. That is exactly what
happened in the last downturn.
I would like to call up my amendment, but I guess I am precluded from
doing so. I was waiting for the ranking member to come back before I
made a request. I was waiting for the ranking member to come back
because I had been discussing this with him. I know we are going out at
10:30; is that right, Madam President?
The ACTING PRESIDENT pro tempore. At 10:40.
Mr. HARKIN. What time does the Senate reconvene?
The ACTING PRESIDENT pro tempore. At 12 noon.
Mr. HARKIN. Has there been a consent agreement entered as to a
certain time for a vote on cloture?
The ACTING PRESIDENT pro tempore. Yes, 2:30.
Mr. HARKIN. Madam President, I am going to ask unanimous consent to
call up my amendment.
I ask unanimous consent to set aside the pending amendment and to
call up my amendment No. 3920.
The ACTING PRESIDENT pro tempore. Is there objection?
Mr. AKAKA. I object.
The ACTING PRESIDENT pro tempore. Objection is heard.
Mr. HARKIN. Madam President, I ask unanimous consent then to call up
my amendment No. 3920, with 20 minutes evenly divided, with a vote on
the amendment prior to the cloture vote.
The ACTING PRESIDENT pro tempore. Is there objection?
Mr. AKAKA. I object.
The ACTING PRESIDENT pro tempore. Objection is heard.
Mr. HARKIN. Madam President, the Senator from Hawaii objects to even
having a vote on this amendment. I can see the Senator wanting to
object to the unanimous-consent request. I just asked unanimous consent
to have a vote on the amendment, and the Senator from Hawaii objects to
even having an up-or-down vote. I wish the Senator would explain why he
is afraid to have an up-or-down vote. That is just what I asked for.
Isn't that what the Senate is for, to try to vote on issues?
I want the record to show that only one person objected to having a
vote on this amendment, and that is my friend from Hawaii--and he is my
friend--to say we cannot even have a vote. I did not hear any objection
from the Republican side or anybody else. All I ask for is an up-or-
down vote.
Why does the Senator from Hawaii not even want an up-or-down vote on
this amendment?
I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Hawaii.
Mr. DODD. Madam President, will my colleague and friend yield for 1
minute so I may make a couple of unanimous-consent requests?
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
Amendment No. 4003, as Further Modified
Mr. DODD. Madam President, I ask unanimous consent that
notwithstanding the adoption of the Vitter-Pryor amendment No. 4003, as
modified, it be further modified with the changes that are at the desk.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
The amendment, as further modified, is as follows:
On page 20, line 1, strike ``substantially'' and insert
``predominantly''.
On page 20, beginning on line 2, strike ``activities'' and
all that follows through line 5, and insert ``financial
activities, as defined in paragraph (6).''.
On page 20, line 17, strike ``substantially'' and all that
follows through the end of line 20, and insert
``predominantly engaged in financial activities as defined in
paragraph (6).''.
On page 21, line 11, strike ``(6)'' and insert the
following:
(6) Predominantly engaged.--A company is ``predominantly
engaged in financial activities'' if--
(A) the annual gross revenues derived by the company and
all of its subsidiaries from activities that are financial in
nature (as defined in section 4(k) of the Bank Holding
Company Act of 1956) and, if applicable, from the ownership
or control of one or more insured depository institutions,
represents 85 percent or more of the consolidated annual
gross revenues of the company; or
(B) the consolidated assets of the company and all of its
subsidiaries related to activities that are financial in
nature (as defined in section 4(k) of the Bank Holding
Company Act of 1956) and, if applicable, related to the
ownership or control of one or more insured depository
institutions, represents 85 percent or more of the
consolidated assets of the company.
(7)
On page 21, line 16, strike ``criteria'' and all that
follows through line 22, and insert ``requirements for
determining if a company is predominantly engaged in
financial activities, as defined in subsection (a)(6).''.
On page 37, line 3, strike ``(c)'' and insert the
following:
(c) Anti-evasion.--
(1) Determinations.--In order to avoid evasion of this Act,
the Council, on its own initiative or at the request of the
Board of Governors, may determine, on a nondelegable basis
and by a vote of not fewer than \2/3\ of the members then
serving, including an affirmative vote by the Chairperson,
that--
(A) material financial distress related to financial
activities conducted directly or indirectly by a company
incorporated or organized under the laws of the United States
or any State or the financial activities in the United States
of a company incorporated or organized in a country other
than the United States would pose a threat to the financial
stability of the United States based on consideration of the
factors in subsection (b)(2);
(B) the company is organized or operates in such a manner
as to evade the application of this title;
(C) such financial activities of the company shall be
supervised by the Board of Governors and subject to
prudential standards in accordance with this title consistent
with paragraph (2); and
(D) upon making a determination under subsection (c)(1),
the Council shall submit a report to the appropriate
committees of Congress detailing the reasons for making such
determination under this subsection.
(2) Consolidated supervision of only financial activities;
establishment of an intermediate holding company.--
(A) Establishment of an intermediate holding company.--Upon
a determination under paragraph (1), the company may
establish an intermediate holding company in which the
financial activities of such company and its subsidiaries
will be conducted (other than activities described in section
167(b)(2) in compliance with any regulations or guidance
provided by the Board of Governors). Such intermediate
holding company shall be subject to the supervision of the
Board of Governors and to prudential standards under this
title as if the intermediate holding company is a nonbank
financial company supervised by the Board of Governors.
(B) Action of the board of governors.--To facilitate the
supervision of the financial activities subject to the
determination in paragraph (1), the Board of Governors may
require a company to establish an intermediate holding
company, as provided for in section 167, which would be
subject to the supervision of the Board of Governors and to
prudential standards under this title as if the intermediate
holding company is a nonbank financial company supervised by
the Board of Governors.
(3) Notice and opportunity for hearing and final
determination; judicial review.--Subsections (d), (f), and
(g) shall apply to determinations made by the Council
pursuant to paragraph (1) in the same manner as such
subsections apply to nonbank financial companies.
(4) Covered financial activities.--For purposes of this
subsection, the term ``financial activities'' means
activities that are financial in nature (as defined in
section 4(k) of the Bank Holding Company Act of 1956) and
include the ownership or control of one or more insured
depository institutions and shall not include internal
financial activities conducted for the company or any
affiliates thereof including internal treasury, investment,
and employee benefit functions.
(5) Only financial activities subject to prudential
supervision.--Nonfinancial activities of the company shall
not be subject to supervision by the Board of Governors and
prudential standards of the Board. For purposes of this Act,
the financial activities that are the subject of the
determination in paragraph (1) shall be subject to the same
requirements as a nonbank financial company. Nothing in this
paragraph shall prohibit or limit the authority of the Board
of Governors to apply prudential standards under this title
to the financial activities that are subject to the
determination in paragraph (1).
(d)
On page 37, line 15, strike ``(d)'' and insert ``(e)''.
On page 39, line 3, strike ``(e)'' and insert ``(f)''.
On page 40, line 13, strike ``(f)'' and insert ``(g)''.
[[Page S4032]]
On page 40, line 21, strike ``(g)'' and insert ``(h)''.
Appointment of Committee to Escort His Excellency Felipe Calderon
Hinojosa, President of Mexico
Mr. DODD. Madam President, I ask unanimous consent that the President
of the Senate be authorized to appoint a committee on the part of the
Senate to join with a like committee on the part of the House of
Representatives to escort His Excellency Felipe Calderon Hinojosa, the
President of Mexico, into the House Chamber for a joint meeting.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
Mr. DODD. Madam President, I further ask unanimous consent--I am
looking at my friend from Arizona--that after the remarks of the
Senator from Hawaii, the Senator from Arizona be recognized.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
The Senator from Hawaii.
Amendment No. 3920
Mr. AKAKA. Madam President, amendment No. 3920 would prevent indexed
annuities investors from benefiting from the strong protections
provided by Federal securities laws. That is the reason I am objecting.
Some consumers have been hurt, including some in Hawaii. Deceptive
sales practices have been found to be used in these products. An
individual in Hawaii pushed equity indexed annuities to collect high
commissions at the expense of senior investors. Those investors least
able to effectively evaluate financial products need these Federal
protections, without question, and they have been suffering.
I am not alone in my opposition to the amendment. As my friend from
Iowa mentioned, AARP is opposed. The Consumer Federation of America and
the North American Securities Administrators Association also oppose
it.
This matter is under litigation and under review within the SEC
rulemaking process.
Equity indexed annuities are financial products that combine aspects
of insurance and securities but which are sold primarily as
investments. These products must have the strong disclosure,
suitability, and sales practice standards provided within the context
of our Nation's securities laws. The amendment would preclude State and
Federal securities regulators from protecting investors from
inappropriate and harmful products.
I am willing to work with my friend from Iowa to look into this
matter further. We need to have hearings to know more about the
situation before taking such a potentially precedent-setting action as
this amendment would. If this were to prevent securities regulation of
a product that clearly has characteristics of a security, we would
encourage the development of financial products created to avoid the
stronger protection standards.
I thank the Chair.
The ACTING PRESIDENT pro tempore. The Senator from Arizona.
Mr. KYL. Madam President, in the final hours of debate on this bill,
I think we should be asking ourselves why we started the whole exercise
in the first place. What is the purpose of financial regulatory reform?
I wish to address that for a moment this morning.
Presumably, we all agree the purpose should have been to tackle the
problems that led to the financial crisis in the first place. That
means serious reform must address root causes: most prominently, too
big to fail--ending that and reining in the two government-sponsored
enterprises, Fannie Mae and Freddie Mac, that had a lot to do with
causing the problem in the first place. Amazingly, despite its size--
and this is the legislation--and all of the hype that has attended it,
the bill before us fails to address these root causes.
Moreover, even though Main Street didn't cause the problem, the bill
is so extensive in its regulatory reach, it creates new burdens on Main
Street while continuing the recent pattern--and one, by the way,
Americans are very fed up with--of using every crisis as an excuse to
involve government in almost every sector and every aspect of American
life.
Republicans had hoped that once the bill came to the Senate,
improvements would be made and the final product would be less
partisan. We offered amendments to improve the bill, but almost all of
these have been defeated. Along the way, Democratic amendments have
been adopted that actually make the bill worse.
I hoped the bill would be amended to actually end taxpayer-financed
bailouts and the concept that companies can be too big to fail and that
it would protect small businesses from the regulatory burdens imposed
by the bill and protect the rights of privacy for people's financial
information. But that didn't happen, so we are left with a bill that
enshrines into law failed policies of the past, imposes a massive new
bureaucracy on small businesses that had nothing to do with creating
the financial crisis, and threatens jobs and our economic growth.
Today, let me address these three problems in a bit more detail--
first, too big to fail. The very first amendment offered by the
majority purported to end too big to fail. While that sounds good, the
amendment that passed won't accomplish the goal. The amendment has the
effect only of declaring the intent of Congress. It does not actually
prohibit taxpayer funds from being used to assist banks, and that is
why I voted against it. It expresses a sentiment, but it is not
actually operative.
As I will discuss, provisions remain in this bill that enshrine
taxpayer bailouts forever, even after the removal of the $50 billion
bailout fund. For instance, section 113 establishes a Financial
Stability Oversight Council. This section would give the Federal
Reserve the authority to prop up any nonbank financial company the
council deems to be a potential threat to systemic stability.
The council would designate certain firms as ``systematically
significant.'' Market participants would obviously interpret this to
mean too big to fail. Therefore, the designations would increase moral
hazard and perpetuate the very problem we are trying to fix. So a new
government board based in Washington would decide which institutions
get special treatment, giving unaccountable government officials
tremendous authority to pick winners and losers, resulting in a
competitive advantage for the winners.
What determines whether a nonbank financial institution is a threat
to stability? Among other possible considerations, ``any other factors
that the Council deems appropriate,'' according to the bill. Such broad
authority would allow the council to protect and promote or to hamper
firms based on whatever it deems appropriate--``any other factors.''
Section 1155 of the bill, entitled ``Emergency Financial
Stabilization,'' also guarantees bailouts. Here, the FDIC would be
allowed to create a new program of unlimited size to guarantee the
obligations of depositories and holding companies with depositories.
Since there is no requirement that a company that receives the
guarantees and defaults on its obligations be taken into bankruptcy,
the FDIC and Treasury could prop up whatever company they choose.
So this bill does not end too big to fail. If we had truly wanted to
do that, we would have passed the Sessions amendment. This amendment
would have struck the entire liquidation authority section from the
bill and replaced it with a bankruptcy process for nonbank financial
institutions. It also would have prohibited bailout authority and made
needed adjustments so that a few provisions of the U.S. Bankruptcy Code
to provide necessary flexibility to deal with the failure of large
financial firms, such as Lehman Brothers, would work. In other words,
it would have ended too big to fail.
The second area I mentioned was the government-sponsored enterprises.
No debate on too big to fail would be complete without a discussion of
Fannie Mae and Freddie Mac. These are the two government-sponsored
enterprises given the authority to acquire mortgages. It seems to me
almost unconscionable that this bill does not even attempt any reform
of these two institutions given the fact they were a large part of the
creation of the problem. And it is not because Republicans haven't
tried. We have. The reckless behavior of these two institutions--by the
way, institutions that have come to epitomize too big to fail--has
surged through the entire commercial banking sector and our economy as
a whole.
[[Page S4033]]
Let's recall how central these two government-sponsored enterprises
were to the housing bubble and the ensuing collapse of that bubble. For
years, Fannie and Freddie backed mortgages that were issued to too many
people who could not really afford them. The two GSEs reaped enormous
profits, while recklessly taking advantage of the government's
intrinsic guarantee of purchasing trillions of dollars' worth of these
bad mortgages, including all those made to risky subprime borrowers.
This is the model that allowed Fannie and Freddie to inflate the
subprime mortgage bubble. But when the housing market collapsed, the
two GSEs were left with billions of dollars of bad debt. And guess who
is on the hook for those billions. The American taxpayers.
These two institutions had their own dedicated regulator--the Office
of Federal Housing Enterprise Oversight, or OFHEO. Republicans tried to
give OFHEO more authority, Democrats objected, and so they allowed the
situation to spiral out of control. The easy credit fueled
rapidly rising homes prices. As prices rose, so, too, did the demand
for even larger mortgages. So Fannie and Freddie looked for ways to
make even more mortgage credit available to borrowers with a
questionable ability to repay.
By 2008, the two GSEs had nearly $5 trillion in mortgages and
mortgage-backed securities. They were overleveraged and too big to
fail. It was a textbook example of moral hazard on a massive scale. I
warned about it repeatedly.
Today, they hold a combined $8.1 trillion of total outstanding debt.
Because the Federal Government has decided to cover this debt--by the
way, even though there has never been a vote in the Congress to
authorize this--both of these entities have recently asked taxpayers
for billions more to cover their rapidly mounting losses. Recently,
Freddie Mac announced it will need an additional taxpayer bailout of
$10.6 billion, and that is after it lost $6.7 billion during the first
quarter of this year. In 10 of the last 11 quarters, Freddie Mac has
lost a total of $82 billion, which is twice the amount it earned over
the previous 30 years. Fannie, too, just recently asked taxpayers for
more money--$8.4 billion--to cover its soaring losses.
Since the Federal takeover of Fannie and Freddie, taxpayers have lost
$145 billion propping them up--just two companies. And since the
Treasury Secretary recently lifted the bailout cap, taxpayers are
responsible for unlimited losses at these institutions.
The Associated Press summed up the situation succinctly. It wrote
last week:
The rescue of Fannie Mae and sister company Freddie Mac is
turning out to be one of the most expensive after effects of
the financial meltdown.
So why not embrace real reform and relieve the taxpayers? We know
some of our friends on the other side believe we have an obligation to
trim Fannie's and Freddie's sails. Republicans offered three
amendments, all of which attracted bipartisan support--one each from
Senators McCain, Crapo and Ensign--that would have done exactly that.
But they were all rejected by the majority.
The alternative side-by-side amendment that was adopted instead is
meaningless. Rather than rein in Fannie and Freddie, this amendment
really established that Congress will commission a study on
conservatorship of the two GSEs from Treasury Secretary Timothy
Geithner. As the Wall Street Journal asked in an editorial, if a study
is so key to dealing with the GSEs, what has Mr. Geithner been doing in
the last 17 months since the crisis? Let's also remember that it was
Mr. Geithner's Treasury Department that lifted the $400 billion GSA
bailout cap last Christmas Eve.
Let's be absolutely clear: Every day Fannie and Freddie remain in
their current form is a day U.S. taxpayers are subsidizing their
activities. This bill does nothing to change the status quo, and I
think taxpayers deserve better.
The third area I wanted to mention is the so-called consumer
protection and its effect on small businesses--this Bureau of Consumer
Financial Protection. Well, small businesses across my home State of
Arizona and, indeed, across the country are very worried about the
intrusive new bureaucracy here intended for consumer protection. Of
course, all of us support consumer protection. I don't know of anybody
who doesn't. The question is how you do it and to whom it applies.
We create a lot more cost to consumers if we make the regulation so
expensive and inefficient that consumers actually wind up paying more
money than they would have otherwise. That is what has happened with
the credit card legislation we previously passed, and it could happen
with this legislation as well, thanks to a newly created Bureau of
Consumer Financial Protection.
The bill establishes new restrictions on credit through so-called
consumer protection provisions by limiting or reconfiguring credit
options that are currently available to us. The bill gives the new
bureau a budget of up to $650 million--an amount that is more than
double what the FTC has requested for its economy-wide consumer
protection activities. This money is to be spent as the director of the
BCFP wishes, with no oversight or veto authority by Congress or the
administration.
Moving regulatory authority for consumer protection to a new bureau
with broad powers would add to an already complex layer of regulation
these businesses are forced to navigate, creating uncertainty that
would likely make it more difficult to comply with existing
regulations.
My staff and I regularly hear from constituents who are trying to
find ways to pay off their outstanding debts. I am concerned that
duplicative regulation has the potential to have the unintended
consequence of making it more difficult for individuals and families to
manage their debts.
Moreover, the proposed consumer protections reach beyond credit
cards, restricting the availability of all forms of credit. These
reductions in credit also mean declines in job creation since many
small business startups use things such as home equity debt and
sometimes credit cards as their sources of funding. Obviously, this
poses a serious threat to our economy.
A recent New York Post op-ed by Mark Calabria stated:
New restrictions on credit are likely to cost our economy
tens of thousands of jobs a year.
Of course, no one intends this result. No one wants to raise costs on
small businesses. But that is the inevitable result of a policy that is
written too broadly. That is one reason the Chamber of Commerce, for
example, opposes this bill.
Some of my colleagues have suggested that the Bureau of Consumer
Financial Protection would be significantly different from the Consumer
Financial Protection Agency that was written into the House bill that
passed last year. Well, I respectfully disagree. While the new bureau
would not be officially independent, it would effectively function as
an independent, stand-alone agency with rule-writing powers and
enforcement authority; whereas, the Consumer Financial Protection
Agency would be responsible for its own financing, this Bureau of
Consumer Financial Protection would enjoy an automatic funding stream
from the Federal Reserve. Given the close similarities between the two
proposed consumer units, it is constructive to consult a study released
last year by economists David Evans and Joshua Wright. After analyzing
the Consumer Financial Protection Agency Act, they concluded it would
``most likely result in a significant reduction in the availability of
credit to consumers.''
``A significant reduction in the availability of credit.'' Of course,
that is not what the authors intend, but that would be the probable
result.
In my view, the potentially serious costs of this Consumer Financial
Protection Bureau do not justify its purported benefits. We all want to
shield consumers from real abuses and exploitation, but this is not the
right way to do it.
As the National Review recently editorialized, ``To the extent that
existing consumer safeguards need strengthening, the task can be
accomplished without launching a massive new bureaucracy that would
negatively affect credit access and economic growth.''
In conclusion, I hope my colleagues will ask themselves this
question: Why is it that the CEOs of large companies such as Goldman
Sachs and Citigroup
[[Page S4034]]
favor this bill? The reason is simple: The legislation would entrench
their privileged status. It would institutionalize the idea that
certain big financial firms deserve preferential treatment by Federal
regulators. These firms would be insulated from the negative effects of
the new consumer protection bureaucracy. However, that bureaucracy
would severely diminish credit access for small businesses and middle-
class Americans.
What we have before us is a bill that is supported by Wall Street but
opposed by the Chamber of Commerce, the Business Roundtable, and many
others on Main Street.
For all these reasons that I have discussed and others, despite my
strong desire to enact prudent financial reform, I cannot support this
legislation. It does not effectively take on the fundamental problems
that we all agree needed to be addressed.
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. DODD. Madam President, I ask unanimous consent the call of the
quorum be rescinded.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
____________________