[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order for the quorum call be rescinded.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.

                          ____________________