[Congressional Record Volume 156, Number 77 (Thursday, May 20, 2010)]
[Senate]
[Pages S4034-S4078]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     RESTORING AMERICAN FINANCIAL STABILITY ACT OF 2010--Continued

  The PRESIDING OFFICER. The Senator from New Hampshire is recognized.
  Mrs. SHAHEEN. Madam President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. DURBIN. I ask unanimous consent that the order for the quorum 
call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DURBIN. I ask unanimous consent to speak as in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Immigration Reform

  Mr. DURBIN. Madam President, I just left the address of President 
Calderon to the joint session of Congress in the House of 
Representatives. I think President Calderon's speech to Congress and to 
the American people was important and timely and really touched some 
issues of controversy which we cannot ignore.
  He acknowledged the fact that his country is being torn apart by drug 
gangs and drug cartels. He acknowledged the obvious: the object of 
their commerce is to sell drugs in the United States of America. Our 
insatiable appetite for narcotics is creating a situation where people 
are engaged in lawlessness and violence and murder and mayhem in his 
country. We have to acknowledge that as the reality of the relationship 
between our two countries. It is not enough for us to lament the 
violence in Mexico without equally being prepared to say we have to do 
something on our side of the border to deal with drugs moving into the 
United States and the market for those drugs in our cities and States.
  He also raised the important issue about the firearms that are 
flowing from the United States of America into Mexico, into the hands 
of these lawless members of these drug cartels. In the last several 
years, he told us, some 75,000 firearms have been confiscated. They 
believe 80 percent of them came from the United States, and many of 
them were military-type weapons, assault weapons and the like. He 
said--and I am sure it was not welcome to all corners on Capitol Hill--
that we have to accept our responsibility when it comes to sensible gun 
safety and sensible gun laws.
  The Supreme Court has said that under the second amendment, 
individuals are entitled to possess firearms for self-defense and for 
legitimate and legal purposes. The President of Mexico doesn't question 
that. I don't either. But the people who are buying and shipping guns 
into Mexico from the United States are not engaged in the type of 
protected constitutional activity the Supreme Court has noted. They 
have gone way beyond that. They are using, unfortunately, an open 
system in the United States to feed a drug war in a country south of 
us. So what are the results of this drug war? Thousands of innocent 
people are being killed. It is true that the gang violence back and 
forth results in the death of criminals on both sides, but innocent 
people are being caught in this crossfire in Mexico as well.
  I might also add that the lawless nature of the situation in the 
northern part of the border is forcing more people into migration into 
the United States. It is not just the economics that drives people 
across the border; it is also the fear that they have to continue to 
live within communities and cities that are rife with violence.
  I am glad the President of Mexico came forward to speak to these 
issues. We addressed them earlier this week in my Subcommittee on Human 
Rights and the Law in the Senate Judiciary Committee. We had testimony 
from experts in the administration and outside the administration. It 
is obvious we need to do more to support Mexico, to try to do what we 
can to end this violence and the root causes of it on both sides of the 
border.
  But there was one other issue the President of Mexico raised which 
needs to be discussed honestly. Yesterday, the First Lady of the United 
States visited an elementary school in a suburb of Washington with the 
First Lady of Mexico. Their purpose was to salute this school because 
of the physical activities that were available to the students and 
their commitment to a healthy lifestyle, which has been one of the real 
causes the First Lady has espoused in her role.
  Then she had a little meeting there. You probably saw it on 
television. There were some small children around who asked questions, 
and one little girl said to the First Lady--she wanted to know why 
Obama, the President, was taking everybody away who does not have 
papers. This first-grader asked that question, sitting in with about a 
dozen other schoolchildren. And, of course, the First Lady of Mexico 
was sitting alongside our First Lady.
  The First Lady, Michelle Obama, said: That is something we have to 
work on, right, to make sure people can be here with the right kind of 
papers.
  Then this first-grader, this six- or seven-year-old girl, said: But 
my mom does not have any papers.
  She blurted that out. I would say that was a telling moment for us in 
the United States to pause and reflect on what we are engaged in and 
what we are refusing to do in Congress. Had this young girl, this 
first-grader, made that statement in the State of Arizona today, it is 
my understanding their new law would have compelled an investigation of 
her family. What she said could create reasonable suspicion that 
someone in her family was here illegally. That innocent statement by 
that first-grader could have launched an investigation and an arrest 
and deportation. Is that where we are in America today? Is that what we 
have come to? I hope not.
  I hope we accept our responsibility here in Congress. The President 
of Mexico invited us, challenged us--and he should--to do our job here 
to deal with comprehensive immigration reform. It is long overdue. We 
have to deal with our border situation, with the workplace situation, 
and with the fact that there are millions of people here today 
undocumented. We have to decide what is a just outcome for their fate.

[[Page S4035]]

  I listened to many of my colleagues say: Well, I will not talk about 
any comprehensive immigration reform until we seal the border. Seal the 
border.
  We should reflect on the obvious. The border between the United 
States and Mexico is the longest international border in the world 
between two countries, almost 2,000 miles long. And across that border 
every day, tens of thousands of people travel legally between the two 
countries--in commerce, on vacation, moving from one place to another, 
tens of thousands each day. We estimate that 250 million people legally 
cross the border between the United States and Mexico every single 
year. We also estimate that during the course of a year, 500,000 people 
cross that border illegally--250 million legally, 500,000 illegally.
  I hope those who stand and say we have to seal the border are not 
suggesting we end all commerce and all travel between the United States 
and Mexico. That would work a great hardship on both nations as we try 
to ship our goods and services to them for purchase, and they do the 
same. The trade between the two countries is an important part of both 
of our economies.
  But we do have to do what is reasonable and as complete as possible 
to deal with those borders, to make certain we reduce the flow of those 
who are coming in illegally. To say we are going to seal them off to 
the point where no one crosses illegally is perhaps to set a standard 
no one would ever be able to meet. I analogize it to saying that on I-
95 near Washington, DC, we want to guarantee that no car or truck will 
pass along that interstate today illegally carrying narcotics or 
firearms. How would you enforce it? Could you stop all of the traffic? 
I assume that is one way to do it. But could you guarantee that each 
car and truck is coming through legally should you do it?
  So let's start with the premise that we need to have better 
enforcement at the borders. We need more people there even though we 
have dramatically increased the agents who are working there. We need 
the very best technology to stop the illegal flow of people or other 
goods across that border. We need to have obstacles where they work but 
acknowledge that they are not the complete answer to the challenge. But 
let's not stop the conversation by requiring that we have a perfect 
border. There is not a perfect border in the world today. People get 
across borders. Things cross borders. They may not do it legally.
  Secondly, we need to move forward with enforcement in the workplace. 
I salute Senator Schumer from New York, who has been working on this 
issue for quite a long time now.
  He has come up with the notion that there would be an identification 
card associated with Social Security numbers so we would be able to 
establish when a person goes for a job that that, in fact, is a valid 
Social Security number belonging to a person with a certain name whom 
we can identify perhaps by biometric identification as the person 
standing before you. That would give employers peace of mind to know 
they are not hiring someone who is here in undocumented or illegal 
status. It is an important step forward so we can make sure the 
workplace is not an opportunity for those who come here illegally.
  Finally, we have to deal with people who are here and do it in an 
honest and humane way, making certain we don't allow anyone who is a 
danger to America to remain but also say to those who have obeyed the 
laws and are willing to pay taxes and fines that they will be given a 
chance--a chance.
  The last point I wish to make goes to this particular instance that 
was in the paper this morning involving the First Lady. Ten years ago I 
got a call in my office in Chicago from a Korean American, a woman who 
was a single mom who owned a dry cleaners. She had four children. Her 
oldest daughter had come to the United States with her from Korea when 
she was 1 or 2 years old. She was now 18 or 19 years of age and had 
been accepted to college. Her mom called because when she was filling 
out the application, there was a question about her daughter's 
citizenship and nationality. She said she was not certain because they 
had never filed any papers for her daughter, and they wanted to know 
what to do. They called Senator Durbin's office. So we checked into it 
with the immigration service and were advised that the girl, 18 or 19 
years old, in the United States for 16 or 17 years, since she was a 
baby was, in fact, here illegally. The immigration service said there 
was only one recourse. She had to leave the United States and return to 
Korea for 10 years before she could be considered for legal status, 10 
years to a country she has never known. It was because of that 
situation that I introduced the DREAM Act.
  The DREAM Act says if you were brought here to America as a child, if 
you have lived in this country without a criminal record that would 
disqualify you, if you graduate from high school, if you have no moral 
flaws that might disqualify you otherwise, you have an opportunity to 
reach legalization one of two ways: You may volunteer to serve in our 
military or you may complete 2 years of college. I introduced that 10 
years ago because I thought it was reasonable. We are not a nation that 
penalizes children for the crimes of their parents. The tens of 
thousands of young people who have never known another country but the 
United States and only want to be part of our future deserve a chance. 
We cannot, we should not, deport them.
  When I think about what happened to the First Lady yesterday with the 
6-year-old girl, I wonder, 10 or 11 years from now, if she is still 
here in the only country she has ever known, if she came here perhaps 
in undocumented status, what will happen to her? I have met many like 
her, many who have completed high school, college, graduate school, and 
beyond. They have nowhere to go. They have no country. Their talents 
cannot be used to make this a better nation in and of itself. They 
could be our next nurse, teacher, doctor, engineer, business leader. 
They don't have a chance.
  I hope my colleagues will consider cosponsoring the DREAM Act. We can 
save the big debate for comprehensive immigration reform. I support it. 
But I hope they will believe and join me in this one part of it to say 
that we won't penalize the children for this contentious, divisive 
political debate on immigration. Before the end of the year, I want us 
to take up comprehensive immigration reform. I thank Senator Schumer 
and others who have included the DREAM Act in the bill. I hope we can 
move forward. I think the experience of the First Lady yesterday is an 
indication that immigration is an issue whose time has come.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. MENENDEZ. I ask unanimous consent that the order for the quorum 
call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Amendment No. 4064

  Mr. MENENDEZ. Madam President, I rise to speak about an amendment I 
hope is noncontroversial and one that creates jobs. When one of my 
colleagues on the other side of the aisle is present, I will make a 
unanimous consent request, but I will start off by speaking on the 
amendment.
  Amendment No. 4064 would create more than 40,000 new jobs. It would 
help revitalize Main Street in some of the economically hardest hit 
communities all around the country and at no cost to the taxpayer. We 
have been talking a lot about the financial crisis and how to prevent 
the next one. That is obviously important. It is essential work. But 
what we cannot lose sight of is the devastating impact this crisis has 
had on small businesses and economic development in local neighborhoods 
and communities.
  I, like many in this Chamber, watched in frustration as the ranks of 
the unemployed rose to 15 million people and the unemployment rate 
increased to nearly 10 percent. I, like many of you, have watched in 
frustration as small businesses shut their doors, unable to get the 
credit they needed to keep the lights on.
  The problem is the big banks--the same banks that took billions upon 
billions of dollars in TARP funds--are not making loans to small 
businesses. According to a just-released report by the Congressional 
Oversight Panel, Wall Street's largest banks reduced their small 
business loan portfolios between

[[Page S4036]]

2008 and 2009 by more than double the overall drop in lending.
  Let me read you the conclusion of that report. It says:

       Small business credit remains severely constricted. Unable 
     to find credit, many small businesses have had to shut their 
     doors, and some of the survivors are still struggling to find 
     adequate financing.

  So despite all of our efforts to restore liquidity in banks, they 
refuse to hold up their end of the bargain and are not lending to small 
businesses.
  We know small businesses are the engines of growth. More than 99 
percent of American businesses employ 500 or fewer employees, and 
together these companies employ half of the private workforce and 
create 2 of every 3 new jobs. So the question throughout the recession 
has always been, How can small businesses get the credit they need not 
only to keep the lights on but to grow and create jobs, to get the 
economy humming again?
  Today, we are showing signs of improvement. We have stopped job 
losses, from three-quarters of a million jobs, to over 260,000 jobs 
created last month. The economy is recovering, but there are still 
millions of people who do not have work--people who expect us to do 
something to help them.
  I believe this bill we are passing is essential to an economic 
recovery. In making our banking system more secure and stable, we are 
directing banks to focus on the core business of lending and extending 
credit, rather than the reckless casino speculation that brought us to 
this recession.
  But we can also do something that is more direct and more immediate 
to help jump-start more job growth. We can invest directly in small 
businesses and local communities by supporting community development 
financial institutions or, as they are called, CDFIs. Based on what we 
know about this community from its historic performance, the amendment 
I am proposing will create approximately 40,000 new jobs by authorizing 
the government to guarantee bonds issued by qualified CDFIs for 
community and economic development loans. And best of all, there are no 
pay-go implications.
  As their name implies, the primary mission of community development 
financial institutions is to foster economic and community development 
in underserved areas. They have a proven track record of job creation 
and are arguably the most effective way to infuse capital in 
underserved areas for community and economic development.
  CDFIs leverage public and private dollars to support economic 
development projects, such as job-training clinics and startup loans 
for small businesses in areas full of potential but desperate for 
development. CDFIs have been hit hard by the recession because they 
have had to rely on big banks for capital. As we have seen, that 
capital is neither affordable nor accessible.
  I am proud to have bipartisan support on this amendment. Senator 
Snowe is a cosponsor, as are Senators Johnson, Leahy, and Schumer, and 
I want to say to all of our cosponsors, we thank you for your support.
  The idea is simple: If big banks do not care about lending to small 
businesses and communities in need of capital, then we should empower 
the very organizations that do care, that make it their mission every 
day to rebuild Main Streets across this country, and that are ready and 
willing to do even more if they only had the resources and tools to 
meet the growing demand.
  So I ask all of us in this Chamber, do we want to go home to our 
States and tell the folks on Main Street that, no, we did not think 
they deserved the loan guarantees--that would not cost taxpayers a 
dollar but would create more than 40,000 new jobs? I certainly do not 
think so.
  We have talked a lot about protecting Main Street from Wall Street 
here in the last few weeks, but we have not talked about doing anything 
directly to benefit Main Street. Here is our chance. Again, we know the 
big banks have dried up their lending to small businesses. We know 
small businesses are the engine of economic growth.
  I am proposing an amendment that would not wait around for the big 
banks to start lending again while Main Street businesses continue to 
struggle to meet payroll. I am proposing an amendment that would give 
our communities the guarantees they need to get lending started again 
to put money into our engines of job growth--and all without any pay-go 
implications, without any cost to the Federal taxpayers.
  I urge my colleagues to join us in supporting this important 
amendment and to help small businesses create jobs on Main Street. I 
appreciate that Senator Snowe, Senator Johnson, and others--Senator 
Schumer--have joined us on this effort.
  Madam President, seeing the distinguished ranking member of the 
Banking Committee is now on the floor, I ask unanimous consent to set 
aside the pending amendment and call up my amendment No. 4064, which is 
the CDFI amendment, and ask unanimous consent for a vote on this 
amendment prior to the cloture vote.
  The PRESIDING OFFICER. Is there objection?
  Mr. SHELBY. I object.
  The PRESIDING OFFICER. Objection is heard.
  Mr. MENENDEZ. Madam President, I regret that my dear friend and 
colleague from Alabama has the need to object. This is an opportunity, 
with a bipartisan amendment, to help Main Street and small businesses; 
an opportunity to create 40,000 jobs; an opportunity to do it without 
cost to the taxpayers; an opportunity to do it with organizations, 
CDFIs, that have a proven track record; an opportunity to lend to Main 
Street because big banks are not doing it.
  We all lament the lack of job growth. We all lament the lack of 
access to capital. This would be a tremendous opportunity to do that. 
So I do hope I can work with Senator Dodd and Senator Shelby to get 
this in order prior to the cloture vote or hopefully, if we do not 
achieve that, to be able to get this in any managers' amendment. It is 
bipartisan. It creates jobs. It does not cost the taxpayers any money. 
I do not know how much more you can come to the floor and offer an 
amendment that should have bipartisan support than an effort like that.
  With that, Madam President, I yield the floor.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  The PRESIDING OFFICER. The Senator from Minnesota.
  Mr. FRANKEN. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. FRANKEN. Madam President, I ask unanimous consent that it be in 
order to offer amendment No. 3902, my amendment with Senator Snowe, to 
create an Office of the Homeowner Advocate to help prevent mistaken 
home foreclosures, and that it be voted upon at the appropriate time.
  The PRESIDING OFFICER. Is there objection?
  Mr. SHELBY. I object.
  The PRESIDING OFFICER. Objection is heard.
  Mr. FRANKEN. Madam President, I am truly disappointed that my 
colleague would object to an amendment such as this one. This amendment 
does not contain any new appropriations or authorization of 
appropriations. But, more importantly, it is about helping people who 
have worked their whole lives to own homes but now are at risk of 
losing them, often through absolutely no fault of their own.
  When I last spoke about this on the Senate floor, I told my 
colleagues about a woman named Tecora, a homeowner from south 
Minneapolis. Tecora now owes $317,000 on a $288,000 loan due to an 
exotic mortgage called an option ARM--or option adjustable rate 
mortgage--that made her monthly payments double.
  Tecora has not missed a mortgage payment, but unless something 
changes, she is going to lose her home. She had been looking forward to 
retirement, but now she looks at her future with a sense of dread. 
``I'm squeaking by,'' she told the Minneapolis Star Tribune, ``by the 
plaque on my teeth.''
  It shouldn't have to be this way. President Obama created a program 
known as HAMP to encourage mortgage servicers to modify people's loans 
and help keep homeowners in their homes. But this program, while a good 
start, has been plagued by mistakes. Tecora's mortgage servicer told 
her

[[Page S4037]]

that her file is closed because she voluntarily left HAMP, but she 
never did. In other words, the servicer made a mistake. Now she is 
fighting to get her mortgage modified so she can afford to keep her 
house.
  The amendment Senator Snowe and I are proposing would set up a 
temporary--temporary--homeowner advocate within the Treasury Department 
to fix problems with HAMP. This amendment is supported by the Treasury 
Department. The White House declared it 1 of the top 10 amendments that 
would improve the Wall Street reform bill. Also, it is supported by 
consumer groups from around the country, ranging from Americans for 
Financial Reform to Consumers Unions, SEIU, and the National Council of 
La Raza. It is also supported by the superintendent of the New York 
State banking system who called it a ``big step forward for 
homeowners.''
  When you boil it down, this amendment is about one thing: making sure 
homeowners know someone has their backs. The amendment would establish 
a temporary office that homeowners can call when they are having 
problems with HAMP. Homeowners need to know someone is looking out for 
them, someone with the authority to actually fix the problems. People 
should not be losing their homes just because the mortgage servicers 
lose their paperwork or misunderstand eligibility for HAMP.
  When homeowners call in with a concern, this new office has two 
important powers. First, it could make sure servicers obey the rules of 
the program or suffer the consequences. But at least as important, it 
makes sure people's homes don't get sold right away, giving the 
homeowner advocate time to resolve the problem. People's homes are 
being lost to mistakes--let me repeat that. People's homes are being 
lost to mistakes every day in Minnesota, in Nevada, in South Carolina, 
in Georgia. We need a homeowner advocate to stop these mistakes before 
it is too late for these homeowners.
  The homeowner advocate is modeled after the Office of the Taxpayer 
Advocate. That office has been extremely successful, looking out for 
taxpayers when the system fails them. The Homeowner Advocate's Office, 
while temporary, would do exactly the same.
  As I mentioned before, this amendment does not authorize any 
additional appropriations. It would be funded by existing HAMP 
administrative funds.
  I am glad this amendment is a bipartisan effort, and I am sorry to 
hear the objection from my colleague. I hope we can work together to 
figure something out. I think we have been doing a lot of that during 
this whole process, and I certainly respect the ranking member for the 
work he has been doing in that regard.
  I wish to end with this: Protecting homeowners isn't left or right. 
It isn't liberal or conservative. It is just the right thing to do. It 
is the smart thing to do.
  Thank you. I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. WHITEHOUSE. Madam President, I ask unanimous consent that the 
order for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. WHITEHOUSE. Madam President, I wanted to discuss very briefly an 
amendment that I have filed with respect to the independence of 
compensation consultants.
  As we all know, executive compensation has been a significant issue 
in this country. Much of executive compensation is set on the advice of 
compensation consultants. I had an interesting meeting earlier this 
year with the Obama administration's ``pay czar,'' he is called, and he 
said when he was in the process of trying to work out how he should try 
to restructure executive compensation, he tried to find an independent 
compensation consultant to advise him. He found he could not find a 
single compensation consultant in the country who met his standards for 
independence.
  This amendment would ask the Securities and Exchange Commission to 
set standards for independence for compensation consultants, so that 
when, consistent with this legislation, the compensation committee of a 
board has to evaluate which compensation consultant to hire, they get 
an independent seal of approval from the SEC, and they can know they 
are doing the right thing; and, of course, we can assure that we have 
independent compensation consultants and not people who get paid in 
order to encourage higher salaries for CEOs in our country.
  I had a brief discussion about this with the chairman. He expressed 
some interest in it. I understand we will be continuing to work 
together to try to get this language incorporated into the final bill. 
I expressed my appreciation to him for his consideration. I believe it 
matches the language on the House side, so maybe it is something we can 
do in conference. But, clearly, this question of compensation is an 
area where the chairman has been a leader, and I look forward to 
working with him.
  Mr. DODD. Madam President, in response to my colleague, I thank him. 
He was been very active in the debate on this bill. I am grateful for 
his thoughts and ideas. This is a very important proposal--one that we 
have not adopted. It is in the House bill. I told my friend I would be 
anxious to pursue the idea he has incorporated because, obviously, this 
is subject matter that has probably evoked more public interest almost 
more than any other aspect of the crisis over the last 2 years. 
Obviously, people have lost homes and jobs and retirement income and 
the economic damage done to the country; but people seemed to 
understand this issue from the very beginning more than almost anything 
else, particularly in light of the fact that taxpayers were writing the 
check of $700 billion to stabilize, we are told, and preserve many of 
these institutions.
  What was degrading to many people is, in the midst of all that, we 
watched some executives take excessive bonuses who could only receive 
them because the American taxpayer stabilized and preserved those 
companies as a result of that legislation.
  What also bothered me beyond that, I might have thought at some 
particular point the executives might have expressed their appreciation 
to the American taxpayers for stabilizing and saving some of these 
institutions. They not only didn't do that, in most instances they went 
out and took significant bonuses that were only available because the 
companies had been saved by the American taxpayer. So this issue is one 
that I think had more to do with inflaming public passions about what 
happened almost more than anything else I can think of.
  Our colleague from Rhode Island has crafted a proposal that would go 
to deal with this issue. I applaud him for that. I hope we can work 
something out that will meet his concerns.
  Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Burris). The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. ENSIGN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. ENSIGN. Mr. President, the American people have accused 
Washington and this Chamber of being far too partisan, and they have 
been right. But I would venture to guess that we can reach a bipartisan 
agreement on the fact that our economy has taken a major hit over the 
last few years--a hit that I would argue we have yet to recover from. 
So here we are, debating another massive bill that is supposed to stave 
off another economic disaster. But does it do that?
  I am sure that most here are familiar with the children's tale of the 
boy who cried wolf far too often. The problem faced by this character 
was that when there was an emergency--such as the wolf verging on 
attack--there wasn't anyone around to take that alarm seriously. This 
is the path we are heading down.
  The Senate is passing a massive bill, after many other massive bills 
that we have passed, and expanding the Federal Government to an 
unsustainable level, all in the name of avoiding another economic 
downturn. But what we are doing here is setting our country up on a 
course that we cannot correct and creating unintended consequences that 
may ultimately rain more economic damage down on the American people.

[[Page S4038]]

  I think it is important to remind the American people why the 
government felt it necessary to use taxpayer dollars to bail out the 
GSEs--Fannie Mae and Freddie Mac. They did this because they claimed 
the two companies were too big to fail. The idea that the failure of 
two mortgage companies could bring down the whole U.S. economy was 
frightening to many, but confusing to many more. Make no mistake about 
it, this was a problem the Congress created.
  Beginning in the 1990s, Congress decided to expand the goals of the 
Community Reinvestment Act by writing laws designed to encourage the 
GSEs--Fannie Mae and Freddie Mac--to meet certain affordable housing 
goals, giving Fannie and Freddie government permission to buy subprime 
home loans. This of course created an incentive for lenders to make 
more and more bad loans since the GSEs would stand ready to buy them 
and take on the risk.
  We now know, however, that it is the American taxpayer who actually 
was taking on this risk. Before September 2008, few Americans realized 
that Fannie and Freddie had taken over the subprime markets and were 
singlehandedly making the dream of home ownership a reality for 
thousands of Americans. However, those Americans were realistically 
unable to afford the mortgages Fannie and Freddie guaranteed. As home 
after home and neighborhood after neighborhood fell victim to the home 
foreclosure plague, Fannie and Freddie's losses started to greatly 
impact the U.S. economy--hence the notion of being too big to fail.
  I have spent the last 2 years arguing that the government's 
interference in the situation with a taxpayer bailout was not the right 
move to make. By stepping in, blank taxpayer check in hand, the 
government set the American people up for bailout after bailout of 
Fannie and Freddie, with no plan in place to reform these government-
sponsored companies so that taxpayer support would eventually end.
  Last Christmas, the Obama administration lifted its $400 billion--
$400 billion--limit to aid Fannie and Freddie. They took the cap off. 
They pledged unlimited support through 2012. This is unlimited support 
for Fannie and Freddie. Imagine what that means. We don't have the 
funds to provide that kind of support, and the American people should 
not be on the hook for an indefinite blank check.
  In this last month, while we were debating this bill on the floor, 
Fannie Mae asked for another $8.4 billion from the taxpayer and Freddie 
has asked for an additional $10.6 billion from the taxpayer. Is the 
American taxpayer to assume we will continue to fund the demands for 
more and more money every single time they ask? What if this happens to 
be a monthly request for the next 2 years? The American taxpayer right 
now has no choice but to pay up. Simply put, I believe this is 
ridiculous.
  Fannie and Freddie are referred to as government-sponsored entities 
because the wallets of the American people go straight into the bank 
accounts of these companies. The purpose of this financial reform bill 
before us should be to protect taxpayers against this concept known as 
too big to fail, but unfortunately it does little to address this 
issue.
  I offered an amendment to address the too-big-to-fail issue with 
Fannie and Freddie. However, it was defeated, mostly along party lines. 
My amendment would have protected the taxpayers from future bailouts of 
Fannie and Freddie by restricting their size so they do not continue to 
be too big to fail. Fannie and Freddie remain large enough to threaten 
the stability of our economy in another economic downturn. My amendment 
would have limited their size to less than 3 percent of our GDP. Again, 
the amendment was defeated, mostly along party lines.
  If the government is arguing we have to continue bailouts of Fannie 
and Freddie because they are too big to fail, shouldn't we be doing 
something to fix the internal problems of Fannie and Freddie? Senator 
McCain and Senator Shelby introduced an amendment to protect the 
taxpayers from Fannie and Freddie and their too-big-to-fail state, but 
once again their amendment was also defeated along party lines.
  Their amendment, of which I was a cosponsor, would have meaningfully 
reformed these government-sponsored entities in an orderly fashion. It 
would have ended the government takeover of Fannie and Freddie within 3 
years, would have provided more oversight to the companies, and would 
have eventually eliminated all government subsidies to Fannie and 
Freddie. This amendment was a thoughtful, clear-eyed approach to 
dealing with the two companies that drove my State of Nevada and our 
country into the housing foreclosure crisis. But again, this amendment 
was defeated along party lines.
  Instead of seeking meaningful reform of Fannie and Freddie through 
the financial reform bill, those on the other side of the aisle have 
decided they will study the issue of Fannie and Freddie. They have 
asked the Treasury Department to make recommendations on these 
companies in 2011. In simple terms, this means we have punted dealing 
with the risk of Fannie and Freddie, the risk they pose to our economy 
for another year and, undoubtedly, more blank checks are on the way to 
Fannie and Freddie.
  By the time the Democrats and the Treasury Department have further 
evaluated their risk, 30 months--2\1/2\ years--will have come and gone, 
with taxpayers holding up these two companies with their hard-earned 
money. I believe that is unacceptable and, frankly, it is 
unconscionable to ask the hard-working taxpayers of this country to 
foot the bill for hundreds of billions of dollars of bailouts when 
Congress and the administration cannot even come up with a plan for 
Fannie and Freddie within 2\1/2\ years of taking them over.
  Additionally, the bill before us creates this new Financial Stability 
Oversight Council that will have the authority to vote on which 
companies are, in their opinion, too big to fail. As we saw during the 
height of the financial crisis, the government, given the opportunity, 
is willing to arbitrarily select which companies can get government 
support and sponsorship. I believe this sets a dangerous precedent that 
will encourage large companies to take more unnecessary risk, since 
they will ultimately pass any losses associated with that risk on to 
the taxpayers in the form of a bailout.
  Under the bill before us, the Financial Stability Oversight Council, 
under the guise of monitoring systemic risk to the financial system, 
will have the unintended consequences of encouraging more taxpayer 
bailouts. This is because the council has the authority to identify 
firms that would ``pose a threat to the financial stability of the 
United States,'' and would place those firms under the Federal 
Reserve's supervision.
  The benefit of being placed on this exclusive list is that it comes 
with a market understanding that the U.S. Government stands ready to 
keep the company afloat when it gets in trouble. It means that company 
will have certain advantages over its competitors, including access to 
cheaper funds from the Fed. This will consolidate the market and enable 
the company to use the savings to take bigger and unnecessary risks. A 
regulatory structure that facilitates this kind of moral hazard does 
not work.

  Remember the boy who cried wolf I was rehashing earlier? Well, the 
wolf came when confronted with the collapse of Fannie and Freddie and 
the government rushed in, no plan in hand, to bail out these companies. 
Now we are sitting around debating legislation that does not even 
address the risks they will pose in another economic downturn. We have 
to ask the question: Do we honestly think we are protecting ourselves 
from another too-big-to-fail bailout of Fannie and Freddie?
  This bill should have been our chance to protect the taxpayer and 
reform Fannie and Freddie, but we are ignoring this issue altogether 
and the systemic risk that follows with it.
  More simply put: We are ignoring the American people. The next time 
the government cries wolf and steps in to bail out Fannie and Freddie 
again, the American people are going to be up in arms, as they should 
be.
  We are ignoring the American people at a time when they have joined 
together across this country to shout from every rooftop, mountaintop, 
and platform they can find that they are done with bailouts. 
Unfortunately, Washington isn't listening. People in this body believe 
we know better than

[[Page S4039]]

the American people; and if the American people would just sit back and 
let us do our jobs, we will figure all this out. Is that the reality? 
When Washington is in charge of something, we undoubtedly make a larger 
mess than what there was to begin with.
  Some of us just don't get it. Some don't get that the taxpayer should 
not be on the hook for bailing out the financial industry when there is 
a proper course of action for companies that are struggling to pay 
their debts--it is called bankruptcy. Wouldn't you agree that if the 
bankruptcy process is good enough for Main Street it should be good 
enough for Wall Street?
  When the automakers were struggling with an economic downturn, I 
argued they should utilize the orderly bankruptcy process to 
reorganize. But the government thought it knew better and decided to 
bail them out. The government then decided who the winners and losers 
would be in that process instead of following the rule of law.
  The same has happened with the financial industry. Instead of 
declaring bankruptcy, the financial giants waited for the government to 
step in and lend them an American taxpayer hand. The executives who 
drove these companies into the ground when the bailout came are those 
same executives who later received huge bonuses. Does this make sense 
to anybody? Moving forward, this needs to end. But this bill does not 
do that.
  Under this bill, the Federal Deposit Insurance Corporation--the 
FDIC--would have expanded authority to take over, manage, and liquidate 
troubled financial companies. The FDIC would take over the assets and 
operate the financial company with all of the powers of management, 
shareholders. In that way, the government acting through the FDIC, will 
continue to determine financial companies continue and which do not.

  This bill would essentially institutionalize the kinds of bailouts 
that have occurred in the recent crisis. Rather than providing an 
alternative to policy of bailouts, it would permanently establish such 
a policy. Second, the expanded resolution authority would be operated 
with a considerable degree of discretion about when to start the 
intervention and about the priority to give different creditors.
  People talk about the impact of Lehman Brothers' sudden collapse on 
sparking a market panic, and the authors of this bill seem to think 
that the answer is to create a system to prop up future banks. It was 
not the collapse, but rather the surprise involvement and then 
abandonment by the government, that created market turmoil.
  Do you understand why one bank might be bailed, but another would be 
left to collapse?
  It was all done behind closed doors. The better lesson learned from 
the crisis is that we need a predictable, rule-based bankruptcy process 
rather than an expanded discretionary resolution authority.
  These bailouts do not incentivize these institutions to minimize 
their risk, instead they go as far as to privatize their profits while 
socializing their losses. In other words, putting that risk onto the 
taxpayer.
  Senator Sessions introduced an amendment, that I cosponsored, to 
offer hard-working American families a reprieve from footing another 
financial sector bailout, while also discouraging these companies from 
continuing the irresponsible practices that got them into trouble in 
the first place. Again, this amendment was defeated along party lines.
  The amendment would have made these companies utilize an enhanced 
bankruptcy process to ensure that the costs are covered by the 
financial institutions and their creditors, not the taxpayer.
  Additionally it would have created a new chapter 14 in the Bankruptcy 
Code that would utilize many of the tenets of chapter 11 bankruptcy, 
but would be for the specific use of these financial institutions. This 
addition to the Bankruptcy Code would have created a new pathway to 
limit the cascading spread of risk and panic through the financial 
system and assured the more orderly winddown of financial 
institutions--insulated from bailouts and political influence.
  The Sessions amendment would have delivered much-needed transparency, 
accountability, stability, and due process through the use of 
bankruptcy courts. Further, to protect taxpayers, it specifically 
denied the Federal Government the authority to take over firms, dictate 
the terms of their reorganization or liquidation and support them with 
Federal bailouts. It protected the taxpayer.
  The amendment guaranteed real reform that would have resulted in real 
stability. Unfortunately, the Democrats decided to go in a different 
direction, one that moves away from protecting the taxpayers, and 
swiftly defeated this bankruptcy amendment. So, what does this mean for 
the average American?
  It means that this financial reform bill does not end ``too big to 
fail'' and ensures more taxpayer bailouts with the next financial 
crisis.
  In fact, this legislation goes as far as to create unnecessary and 
burdensome regulatory requirements that will ultimately hurt small 
businesses. Nowhere is this clearer than the creation of the new 
Consumer Financial Protection Bureau.
  This new government bureaucracy will have the authority to write and 
enforce rules that could ultimately tighten the availability of credit 
and discourage business investment at a time when we can least afford 
it. I am deeply concerned about the jurisdictional reach of this new 
agency.
  I was pleased that the Senate adopted my amendment last night that 
would exempt from the new agency all sellers of nonfinancial goods that 
give customers the option of making installment payments.
  At a time when the economy has taken its toll on many American 
families, it is vital that businesses are not discouraged from offering 
their customers flexible payment options. This is classic overreach by 
Washington, and I am glad that my colleagues narrowed the scope of the 
agency so that we don't further stunt our country's economic growth.
  However, my amendment fixes but one problem with the Consumer 
Financial Protection Bureau. This new bureau has no oversight and has 
access to billions of dollars. We have seen too often bureaucracies 
grow and grow normally; that's simply what bureaucracies do.
  Can you imagine what this monstrosity with no size restriction and no 
oversight can become?
  So, I ask you, do you feel like we are really reforming this 
financial industry with this legislation?
  The purpose of my speech today was to highlight all that is wrong 
with this bill for the American people, but I ran into a problem when 
doing this because what's wrong with the bill is literally every single 
line in the bill. I point out the issues of Fannie and Freddie, 
bailouts versus bankruptcy, because had those amendments been offered 
to this legislation, they would have been the sole examples of what is 
right with this financial reform bill; but they were not adopted and 
were defeated along party lines.
  The American people are tired and frankly, so am I. I am tired of 
standing up to speak about real reform, all the while, watching as my 
colleagues pass massive pieces of legislation through this body as 
solutions looking for a problem, while continuing to ignore that we 
have real problems that need real solutions.
  This financial reform bill does nothing to address real reform of the 
financial industry, but it does ensure that the taxpayers guarantee the 
bad debt of Fannie and Freddie and Wall Street, just as these companies 
guaranteed bad debt that eventually brought them to their knees.
  At the rate we are going, this will become our reality. The economic 
issues plaguing Greece aren't just a scary thing to watch unfold on TV, 
it is the future of our country, the great United States of America, if 
we don't start shaping up.
  Rushing legislation through Congress and into law doesn't mean that 
we are addressing pressing issues, it means that we are passing time 
and passing unintended consequences on the taxpayers' dime. We are 
passing time that we do not have, using money that we do not have, and 
doing so in a country that can not afford another bailout or another 
collapse of another ``too big to fail'' company.
  I yield the floor.

[[Page S4040]]

  The PRESIDING OFFICER. The Senator from Delaware is recognized.
  Mr. KAUFMAN. I ask to speak as in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                       In Praise of Stuart Levey

  Mr. KAUFMAN. I rise today to speak once more about our Nation's great 
Federal employees.
  The United States and our allies are engaged in an ongoing effort to 
disrupt and dismantle terrorist groups overseas. Every day, our troops 
act with great courage and commitment to take the fight to al-Qaida and 
its allies. Complementing their efforts are public servants who target 
individuals providing financial backing and other forms of support to 
terrorists overseas.
  One of the key government officials leading that effort here in 
Washington is a great Federal employee at the Treasury Department.
  Stuart Levey has served as the Under Secretary of the Treasury for 
Terrorism and Financial Intelligence since 2004. Appointed to the 
position by President Bush, he was asked to continue after President 
Obama took office as a testament to his effectiveness and unique 
abilities. Stuart has done an outstanding job cutting off the flow of 
money to terror groups and their sponsors, and support for his efforts 
crosses political divides.
  Today, one of the leading state-sponsors of terrorism is Iran. While 
an array of unilateral and multilateral sanctions remain in place with 
regard to Iran, many foreign businesses, banks, and other entities do 
business with Iran, which helps the Iranian government finance its 
nuclear program and terrorist activities.
  In 2006, Stuart adopted a new tactic to deal with this problem. 
Instead of focusing solely on government action, he began exploring 
opportunities for cooperation with the private sector and urging 
private sector institutions to take action.
  In this regard, Stuart led an effort to convince foreign banks to 
cease conducting business with Iran until that country agreed to comply 
with international banking standards. By showing companies and banks 
that doing business in Iran has financial and diplomatic repercussions, 
he has convinced corporations to cut off business with Iran. All of 
this was done in addition to the more traditional strategies of adding 
Iranian banks to the U.S. terrorist list and imposing more stringent 
regulations on American financial institutions.
  As Stuart's efforts took off, banks throughout the world--including 
in China and Muslim-majority countries--began cutting financial ties 
with Iran. Energy companies have been persuaded to avoid initiating 
deals to extract Iranian oil and gas, and such action has had far-
reaching financial implications.
  Our multilateral efforts against terrorism and nuclear 
nonproliferation have also been strengthened by Stuart's work.
  At the Treasury Department, Stuart oversees the Office of Terrorist 
Finance and Financial Crime, the Office of Intelligence and Analysis, 
the Financial Crimes Enforcement Network, the Office of Foreign Assets 
Control, and the Treasury Executive Office of Asset Forfeiture. In his 
leadership of these offices, Stuart has shaped a new role for the 
Treasury Department as a key player in national security matters and 
decisions, ranging from Iran to North Korea.
  Before coming to the Treasury Department, Stuart served as Principal 
Associate Deputy Attorney General at the Justice Department. There, he 
coordinated a number of the department's counterterrorism activities. 
He worked for several years in private practice before entering public 
service in 2001, and he holds undergraduate and law degrees from 
Harvard University.
  I hope my colleagues will join me in thanking Stuart Levy for his 
achievements and wish him continued success in his efforts, which are 
ongoing. He and his colleagues working at the Treasury Department on 
counterterrorism and financial intelligence are deserving of both 
praise and recognition for all they do to keep Americans safe and to 
secure American interests, both domestically and abroad.
  They are all truly great Federal employees.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mrs. McCASKILL. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mrs. McCASKILL. I ask unanimous consent to speak as in morning 
business.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Reverse Mortgages

  Mrs. McCASKILL. Mr. President, there are many issues that are pending 
on this bill that we are currently considering; unfortunately, many of 
them that we will not get to. But I did want to take a minute to sound 
the alarm about a very important topic that is, in all likelihood, not 
going to get addressed but something that everyone needs to be aware of 
because it is a subprime mess in the making. That is the area of 
reverse mortgages.
  You cannot turn on TV these days without seeing an advertisement from 
someone about an important government benefit that you should take 
advantage of, get cash out of your home now and participate in a 
reverse mortgage.
  Senator Kohl has been great to work with on the Committee on Aging. 
We had an oversight hearing on reverse mortgages. In fact, we conducted 
one of them in St. Louis. These are tricky financial vehicles.
  Keep in mind to whom these are being marketed. They are being 
marketed to seniors. So seniors are being told: Enter into a reverse 
mortgage and you can get all of the money out of your house, and you 
never have to worry about paying it back and everything is great.
  The problem is, they are very expensive and not everyone is well 
suited for a reverse mortgage. In some instances, a reverse mortgage 
might be appropriate. But, frankly, they are certainly not appropriate 
if someone is selling you a reserve mortgage when you are 80 years old 
and turns around and sells you an annuity in the same sales pitch.
  Believe it or not, we had testimony from families saying that is 
exactly what had happened to them. There is not enough consumer 
protection in the area of reverse mortgages.
  Here is the other shoe that is going to drop. Unlike the subprime 
mess which occurred because people were selling mortgages to people who 
were not suited for them, and they were trying to sell them because 
they had no skin in the game, they did not care if they were ever paid 
back, they were making money by selling the mortgages and had no risk 
if the loans were not paid back. Guess what. Same thing. The people 
selling these mortgages have no risk. Now, in the subprime mess, the 
risk was transferred to all of these financial institutions that sliced 
and diced these mortgages and securitized them and sold them short, 
sold them long.
  Guess who takes the risk in a reverse mortgage, every stinking dime. 
The Federal Government, which is shorthand for the taxpayers of this 
great country. So if someone does a phony appraisal on a reverse 
mortgage and says the property is worth more than it is, and they get 
the money out of there or if property values were to drop again in 15 
or 20 years when these mortgages came due, guess what happens. The 
Federal Government and the Federal taxpayers get left holding the bag 
for every darn dime.
  Clearly, this is a problem. The amendment I had was going to address 
some of the deficiencies in this area as it relates to consumer 
protection and would put in a suitability standard.
  Here is the other scary part about this cautionary tale. They have 
started securitizing reverse mortgages. Securitizing is the process 
that we saw in subprime where they gathered all of those subprime 
mortgages together and said: OK, let's slice them all up, and we will 
do it at levels. This top level is not very risky, and we will slap a 
AAA on that. Then we will slap another AAA on the second tranche, and 
maybe down here at the bottom we will get a AA.
  Then the different tranches will pay different rates. Guess what is 
happening now to reverse mortgages because that market has dried up 
because

[[Page S4041]]

of the subprime mess. All of a sudden we are seeing an explosion in the 
securitization of reverse mortgages.
  In the security market for these mortgages, in the past year, the 
security market for reverse mortgages went--in 1 year--from $1.5 
billion to $13 billion--in the last 12 months. In 1 year. That gives 
you some indication of what is happening.
  I know we may not be the brightest lights in the marquis sometimes 
around here, and I know sometimes we may not get it. But, goodness 
gracious, that ought to set off some alarm bells somewhere. So I urge 
my colleagues to take a look at the reverse mortgage problem.
  I urge them to convey to their seniors in their States, through the 
senior centers and other ways that you can communicate with your 
constituents, to be careful of reverse mortgages. They are very 
expensive.
  I did not really make a true confession, and I probably ought to do 
that. There is a reason this place likes reverse mortgages. We are busy 
trying to find pay-fors in our budget. We are busy trying to find ways 
to pay for things. Well, guess who gets a cut of the initial fees on a 
reverse mortgage. The Federal Government.
  So one part of this place loves the idea that more reverse mortgages 
are occurring. In fact, we took the cap off how many could occur for 
this year because we can count that money and spend it in the 
appropriations process, just hoping that maybe we are not around when 
we have to pay the piper at the end of the rainbow when perhaps the 
value of that home is not sufficient when sold to pay off the loan.
  So I am disappointed it appears that we are not going to get to this 
amendment. I will continue to work on this issue. I urge my colleagues 
to continue to work on this issue. I will say this: If this body tries 
to lift the cap--the cap will go back on in September--if this body 
tries to lift the cap and allow unlimited reverse mortgages out there 
this year, under the guise of, oh, we need to be doing this because it 
helps the economy, or it is going to help the--no. No. No. No. I say 
no.
  We need to go back to a cap on reverse mortgages so we have a firm 
handle on what potential liabilities down the road could be to the 
taxpayers of the country for this program.
  I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. NELSON of Florida. Mr. President, I ask unanimous consent that 
the order for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. NELSON of Florida. I ask unanimous consent to speak as in morning 
business.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                             Gulf Oilspill

  Mr. NELSON of Florida. Mr. President, British Petroleum has just 
announced that it has conceded that the amount of oil gushing from the 
floor of the Gulf of Mexico is much more than what they admitted 
several weeks ago. You will recall that they first said it was gushing 
about 1,000 barrels a day. They then revised that up to 5,000 barrels a 
day.
  All along they refused the entreaties of Senator Boxer and me to 
release the video that is being done by the little remote submersibles 
that are down there in two places: at the wellhead where the broken 
pipe is partially broken, at the wellhead 5,000 feet below the surface, 
and at the other end of that pipe that used to go up to the surface 
with the rig that sank but is now lying on the floor of the ocean. At 
the end of that pipe called the riser is where additional oil is coming 
out.
  I am happy to tell you Senator Boxer and I just announced that we now 
have gotten BP to release the live feed of those remote submersibles, 
and we should be able to go on any number of sites and see this live--
those two places: at the wellhead and at the end of the riser pipe.
  When you look at it, what you should note is--and why BP has now 
publicly admitted, and AP just moved the story--that they concede the 
amount gushing out is much more than 5,000 barrels a day. That is 
obvious when you see the live feed.
  Now, in addition, they released to Senator Boxer and me--and I want 
to hear from her in just a second. What they released was 9 hours of 
archival value tape of this video.
  What we found in there is the part where they are injecting the 
dispersant into the gushing oil. There is a picture of that we have put 
on my Web site, and what is astounding is that dispersant in this 
photograph is so much, is it any wonder, then, at midnight last night 
the Environmental Protection Agency ordered the stoppage of the use of 
this dispersant, as it is harmful to the environment?
  What we have is a gusher that is out of control. Remember, this has 
been gushing now for a month. They say it is going to be at least 
another 2 months before the relief well gets there with which they can 
stop it. If it does gush for another 2 months, it is going to cover up 
the Gulf of Mexico. And we already know it is in the Loop Current on 
the way to the Florida Keys.
  Mrs. BOXER. Will the Senator yield?
  Mr. NELSON of Florida. Certainly. And I thank the Senator from 
California, the chairman of the Environment Committee, for her 
leadership in getting the truth out.
  Mrs. BOXER. I thank the Senator from Florida. He represents a State 
that relies on a beautiful coastline, beautiful ocean, the ability for 
the fishermen to earn their living, the ability of the tourism industry 
to thrive, the jobs that are related in both of our States.
  I see Senator Cantwell and Senator Feinstein in the Chamber. The six 
Senators from the west coast came together in an unusual press 
conference, an unusual moment to say: We don't want to put our 
coastlines at risk. We can't afford to do it, let alone our moral 
responsibility to future generations.
  What we are seeing here are the limits of the technology. I know the 
Senator saw the words BP wrote on the permit application when they 
wanted to move forward with this exploratory well. They said the 
chances of a spill were remote. But even if there would be a spill, 
they said the technology was up to the task. After the spill, the first 
thing they said was: We have never had experience in cleaning up a 
spill in this deep water.
  Doesn't this strike my friend as something the Justice Department 
ought to look at, which several of us on the Environment Committee have 
asked for? Did they, in fact, tell the truth on their permit 
application or did they not? I ask my friend to respond to that.
  One more thing--and I thank the Senator from Florida so much. We are 
a good, strong team. It is a good east coast-west coast team. When we 
looked at that riser, the technique that is kind of a straw that they 
say is siphoning off the oil, they claimed it was taking out 1,000 
barrels a day. Then they said 2,000 barrels a day. Now they say it is 
3,000 barrels a day. Remember, they told us it was 5,000 in total that 
was being spilled. Now they are claiming 3,000. When we looked at 
that--and now the American people can look at this--didn't you see what 
I saw? It is a fraction of the oil that is being siphoned off. In fact, 
most of the oil is gushing like mad out there, with just a little bit 
being siphoned off, which tells us there is a much greater volume than 
BP said.
  If I may ask my friend to answer the two questions. Does he believe 
the Justice Department ought to take a look at these reassurances BP 
gave before they got the permit and then what they said after, and also 
comment on this whole notion of siphoning off the oil that they said 
was successful.
  Mr. NELSON of Florida. The answer to the first question is yes. I am 
not sure we have had the truth, the whole truth, and nothing but the 
truth. That would suggest why BP was so reluctant to release the video. 
Each step, it was like pulling teeth to get the video released. Live 
video pictures don't lie. What they are showing at this moment, anyone 
who looks at the live video, is exactly what Senator Boxer said. There 
is this huge gusher of oil at the wellhead that is spewing into the 
gulf. There is a little pipe that one can see in the video that is 
coming in and is being inserted, and that was supposed to be sucking 
most of the oil out. But, in fact, the pictures don't lie. The live 
video is showing the gusher spewing black oil 5,000 feet below the 
surface of the Gulf of Mexico.

[[Page S4042]]

  Again, I thank my colleague from California for her cooperation. As 
chairman of the Environment Committee, she has the access of snapping 
her fingers and making things happen.
  I hope other Senators don't have to suffer what it looks as if those 
of us on the gulf coast and now in the Florida Keys and the east coast, 
the Atlantic coast are going to have to suffer.
  Mr. JOHANNS. Mr. President, I rise today to talk about why cloture 
should not be invoked on this so-called financial reform bill. The 
events that transpired in the fall of 2008 and into 2009 are times that 
no one wants to repeat. That time was marked with extreme market 
volatility; credit all but drying up; a housing crisis we are still 
struggling to overcome; and taxpayers bailing out Wall Street. History 
books will undoubtedly look at that period with a magnifying glass. 
Hearings were held, testimony was heard--all in an attempt to identify 
what went wrong and what Congress could do to fix the broken parts of 
our system. I began this multiyear process with a resolve to the 
American people to fix the system. It is our job to protect taxpayers 
from ever again being on the hook for reckless and risky Wall Street 
players.
  Unfortunately, this final bill is anything but reform. Instead, this 
bill pays little regard to its massive government expansion or host of 
unintended consequences. In addition, it ignores some of the major 
causes of the last crisis. Proponents simply say reforming Fannie and 
Freddie will have to wait for another day. And in a twist of irony, it 
turns out that supporters of this bill are the Wall Street giants 
themselves such as Goldman Sachs and Citigroup. Yet, proponents of the 
bill are attempting to paint those opposed to the bill as attempting to 
protect Wall Street. The American people are not buying it. Those 
actually opposing the bill are Main Street businesses, those with 
little, if anything, to do with the last crisis. Groups like the 
Chamber and the NFIB hardly represent Wall Street insiders. And when 
the average American thinks of a Wall Street reform bill, they do not 
expect it to regulate the local HyVee grocery or Tractor Supply Store.
  Today, I would like to highlight some of my biggest concerns. If this 
bill becomes law, we are going to see a massive new government 
bureaucracy with unchecked powers and limitless authority. The new 
Consumer Financial Protection Bureau's powers are so broad--it will be 
allowed to creep into every area of American business and monitor 
consumer behavior. Have we not listened to anything the American people 
are telling us? They want less, not more government intrusion into 
their lives. We have now seen the U.S. Government become the majority 
owner of an American car company. We have seen government take over the 
student loan business. Most recently, a health care law added massive 
new costs and a massive new government entitlement program. And now the 
Consumer Financial Protection Bureau adds the potential for the 
government to creep into every avenue of our economy.
  How can we claim we are addressing the root causes of the financial 
crisis by creating new consumer rules that cause a restriction in 
credit? How will regulating community banks, florists, dentists, and 
manufacturers help prevent another Wall Street meltdown? What other 
agency in our system has this type of authority? It is telling that 
NFIB is against this new agency. They don't represent the big banks, 
but instead the businesses and job creators of our country. They are 
worried they will be swept under these new rules and I don't blame 
them.
  I also have deep reservations with the legislation's derivatives 
title. What started out as a bipartisan Agriculture Committee agreement 
has morphed into what almost everyone agrees is unworkable. The White 
House has concerns, Treasury Secretary Geithner has concerns, Obama 
administration adviser Volcker has concerns, Federal Reserve Chairman 
Bernanke has concerns, FDIC Chair Sheila Bair has concerns. Yet 
Senators just keep ignoring the warnings. This is legislative 
malpractice.
  The derivatives title seeks to address the largest dealers. Yet this 
derivatives title overreaches--impacting community banks, farmers, 
manufacturers, and thousands of others who use these instruments to 
manage their risks. A failure to provide an appropriate end user 
exemption will have the perverse effect of actually making businesses 
more risky. As derivatives contracts become more expensive, legitimate 
businesses will be unable to adequately plan for unexpected events. 
Furthermore, by banning the large dealers from engaging in derivative 
transactions, we won't really be banning them. We will only prevent 
them from occurring in the United States. No one should kid themselves 
into thinking our global competitors won't step in. A massive migration 
of derivative contracts into areas of the world that are unregulated, 
helps no one. By pushing these contracts into the dark, we are only 
increasing our global systemic risk. The problems at AIG have clouded 
our judgment regarding the usefulness of the rest of the derivatives 
market. Now are reforms needed? Without a doubt. However, the current 
approach unfortunately throws the baby out with the bathwater. It will 
only harm our U.S. competitiveness and those that use derivatives to 
legitimately protect their business from risks.
  And finally, let me say what this legislation is missing. Shocking as 
it is, nothing in the bill addresses Fannie Mae and Freddie Mac. 
Already, the taxpayer has given these mortgage giants $130 billion and 
now we find they want another $18 billion more. Unfortunately, once you 
have turned on this faucet, it is hard to turn off. And the taxpayer 
well is running dry. The government took over these mega firms in 2008 
and we have done nothing to extricate ourselves from them. In fact, 
since the United States guarantees Fannie and Freddie, taxpayers are on 
the hook for roughly $5 trillion in mortgage liabilities. So if 
everyone knows we must do something, how can we ignore them in this 
massive 1,400-page bill?
  Furthermore, how could my colleagues reject an amendment that would 
have--at the very least--provided transparent accounting of the 
liabilities of Fannie and Freddie? If the taxpayers are on the hook for 
these liabilities, shouldn't this risk be on the Federal balance sheet? 
Wasn't it President Obama himself who advocated for honest accounting 
in our budget? This elephant in the room will cause further destruction 
to our fragile economy if we don't take serious action. The root cause 
of the housing crisis was that people bought houses they couldn't 
afford. No one can claim that the mortgage market was not a major 
factor in our financial meltdown. Yet we ignore underwriting standards. 
Unfortunately, the Senate rejected an amendment that would have 
mandated stricter underwriting standards including a 5-percent 
downpayment requirement.
  Instead, we kicked the problem to the financial protection bureau to 
put on their already long to-do list. It is with regret that I will not 
be supporting the final regulatory bill. Government expansion, 
overreaching regulations, and impacting Main Street businesses that had 
nothing to do with the crisis are not the reforms the American people 
want.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant bill clerk proceeded to call the roll.
  Mr. DODD. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Under the previous order, the motion to proceed to the motion to 
reconsider is agreed to, the motion to reconsider is agreed to.


                             Cloture Motion

  The question is on agreeing to the motion to invoke cloture, upon 
reconsideration, on amendment No. 3739.
  The Chair lays before the Senate the pending cloture motion, which 
the clerk will state.
  The assistant bill clerk read as follows:

                             Cloture Motion

       We, the undersigned Senators, in accordance with the 
     provisions of rule XXII of the Standing Rules of the Senate, 
     hereby move to bring to a close debate on the Dodd substitute 
     amendment No. 3739 to S. 3217, the Restoring American 
     Financial Stability Act of 2010.
         Harry Reid, Christopher J. Dodd, Tim Johnson, Jack Reed, 
           Jon Tester, Charles E. Schumer, Patty Murray, Daniel K. 
           Inouye, Kent Conrad, John F.

[[Page S4043]]

           Kerry, Roland W. Burris, Mark R. Warner, Daniel K. 
           Akaka, Sheldon Whitehouse, John D. Rockefeller, IV, 
           Michael F. Bennet

  The PRESIDING OFFICER. By unanimous consent, the mandatory quorum 
call is waived.
  The question is, Is it the sense of the Senate that debate on 
amendment No. 3739 to S. 3217, the Restoring American Financial 
Stability Act of 2010, shall be brought to a close?
  The yeas and nays are mandatory under the rule.
  The clerk will call the roll.
  The bill clerk called the roll.
  The yeas and nays resulted--yeas 60, nays 40, as follows:

                      [Rollcall Vote No. 160 Leg.]

                                YEAS--60

     Akaka
     Baucus
     Bayh
     Begich
     Bennet
     Bingaman
     Boxer
     Brown (MA)
     Brown (OH)
     Burris
     Byrd
     Cardin
     Carper
     Casey
     Collins
     Conrad
     Dodd
     Dorgan
     Durbin
     Feinstein
     Franken
     Gillibrand
     Hagan
     Harkin
     Inouye
     Johnson
     Kaufman
     Kerry
     Klobuchar
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     McCaskill
     Menendez
     Merkley
     Mikulski
     Murray
     Nelson (NE)
     Nelson (FL)
     Pryor
     Reed
     Reid
     Rockefeller
     Sanders
     Schumer
     Shaheen
     Snowe
     Specter
     Stabenow
     Tester
     Udall (CO)
     Udall (NM)
     Warner
     Webb
     Whitehouse
     Wyden

                                NAYS--40

     Alexander
     Barrasso
     Bennett
     Bond
     Brownback
     Bunning
     Burr
     Cantwell
     Chambliss
     Coburn
     Cochran
     Corker
     Cornyn
     Crapo
     DeMint
     Ensign
     Enzi
     Feingold
     Graham
     Grassley
     Gregg
     Hatch
     Hutchison
     Inhofe
     Isakson
     Johanns
     Kyl
     LeMieux
     Lugar
     McCain
     McConnell
     Murkowski
     Risch
     Roberts
     Sessions
     Shelby
     Thune
     Vitter
     Voinovich
     Wicker
  Mr. BURRIS. On this vote, the yeas are 60, the nays are 40. Three-
fifths of the Senators duly chosen and sworn having voted in the 
affirmative, the motion is agreed to.
  The majority leader.
  Mr. REID. Mr. President, for the benefit of all Senators, we are now 
postcloture 30 hours. I have been speaking off and on over the last 
couple of days with the Republican leader. We are trying to work our 
way through this. There are a lot of procedural things we have to work 
through. There are only a couple of amendments that are germane 
postcloture, but they are ones we have to figure out a way to get 
resolved. I am in communication with the Republican leader. I am in 
communication regarding an amendment that is germane over here, a 
germane amendment over here, and we are going to try to work through 
this.
  We could have some more votes this afternoon. In the best of all 
worlds we would finish this thing and move on to other issues. We are 
going to try to do that, but as everyone has heard over the last few 
days, it is hard to get that extra little distance we need.
  We have made great progress. I don't want to belabor the point, but 
it has been hard to get to this point. This has been a good debate. I 
wish we had more of my friends over here join us on the cloture vote. 
We didn't, but I think it has been a good debate, and I think it is the 
way the Senate should operate more often than it has, and maybe this is 
setting a good tone for the future.
  I note the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant bill clerk proceeded to call the roll.
  Mr. CORKER. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mrs. Shaheen). Without objection, it is so 
ordered.
  Mr. CORKER. Madam President, I wish to talk for a few moments about 
the pending legislation. My guess is we will have final passage, after 
reaching cloture a few minutes ago.
  I would like to go back and say we began the process of looking at 
financial regulation after the crisis that occurred a couple years ago, 
where institutions all across this country made loans--very poor 
loans--to people who used that money to buy homes. That was the genesis 
of this crisis, the fact that institutions across this country made 
those bad loans and made them to people who could not pay them back.
  Certainly, that was exacerbated by the fact, with all the easy credit 
that occurred, there was a housing bubble that no doubt was going to 
put housing back into its normal state at some point. The combination 
of those two factors created a tremendous crisis in our country.
  When the banks involved in all these loans got into trouble, there 
was not a good mechanism to deal with so many of them being in trouble 
at the same time. We ended up with a moral hazard with which this 
legislation is trying to deal; that is, we had institutions around this 
country that had capital injected into them because many people at that 
time felt the Bankruptcy Code or other mechanisms were not there to 
deal with these institutions.
  A process began where we in this body and people on the other side of 
the Capitol tried to pass legislation to deal with this situation.
  I know there has been a good attempt to deal with it. I have been 
involved in some of those negotiations. As my colleagues can tell by my 
vote, I am disappointed with the outcome of that involvement. Still, it 
is an issue that is important to this country.
  In spite of my disappointment with the outcome, I will say, on the 
front end, I think the process we have had on the floor has been a good 
one. We have had a lot of amendments voted on, and that speaks well for 
this body.
  The one issue we did not deal with in this 1,400-page bill--that I am 
sure will be lengthened by a managers' amendment and other things--the 
one issue we did not deal with is the fact that underwriting has been 
so terrible. This bill absolutely does not address loan underwriting.
  I offered an amendment to try to deal with that issue, where when 
Americans apply for a loan, there has to be a verification of their 
income, people will look at their debt-to-equity ratio to make sure 
they have the ability, with all their indebtedness, to pay back 
everything they have before they are able to take out a home mortgage 
and the fact they would have a 5-percent downpayment.
  All of us know that in other countries--Canada just to the north of 
us did not have this crisis because most people there put 15 percent 
down on their home mortgages. We did not want to deal with that.
  There is no one in this body who would say the genesis of this crisis 
was not the fact that a lot of loans were made to people who could not 
pay them back. We did not deal with that in this bill. That, to me, is 
a major oversight and one of the reasons I am disappointed with the 
outcome.
  I do think, by the way, much of that has been dealt with 
appropriately. I appreciate the chairman allowing me to work on that 
title with the Senator from--I say ``allowing.'' We were working on it 
anyway--allowing us to be engaged in a way that I think helped improve 
this bill on resolution.
  One of the issues we did not deal with was trying to strengthen 
bankruptcy. Resolution, as we discussed over this last year, was to be 
the last resource--orderly liquidation I guess we would call it. One of 
the things we had hoped to do was, working with the Judiciary 
Committee, to strengthen our bankruptcy laws so bankruptcy could work 
for these large institutions that failed.
  We did not do that. We not only did not do that, we did not deal with 
some of the judicial checks that I thought were important as related to 
ensuring that as we pay creditors off through this resolution 
mechanism, we do it in a way that is appropriate.
  I am also disappointed we have not ended up with what I call orderly 
liquidation. We are now giving the FDIC 5 years to resolve a firm. That 
means, if a large firm fails in this country, we have the possibility 
of the FDIC running a large financial holding company for 5 years. I 
think that is inappropriate. I do not think many Americans would view a 
government taking over an entity and running it for 5 years as actually 
resolving it out of business.
  Obviously, I am disappointed. I do think the chairman and others have 
tried to deal with resolution in a responsible manner. To me, it did 
not get to where it needed to go.
  On derivatives, I agree with the thrust of trying to make sure the 
derivatives activity that takes place in this country, that major 
participants actually have to clear and making sure that the plumbing 
of ensuring things

[[Page S4044]]

are margined and that people are money bad on that day occurs. I think 
that is very appropriate.
  I am very concerned, on the other hand, with the fact that end users 
still feel--and I think there is still a lot of concern about end users 
being caught up in this legislation. I handed something to the 
chairman. I hope there are some clarifications that can occur before 
this bill actually becomes law.
  At present, here is what has happened. We have people on Wall Street, 
obviously, who deal with these on a daily basis. They need to clear. We 
have, on the other hand, people across this country who are part of our 
heartland who manufacture products, process products, who use 
derivatives to make sure metal prices down the road, if they are trying 
to make heavy equipment, do not fluctuate in such a way that they end 
up losing money.
  Maybe they are selling their goods to a company in another country, 
and they want to make sure the money they are being paid is in U.S. 
dollars. They might buy a currency swap.
  The way this legislation is now crafted, there is great question as 
to whether these people who are spread across this country, who create 
great manufacturing and other kinds of jobs, are going to be without 
capital. They are going to have to unnecessarily tie up capital which 
takes away from their ability to create jobs.
  For some reason, the Agriculture Committee sent over something called 
106 or 716, which basically moves the swap desk out of a commercial 
bank into an affiliate, which means a whole new round of capitalization 
has to take place--again, money that is taken out of the markets at a 
time when we would hope these institutions would be creating loans.
  What happens when a company is trying to formulate capital? They go 
to an institution, a commercial bank. They may borrow or have a line of 
credit to make payroll or maybe even out payments. Their accounts 
receivable may be uneven. They go there and work out a line of credit. 
While they are doing that, they also deal with these other activities. 
They deal with currency swaps. They deal with making sure metal prices 
are hedged or other commodity prices.
  What this would do is alleviate the ability for an institution to use 
capital they already have. I am talking about the actual financial 
institution. It also makes it far less convenient and far more 
difficult, I might add, for those people across our country who create 
these great jobs from being able to do so. There is absolutely no 
reason for it. People on both sides of the aisle understand this is a 
problem. My sense is the chairman possibly believes this to be a 
problem. Yet we still have not dealt with that issue.
  If this bill passes, which it looks like it may in 3 or 4 hours, we 
have ended up doing something that accomplishes nothing as relates to 
financial stability in our country and yet creates a situation where 
there is less capital available for lending, and it is far more 
difficult for those institutions that are trying to form that capital.
  The one thing that is difficult for me to understand is why we did 
not take the time to deal with Fannie and Freddie. There are people in 
this body, on both sides of the aisle, who have concerns about these 
two GSEs against which we all know we have incredible liabilities.
  We had an amendment that I thought was thoughtful. That was the 
McCain amendment. It did not prescribe what we did with Fannie and 
Freddie, but it made sure we as a body dealt with them over the next 
couple years.
  We know they have been enablers because of their mixed messages with 
two divergent missions. They have created lots of problems for this 
country. They have enabled lots of bad things to happen in this country 
as relates to home mortgages. I also know they are a big part of the 
market and we have to deal with them over time.
  The McCain amendment gave us the ability to do that. This body chose 
not to deal with underwriting, the core issue, not to deal with 
creating a Bankruptcy Code that would work, in most cases--I am one of 
those who believes that even with that, we ought to have some ability 
to resolve, in the event there is a systemic risk--but we also did not 
deal with Fannie and Freddie.
  The credit rating amendment we added is a good step in the right 
direction. I voted for it. Again, we did not take the time, within our 
committee, to even understand what we ought to do with credit rating 
agencies. So we had an amendment that was drafted a day before a vote, 
and we voted on it. It is pretty draconian, but what it does mean--and 
I thank my friend from Florida for offering it--is that we will 
actually deal with credit rating agencies down the road.

  Right as this bill was in committee, something was sort of air-
dropped out of the sky, and that was the Volcker language. Certainly, 
Chairman Volcker, who used to be head of the Federal Reserve--somebody 
I respect--came up with some language out of the blue that is a part of 
this bill. We had one hearing on it and the person who was the author 
of the Volcker language couldn't even describe to us exactly what he 
meant. I mean, he said you know it when you see it. So we are going to 
have this Volcker language, and we may need to do something on it, but 
I would hope we would have a neutral study first before we decide. In 
essence, we are doing something and sort of sending it off in a 
direction.
  I realize there is still a degree of study language, but we are 
sending it off in a direction when, in fact, prop trading--as much as 
people like to talk negative about it--and private equity and hedge 
funds had absolutely nothing to do with this last crisis. Nada, zero, 
not a single institution in this country was negatively affected by 
those activities--not one--as it relates to creating a systemic crisis. 
Yet, again, it is a part of this bill. I think these types of things go 
under the adage of what we have heard from the White House for the last 
year and a half; that is, ``never let a good crisis go to waste.''
  Another area of concern is proxy access. I know the Senator from New 
York has been a proponent of proxy access. For those of you not paying 
much attention to this, what this means is, if you own a very small 
portion of a publicly traded company, you have access to their proxy 
documents and, therefore, you have the ability to call people to be 
voting on up to 25 percent of the board. To me, all this does is put 
board members of these companies in the same place we in the Senate and 
those in the House are in, and that is subject to political whims.
  You can imagine a special interest group, whether it be labor or an 
environmentalist group, basically targeting a company in order to make 
a statement; basically taking those board members away from dealing 
with the long-term interests of the company. By the way, proxy access 
has absolutely nothing, zero to do with financial regulation. But this 
has become a Christmas tree for those kinds of things because people 
realize it is something that is going to pass.
  I think the best example I can possibly imagine of using a piece of 
legislation or using a crisis to create something through legislation 
that is, in my opinion, way overreaching, is this consumer protection 
agency. I still am sort of shocked at where we have gone with this. I 
agree with people in this body that mortgage brokers in many cases took 
advantage of people who were borrowing money. I agree with that, and I 
think we ought to have a regulation to deal with that. But instead of 
dealing surgically with that particular issue, which is something that 
was a part--a small part but a part--of this crisis, what we have done 
is create another czar--a czar that has no board.
  This czar is appointed for 5 years and has absolutely no board, no 
governance, but does have the ability to create rules with no real veto 
authority. The agency will have the ability to enforce those rules, and 
it has a very generous budget.
  One of the worst issues regarding this agency is that it has the 
ability to deal with underwriting loans. So we have a consumer 
organization--not a banking regulator but a consumer organization--that 
is going to be dealing with underwriting of loans. I know this may 
sound a little far-fetched, but you can have the wrong person in this 
position--again, there is no board, no check and balance--and that 
person could use this organization to create social justice, if you 
will, in the financial system. On top of that, we have turned back from 
where we were in having a national banking system. Now

[[Page S4045]]

we are allowing 50 State AGs across this country to take the rules that 
are created by this consumer czar, without veto--these rules we now 
will place on banks and other financial institutions across the 
country--and for the first time in a long time, these 50 AGs will have 
the ability to sue those firms over the rules this consumer 
organization writes--without any check and balance from Congress; 
certainly no real check and balance, in my opinion, from the prudential 
regulators that oversee the safety and soundness of these institutions.
  So, Madam President, I am obviously disappointed. I think I have 
spent as much time as any Senator on this floor--maybe slightly less 
than the chairman--on policy regarding our financial system and trying 
to make sure we create stability for the future. I think any bill--even 
this bill--has good things in it. There is no question. And I 
appreciate the thrust. But I think there is a lot of overreaching, and 
I think not enough time was spent on some of the core issues that are 
important.
  To add insult to injury, Madam President, this bill is not paid for. 
This bill is going to add $17 billion to $23 billion in debt to our 
country, and we haven't even addressed that in this bill. So I know 
there has been some discussion of bipartisanship, and I think certainly 
the chairman put out some effort toward bipartisanship, but I must say 
it has begun to feel, in many ways--not necessarily as it relates to 
this bill--that bipartisanship means everybody on the other side of the 
aisle, with maybe one or two exceptions, being supportive of something, 
and a few people, less than a handful, on our side of the aisle being 
supportive. That is not the kind of bipartisanship I thought we were 
all pushing for when this bill began.
  So I think the process on this floor has been good--on the Senate 
floor--but I do wish we had spent more time developing a bipartisan 
template. I think there have been plenty of missed opportunities. I am 
proud of the role I was able to play on this bill and believe I have 
had some input in its shaping, but I wish the policy was far different 
than it is. It is my hope that in the next 6 months or so there will be 
a little different balance in this body where we take each other a 
little more seriously than we now do, and we actually end up with 
centrist, middle-of-the-road policies.
  I know the President has to be very happy. It seems to me this bill, 
as it has turned out, is exactly the bill he talked about some time 
ago. I know it has to be a major victory for him. In my opinion, it is 
an overreach. I believe we could have done better, and I am regretful 
of the fact that we did not do better in the process. I think some 
steps were made, over the last month in particular, that I hope will 
cause this body to function better.
  Obviously, Madam President, I don't support this legislation and wish 
it could have been better. I think we have had opportunities where we 
could have made it better, but we didn't. I think over the course of 
the next decade we are going to be unwinding much of what we have done. 
It is my hope that in conference--and I think there is actually a 
possibility of this--many of the issues that are problematic will be 
unwound. As a matter of fact, I sense there is a desire to do that, and 
I hope that is the case.
  Madam President, I came to this body because I wanted to see good 
policies put in place for this country. I wanted to see us become a 
stronger country than we already are in the world--the greatest Nation 
on Earth. I hope, as this piece of legislation moves through conference 
and comes back to this body, it is strengthened. I did support 
amendments on this floor that made the bill better. I think some 
improvements were made, but I think we also stepped backwards in a 
number of cases.
  In spite of the outcome, Madam President, I want to thank the 
chairman and the ranking member for their efforts in trying to create a 
piece of legislation for this body.
  The PRESIDING OFFICER (Mr. Franken). The majority leader is 
recognized.
  Mr. REID. Mr. President, I ask unanimous consent that when the 
Senator from Iowa finishes his statement, I be recognized.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. GRASSLEY. Mr. President, I hope we have a chance now, during the 
final hours of debate, to take into consideration some of the reasons 
we got from where we have been over the last 3 or 4 years with the 
bubble, and that bubble bursting a couple of years ago, and the 
financial crisis and the recession that has come as a result of it.
  I want to start out with something that is familiar to all my 
colleagues, something that George Santayana said:

       Those who cannot remember the past are condemned to repeat 
     it.

  As the Senate continues to debate the financial regulation bill, I 
think it is important to consider how we got from where we are today.
  Many people believe the housing and financial crisis was the result 
of too much greed on Wall Street. No doubt. No doubt whatsoever; there 
was plenty of greed on Wall Street. But greed is like gravity--it is a 
constant of nature. When planes crash we don't blame gravity. If you 
search the Internet for the term ``decade of greed,'' you will discover 
that is what some people called the 1980s. There is no reason to 
believe people are greedier now than they were then. Greed has always 
existed. The Ten Commandments admonish us not to covet our neighbor's 
possessions. Everyone is tempted by greed. Some are more successful 
than others in resisting temptation. But greed alone does not explain 
our current crisis. We need to look further.
  Many people blame the crisis on deregulation. According to this 
explanation, Congress repealed all the rules and let Wall Street run 
wild. Greedy bankers tricked innocent consumers into taking out risky 
mortgages and sold them to unsuspecting investors. This explanation 
views the crisis in terms of victims and villains. If it were only that 
simple.
  Obviously, anyone who has committed a crime should be prosecuted to 
the fullest extent of the law. But this explanation overlooks several 
important facts: First, the United States is not alone in this crisis. 
Housing booms and busts are occurring all around the world resulting in 
government bailouts. According to the Organization for Economic 
Cooperation and Development--we refer to this as the OECD--nearly a 
dozen European countries are experiencing bigger housing bubbles than 
our own. These countries include Australia, Canada, Denmark, France, 
Ireland, Italy, New Zealand, Norway, Spain, Sweden, and the United 
Kingdom. The global nature of this crisis shows the problem is not ours 
alone.
  Second, we do not have an unregulated free market. Let me underscore 
that point. This crisis occurred with lots of government involvement. 
The Federal Reserve controls the money supply. The Federal Deposit 
Insurance Corporation insures bank deposits. The Fannie, Freddie, 
Ginnie, FHA, and the Federal Home Loan Bank boards insure subsidized or 
guaranteed mortgages. We have an entire alphabet soup of government 
agencies that regulate our financial institutions--CFTC, FDIC, FHFA, 
FTC, NCUA, OCC, OTS, SEC, plus all the State agencies and the Federal 
Reserve. Finally, we have adopted a policy of too big to fail.
  The essence of a free market is the opportunity to succeed and the 
potential to fail. As economist Milton Friedman observed: capitalism is 
a profit-and-loss system. The loss part is just as important as the 
profit part. Profits encourage risk taking and losses encourage what 
they should--prudence.
  Unfortunately, we have privatized the profits and socialized the 
risks. In some cases, we have bailed out individual companies. In 
others, we have bailed out the financial markets. In recent years, 
market participants even coined a phrase for such bailouts--``the 
Greenspan put.'' In other words, Wall Street was betting on former 
Federal Reserve Chairman Alan Greenspan to protect them from their own 
mistakes.
  Recent government bailouts, both industry-specific and market-wide, 
include Lockheed in 1971; Penn Central Railroad in 1974; Franklin 
National Bank in 1974; New York City in 1975 and 1978; Chrysler in 
1980; Continental Illinois in 1984; the stock market crisis in 1987; 
Latin American debt crisis in the early-1980s; the Savings & Loan 
crisis in the late-1980s; the Mexican peso crisis in 1994; Asian 
financial crisis in

[[Page S4046]]

1997; Long-Term Capital Management in 1998; the stock market crisis in 
2000; the airline industry in 2001; AIG, Bank of America, Bear Stearns; 
Citigroup, Chrysler, GM, Fannie and Freddie in 2008.
  Reducing the cost of failure encourages reckless behavior. When 
people come to expect and accept government bailouts that's not 
capitalism--it is cronyism. Until we eliminate the perverse incentives 
created by these bailouts, no one can honestly say we have an 
unregulated free market.
  I do not mean to say regulation is unnecessary. Indeed, the exact 
opposite is true. Free markets are not possible without laws to protect 
property and enforce contracts. The problem is government regulation 
often has unintended consequences.
  The desire to control human greed through regulation is 
understandable. But we forget regulators are human too. They are 
subject to the same temptations as everyone else. History is replete 
with examples of regulatory capture and government corruption. The 
revolving door between Washington, Wall Street, and the Fed make these 
problems even worse. Second, regulation can provide a false sense of 
security. They encourage people to rely on the government instead of 
their own common sense. Third, regulation designed to solve one problem 
often create another problem. That can lead to more regulation and more 
problems.
  But most of all, regulation cannot succeed when it is undermined by 
good intentions.
  For most of the past century our government--under both Democrats and 
Republicans--has pursued an ad hoc industrial policy. We have 
encouraged home building to stimulate the economy, and home ownership 
to promote a better society. Unfortunately, we pursued these policies 
by undermining the safety and soundness of our financial system, which 
was already a house built upon sand. I will have more to say on that 
later.
  A review of U.S. housing policy during the 20th century illustrates 
this point. Consider the government's first major campaign to boost 
homeownership as described by Steven Malanga of the Manhattan 
Institute.
  As Secretary of Commerce, Herbert Hoover declared that nothing was 
worse than increased tenancy and landlordism. In 1922, Hoover launched 
the ``Own Your Own Home'' campaign, urging Americans to buy homes. 
According to Hoover, homeowners work harder, spend leisure time more 
profitably, live finer lives, and enjoy more comforts of civilization. 
He urged the lending institutions, the construction industry, and the 
great real estate men to counteract the growing menace of tenancy.
  Hoover called for new rules that would allow nationally chartered 
banks to devote a greater share of their lending to residential 
properties. Until that time mortgage lending had primarily been 
conducted by savings and loans, or as they were originally known, 
building and loans.
  In 1927, Congress responded by passing the McFadden Act, which 
allowed national banks to expand their residential lending to encourage 
homeownership. The act also prohibited interstate branching to protect 
smaller local financial institutions.
  Congress would later pass the Riegle-Neal Act of 1994, which repealed 
the ban on interstate banking, subject to certain limits. This partial 
repeal followed the savings and loan crisis in the 1980s. Many 
observers suggest the lack of diversification and concentration of risk 
among smaller local institutions contributed to the S&L crisis.
  The housing market boomed during the 1920s right along with the stock 
market. When stocks crashed in 1929, so did housing. According to one 
study, nearly 50 percent of the mortgages in America were in default by 
1934. As panicked depositors withdrew their money, banks were forced to 
call in loans or stop rolling them over.
  Before the Great Depression, home mortgages typically required a 
substantial down payment--as much as 50 percent. They usually had a 
very short maturity--as few as 5 years. They often had a balloon 
payment at the end. Homeowners had to refinance their mortgage or give 
up their home if they could not afford to pay off the balance when 
their loan came due.
  In response to the housing and financial crisis caused by the Great 
Depression, Congress enacted the Home Owners' Loan Corporation and the 
Reconstruction Finance Corporation. These programs were designed to 
bailout insolvent financial institutions; buy up troubled mortgages; 
and refinance them on more affordable terms. A report by HUD on the 
history of the era, noted that many borrowers deliberately defaulted on 
their mortgages to take advantage of these bailouts.
  One might think of these earlier programs as the original versions of 
the current TARP and HAMP.
  In 1934, Congress attempted to strengthen the housing and financial 
markets by creating the Federal Home Loan Banks--FHLB--to lend money to 
other banks; the Federal Housing Administration--FHA--to guarantee home 
loans; the Federal Deposit Insurance Corporation--FDIC--to insure bank 
deposits, the Federal Savings and Loan Insurance Corporation--FSLIC--to 
insure the deposits of S&Ls and the Federal National Mortgage 
Association--Fannie Mae--to create a secondary market for government 
insured mortgages.
  Congress would later abolish FSLIC by merging it with the FDIC 
following the S&L crisis in the late 1980s.
  In 1944, Congress passed the GI bill, which provided low interest, 
zero down payment home loans for servicemen. This enabled millions of 
American families to move out of urban apartments and into suburban 
homes.
  In 1945, President Truman proposed the ``Fair Deal,'' which included 
several housing proposals, including temporary price controls. 
President Truman declared:

       Such measures are necessary stopgaps-but only stopgaps. 
     This emergency action, taken alone, is good--but not enough. 
     The housing shortage did not start with the war or with 
     demobilization; it began years before that and has steadily 
     accumulated. The speed with which the Congress establishes 
     the foundation for a permanent, long-range housing program 
     will determine how effectively we grasp the immense 
     opportunity to achieve our goal of decent housing and to make 
     housing a major instrument of continuing prosperity and full 
     employment in the years ahead. It will determine whether we 
     move forward to a stable and healthy housing enterprise and 
     toward providing a decent home for every American family.

  I ask unanimous consent to include President Truman's full statement 
on housing policy in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered. (See 
Exhibit 1.)
  Mr. GRASSLEY. In 1949, Congress enacted the Federal Housing Act, 
which provided Federal funding for slum clearance, urban renewal, and 
public housing. The act also expanded the FHA mortgage insurance 
program.
  To understand the origins of our current housing and financial 
crisis, it is critical to recognize the role played by the FHA--the 
Federal Housing Administration. The FHA was created in 1934. At the 
time, State and Federal laws prevented lenders from reducing their down 
payments and lengthening the terms of their loans. As I noted earlier, 
the typical mortgage required a 50-percent down payment and had a 
maturity of 5 years. These features were considered essential to 
maintaining the safety and soundness of the banking system.
  Lower down payments increased the risk of foreclosure because buyers 
had less equity in their houses. If home values declined, more 
borrowers might walk away from their homes instead of continuing to 
make payments on their mortgage. Longer terms increased the risk of 
insolvency among financial institutions because of an increase in 
interest rates or a decline in the economy.
  The FHA challenged conventional wisdom. It sought to waive all of the 
safety and soundness regulations that applied to the mortgages it 
insured. According to an article by Adam Gordon published in the Yale 
Law Journal:

       The FHA had a compelling economic case for requesting such 
     waivers: Treating insured loans differently from uninsured 
     loans made sense from a safety-and-soundness standpoint. From 
     the banks' perspective, insurance balanced out the risks of 
     lower-down-payment, longer-term loans by guaranteeing that, 
     even if the property value went down and the buyer quit 
     making payments, or if the buyer defaulted twenty years into 
     a 25-year loan, the bank would be made whole by the insurance 
     fund. These assurances and the political pressure for new 
     ways to support homeownership led Congress and every state 
     legislature to rapidly pass the requisite

[[Page S4047]]

     exemptions from bank safety-and-soundness laws.

  By 1937, all 50 States had enacted legislation giving the FHA free 
rein to write its own rules with respect to the mortgages that it 
insured. The results were predictable. Delinquencies, defaults, and 
foreclosures increased dramatically.
  The FHA lowered down payments from 20 percent, to 10 percent, and 
finally to 3 percent by the mid-1960s. As a result, the foreclosure 
rate increased sixfold, from less than 2 for every 1,000 mortgages to 
more than 12 per 1,000 mortgages.
  Almost everyone seemed prepared to accept rising foreclosure rates as 
the price to be paid for expanding homeownership. However, the FHA soon 
faced a bigger scandal.
  Today, we often forget just how much of the pre-civil rights era in 
America was marked by racial discrimination. The FHA program was a 
prime example. During its first 30 years in existence, the FHA 
maintained various policies to deny insurance to minorities. These 
policies effectively prevented most African Americans from obtaining 
FHA insured mortgages.
  Being denied an FHA loan usually meant being denied any opportunity 
to obtain lower down payments and longer terms because such provisions 
were still illegal for conventional loans.
  FHA's discriminatory policies did not end until Congress passed the 
Fair Housing Act of 1968. Unfortunately, efforts to end racial 
discrimination marked the beginning of what we now call predatory 
lending. According to Beryl Satter of Rutgers University:

       After decades of refusing to insure mortgages in areas with 
     black residents no matter what their economic status, in 1968 
     the FHA went to the other extreme and told mortgage companies 
     that if they would loan in low-income minority neighborhoods, 
     the FHA would guarantee those loans 100%.
       Speculators immediately exploited the new policy by buying 
     slum properties, and then bribing someone to appraise the 
     properties at, say, quadruple their real value. Speculators 
     might buy a house for $5000 but get a corrupt FHA appraiser 
     to say it was worth $20,000. Once they had that appraisal, 
     they could easily sell that property for $20,000. So what if 
     the price seemed high? The mortgage lender couldn't lose--
     after all, $20,000 was the property's appraised value, and 
     more importantly, the FHA insured the loan 100%. 
     [Speculators] enticed buyers by emphasizing the low down 
     payment rather than the high final cost. People eager to buy 
     on such terms were easy to find. They were usually black or 
     Latino, and often low income. Given the desperate housing 
     shortage facing low income families during that decade of 
     massive inflation, an offer of a home of one's own for $200 
     down was often irresistible.
       The speculators made the procedure quick and easy. They did 
     all the paperwork, routinely falsifying the buyers' income to 
     make it look like they could carry the overpriced loan. The 
     lenders didn't ask any questions about these loan 
     applications because the mortgages were fully insured; the 
     creditworthiness of the borrower was therefore of no 
     relevance. Since mortgage companies also made profits through 
     the exorbitant service fees they charged for FHA loans, they 
     made money on every sale, with no risk whatsoever.
       By 1972, similar abuses of FHA programs were being reported 
     in Boston, New York, Newark, Philadelphia, Wilmington, Miami, 
     Detroit, St. Louis, Seattle, Los Angeles, and Lubbock, Texas. 
     The New York Times noted that FHA-guaranteed loans were being 
     given on ``substandard'' buildings that lacked ``such 
     essentials as adequate heating and plumbing.'' The confluence 
     of inflated mortgage payments and high repair costs meant 
     that the low-income buyer never had a chance. The repossessed 
     buildings sometimes ended up back in the hands of the 
     speculators, who started the cycle anew.
       While the scandal meant ruin for low and moderate-income 
     home buyers, it meant huge profits for those in the game. . . 
     .
       The companies exploiting FHA policies were not marginal. In 
     New York top officials of three of the largest mortgage 
     lenders in the region were convicted of housing fraud in 
     1975. In Brooklyn alone, the U.S. Attorney's office produced 
     a five hundred-count indictment demonstrating that ``real 
     estate speculators, brokers, lawyers, appraisers and bribed 
     FHA employees conspired in the scheme'' to get FHA insurance 
     on slums sold at inflated prices.

  The FHA planted many of the seeds that ultimately grew into the 
current housing crisis.
  The goal of making homes affordable was used to justify the weakening 
of traditional standards of safety and soundness. The goal of 
eliminating discrimination was used to justify extending both FHA and 
conventional loans to borrowers with poor credit and low income. These 
changes led to rising foreclosures. Lenders responded by charging 
higher rates and fees to cover their losses. Higher rates and fees 
increased the cost of buying a home and led to new charges of 
discrimination on the basis of predatory lending. That led to renewed 
calls for innovative ways to reduce the cost of housing. That led to a 
further weakening of safety and soundness standards. All of that brings 
us to where we are today.
  Before discussing our current crisis, however, let me conclude my 
brief review of the history of U.S. housing policy.
  In the midst of the FHA scandal, Congress created more programs to 
promote the American dream of home ownership.
  In 1968, Congress enacted the Truth in Lending Act to require clear 
disclosure of lending arrangements and costs associated with a loan.
  Also in 1968, Congress split Fannie Mae into two parts creating the 
Government National Mortgage Association, Ginnie Mae, which now deals 
with government guaranteed mortgages, primarily those insured by the 
Department of Veterans and the FHA.
  In 1970, Congress created the Federal Home Loan Mortgage Corporation, 
Freddie Mac, to compete with Fannie Mae.
  In 1974, Congress passed the Real Estate Settlement Procedures Act to 
prohibit kickbacks between lenders and settlement agents and require a 
good faith estimate of all closing costs.
  In 1977, Congress enacted the Community Reinvestment Act, CRA, to 
encourage banks to meet the needs of their local communities in a 
manner consistent with safe and sound lending practices. According to 
Peter Wallison of the American Enterprise Institute, the CRA had a 
vague mandate to prevent banks from refusing to lend to qualified 
borrowers, which was enforced by denying mergers and acquisitions among 
banks. Initially, enforcement actions were rare. But over time, 
Congress shifted its emphasis from ``encouraging'' to ``requiring'' and 
from ``safe and sound'' to ``innovative and flexible.'' Ultimately, the 
CRA helped undermine the banking system by encouraging more risky 
loans.
  As Stan Liebowitz of the University of Texas at Dallas observed: 
``From the current hand-wringing, you'd think that the banks came up 
with the idea of looser underwriting standards on their own, with 
regulators just asleep on the job. In fact, it was the regulators who 
relaxed these standards--at the behest of community groups and 
`progressive' political forces . . .''
  But before faulty underwriting helped create the current housing 
crisis, there was the S&L crisis.
  The late 1970s and early 1980s saw a dramatic rise in inflation due 
to the steady erosion of sound monetary policy in previous decades. 
Rising inflation led to higher interest rates, which threatened to 
destroy the Savings and Loan industry.
  S&Ls relied on short-term deposits to fund long-term, fixed-rate 
mortgages. Rising inflation forced them to pay higher rates to attract 
new deposits. But they continued to earn the same rate on their 
existing mortgages. Rising costs relative to a fixed income undermined 
profits and threatened insolvency.
  The S&Ls were further hampered by Regulation Q, which limited the 
interest rate they could pay to attract new deposits. The origin of 
Regulation Q dates back to the 1930s when Congress authorized the 
Federal Reserve to set interest rate ceilings.
  According to proponents, the ceiling on interest rates would 
encourage smaller rural banks to lend in their own communities rather 
than send their money to larger urban banks where they might earn more. 
The ceiling was also seen as a way to increase bank profits by limiting 
the competition for deposits; in other words, it would prevent banks 
from engaging in a bidding war for new customers. Regulation Q was 
extended to S&Ls in 1966.
  State usury laws also placed limits on the interest rate paid to 
depositors as well as the interest rate charged to borrowers further 
undermining the S&Ls' financial viability.
  Congress took numerous steps throughout the 1980s to forestall the 
S&L crisis. These steps ultimately failed as more than 1,600 banks and 
S&Ls were either closed or bailed out

[[Page S4048]]

by the government. The S&L crisis ultimately cost taxpayers more than 
$120 billion.
  The S&L crisis shows the failure of many small banks can be just as 
costly as the failure of a few large banks. That is a lesson we must 
not forget as we consider ways to address the problem of too big to 
fail.
  In 1980, Congress enacted the Depository Institutions Deregulation 
and Monetary Control Act to abolish caps on both the interest paid and 
the interest received.
  The Alternative Mortgage Transactions Parity Act of 1982 preempted 
State laws to enable the nationwide use of adjustable rate mortgages, 
balloon payments, and negative amortization.
  These flexible features proved useful during the inflationary 1970s 
and 1980s. But they also set the stage for the emergence of the housing 
crisis of today.
  The Secondary Mortgage Market Enhancement Act of 1984 made it easier 
to issue mortgage backed securities and enabled financial institutions, 
pension funds, and insurance companies to invest in the top rated 
tranches of these securities.
  The Tax Reform Act of 1986 eliminated the double taxation of 
dividends paid to those who invest in real estate mortgage investment 
conduits, REMICs. The act also eliminated the tax deduction for 
interest paid on consumer loans, except for those secured by a home 
mortgage.
  These two acts established the path toward the creation of 
collateralize debt obligations, CDO, and the off-balance sheet entities 
known as special investment vehicles, SIVs, which featured prominently 
in the latest crisis. The tax deduction for home equity loans 
contributed to the overleveraging of housing.
  The Financial Institutions Reform and Recovery and Enforcement Act of 
1989 abolished the Federal Savings and Loan Insurance Corporation; it 
transferred the regulation of thrift institutions from the Federal Home 
Loan Bank board to the Office of Thrift Supervision; it allowed bank 
holding companies to acquire thrifts; it established new regulations 
for real estate appraisals; it established new capital reserve 
requirements; it required the publication of CRA evaluations.
  This act also included reforms of the real estate appraisal system, 
which had broken down during the FHA scandal in the 1970s, and 
contributed to the S&L crisis. Despite these reforms, faulty or 
fraudulent appraisals contributed to the most recent crisis as well.
  Federal Deposit Insurance Corporation Improvement Act of 1991 allowed 
the FDIC to borrow from the Treasury and created new capital 
requirements and risk-based deposit insurance premiums. Moreover, it 
granted the Federal Reserve authority to lend directly to nonbank firms 
during times of emergency.
  This authority increased the moral hazard problem by expanding the 
scope of potential Federal bailout recipients. This authority played a 
critical role in bailing out AIG.
  The Federal Housing Enterprises Financial Safety and Soundness Act of 
1992 was enacted, in part, to encourage Fannie Mae and Freddie Mac to 
increase their service to low- and moderate-income families and 
neighborhoods. These changes, along with others that followed, served 
to undermine standards of safety and soundness by allowing Fannie and 
Freddie to receive credit toward its affordable housing goals by 
purchasing subprime loans from other lenders. This increased the demand 
for such loans as well as the amount of funds available to finance 
them.
  The 1992 act coincided with a Boston Federal Reserve Bank study on 
discrimination in mortgage lending. In theory, lenders evaluated the 
collateral and creditworthiness of those seeking to borrow money. Those 
applicants who qualify get credit, and those who do not are denied. The 
Boston Fed study suggested qualified minority applicants were being 
denied.
  In response to growing concerns that traditional underwriting 
standards had a discriminatory impact on low-income and minority 
families, many housing advocates began to urge the widespread adoption 
of risk-based pricing. Unlike traditional underwriting, risk-based 
pricing assumes everyone can qualify as long as they pay an interest 
rate, or other fee, that reflects their individual risk. Thus, risk-
based pricing was viewed as a way to safely implement the flexible 
underwriting standards needed to eliminate discrimination and expand 
homeownership.
  In 1993, the Federal Reserve Bank of Boston published a report 
entitled ``Closing the Gap.'' This report included recommendations on 
``best practice'' from lending institutions and consumer groups. It 
offered lenders a ``comprehensive program'' to ensure all loan 
applicants are treated fairly and to reach a more diverse customer 
base.
  The report stated:

       While the banking industry is not expected to cure the 
     nation's social and racial ills, lenders do have a specific 
     legal responsibility to ensure that negative perceptions, 
     attitudes, and prejudices do not systematically affect the 
     fair and even-handed distribution of credit in our society. 
     Fair lending must be an integral part of a financial 
     institution's business plan . . . Even the most determined 
     lending institution will have difficulty cultivating business 
     from minority customers if its underwriting standards contain 
     arbitrary or unreasonable measures of creditworthiness. . . . 
     Institutions that sell loans to the secondary market should 
     be fully aware of the efforts of Fannie Mae and Freddie Mac 
     to modify their guidelines to address the needs of borrowers 
     who are lower-income, live in urban areas, or do not have 
     extensive credit histories.

  In 1995, the Department of Housing and Urban Development announced a 
National Homeownership Strategy which stated:

       The inability (either real or perceived) of many younger 
     families to qualify for a mortgage is widely recognized as a 
     very serious barrier to homeownership. [The Strategy] commits 
     both government and the mortgage industry to a number of 
     initiatives designed to: (1) Cut transaction costs through 
     streamlined regulations and technological and procedural 
     efficiencies; (2) Reduce down-payment requirements and 
     interest costs by making terms more flexible, providing 
     subsidies to low- and moderate-income families, and creating 
     incentives to save for homeownership; (3) Increase the 
     availability of alternative financing products in housing 
     markets throughout the country.

  Efforts to expand the use of flexible underwriting standards raised 
obvious concerns about the potential for increased defaults and 
foreclosures. To address these concerns, numerous groups, both inside 
and outside government, conducted studies, and proposed new laws and 
regulations.
  In 1996, Freddie Mac issued a report to Congress based on its effort 
to develop an automated underwriting system. The report concluded that 
it was possible to replace ``subjective human judgment'' with computers 
that could accurately assess ``multiple risk factors'' and ``identify 
which loans would wind up in foreclosure and which would not.'' By 
fairly and objectively accessing individual credit risk, an automated 
system could eliminate discrimination and strengthen the underwriting 
process.
  This study was primarily focused on improving the prime mortgage 
market by identifying applicants who received prime loans, but 
shouldn't have, and applicants who did not receive prime loans, but 
should have. However, the ability to identify risk within the prime 
market led to the conclusion that it was possible to do the same thing 
in the subprime market as well. In relatively short order, Fannie, 
Freddie, and almost every other participant in the home mortgage market 
adopted computerized systems to analyze and securitize home loans. 
These new procedures were applied to subprime loans.
  Of course, risk based pricing also raised concerns that lenders might 
charge borrowers more than their risk profile would justify. Such 
overcharges raised the specter of predatory lending.
  In response, Congress enacted the Home Ownership and Equity 
Protection Act of 1994 which required disclosures and imposed 
restrictions on high-cost loans. This act served to highlight once 
again the difficulty of promoting flexible underwriting to expand 
homeownership while at the same time trying to protect consumers from 
discriminatory lending.
  The Taxpayer Relief Act of 1997 exempted from taxation profits on the 
sale of a personal residence of up to $500,000, couples, or $250,000, 
singles. This change provided a boost to home prices by increasing the 
after-tax rate of return on housing.
  The Interstate Banking and Branching Efficiency Act of 1994 repealed 
restrictions on interstate banking. This

[[Page S4049]]

act was designed to address the lack of diversification and the 
concentration of risk among smaller local financial institutions that 
contributed to the S&L crisis.
  The Financial Services Modernization Act of 1999--also known as 
Gramm-Leach-Bliley--repealed part of the Glass-Steagall Act of 1933. 
The extent to which this repeal contributed to the current crisis is 
the subject of much debate.
  Glass-Steagall prohibited commercial banks from underwriting or 
dealing in securities. It also prohibited them from having affiliates 
that were principally or primarily engaged in underwriting or dealing 
in securities. It is important to understand exactly what this means.
  As Peter Wallison of the American Enterprise Institute has explained:

       Underwriting refers to the business of assuming the risk 
     that an issue of securities will be fully sold to investors, 
     while ``dealing'' refers to the business of holding an 
     inventory of securities for trading purposes. Nevertheless, 
     banks are in the business of making investments, and Glass-
     Steagall did not attempt to interfere with that activity. 
     Thus, although Glass-Steagall prohibited underwriting and 
     dealing, it did not interfere with the ability of banks to 
     ``purchase and sell'' securities they acquired for 
     investment. The difference between ``purchasing and selling'' 
     and ``underwriting and dealing'' is crucially important. A 
     bank may purchase a security--say, a bond--and then decide to 
     sell it when the bank needs cash or believes that the bond is 
     no longer a good investment. This activity is different from 
     buying an inventory of bonds for the purpose of selling them, 
     which would be considered dealing.

  The Gramm-Leach-Bliley Act did not repeal the restriction on 
underwriting or dealing by commercial banks. It only repealed the 
restriction on affiliates. There is no evidence the activities of any 
affiliates were large enough to cause the current crisis.
  On the other hand, as Mr. Wallison noted, there was a critical 
exception to the Glass-Steagall prohibition on underwriting or dealing 
by commercial banks. It did not apply to securities issued by Fannie 
Mae and Freddie Mac.
  The major commercial banks--such as Citibank, Wachovia, Bank of 
America, JP Morgan Chase, and Wells Fargo--that got into trouble did so 
by engaging in activities that were never prohibited by Glass-Steagall. 
These banks suffered heavy losses because they invested in poorly 
underwritten, overvalued mortgage-backed securities, including those of 
Fannie and Freddie.
  Likewise, the major investment banks--such as Lehman Brothers, Bear 
Stearns, Merrill Lynch, Morgan Stanley and Goldman Sachs--that got into 
trouble have always been exempt from Glass-Steagall. As I will discuss 
later, the demise of these investment banks was due to a new variation 
on the classic bank run.
  The Commodity Futures Modernization Act of 2000 authorized over-the-
counter financial derivatives. Although over-the-counter derivatives, 
like credit default swaps, CDS, are exempt from most regulation, those 
who buy and sell them are not. For example, the acting director of the 
Office of Thrift Supervision, OTS, recently testified about the 
American International Group, AIG, one of the major participants in the 
CDS market. According to his testimony, ``. . . in hindsight, OTS 
should have directed the company to stop originating CDS products . . . 
[and] OTS should also have directed AIG try to divest a portion of this 
portfolio.''
  Although AIG was comprised of more than 220 companies operating in 
more than 130 countries, its primary line of business was insurance. 
According to a Government Accountability Office report:

       State insurance regulators are responsible for monitoring 
     the solvency of insurance companies generally, as well as for 
     approving transactions regarding those companies, such as 
     changes in control or significant transactions with the 
     parent company or other subsidiaries . . .

  In other words, Federal and State regulators had the authority to 
monitor the financial institutions which were among the largest buyers 
and sellers of CDS contracts, and take appropriate action to protect 
their safety and soundness. Unfortunately, the regulators failed to 
recognize the inherent dangers created by the bubble in the housing 
market.
  The Federal Deposit Insurance Reform Act of 2005 raised the limit on 
deposit insurance; merged the various deposit insurance funds; provided 
credits for banks for prior contributions; and required rebates when 
the deposit fund goes above 1.5 percent of deposits.
  The Credit Agency Reform Act of 2006 required rating agencies to 
register with the SEC. Despite these requirements, the ratings agency 
contributed to the most recent crisis as well.
  Credit ratings agencies--such as Fitch, Moody's, and Standard & 
Poor's--have been given privileged status as Nationally Recognized 
Statistical Rating Organizations, NRSROs, since 1975.
  These agencies played a significant role in the recent financial 
crisis in two different ways. First, they placed their AAA seal of 
approval on subprime mortgages that were converted into traunches--or 
tiers--of securitized loans. Second, they contributed to excessive 
borrowing because of flawed capital standards. According to government 
regulations, banks needed $1 in capital for every $25 of single-family 
home loans. But, if those mortgages were converted into AAA securities, 
the banks could hold $60 in loans for every $1 in capital. Higher 
leverage entails greater risk to the financial system.
  This brief legislative history produces an unmistakable feeling of 
Deja Vu as one considers where we are today. The current crisis has 
been summarized along the following lines:
  In response to the high-tech, dot-com bust in 2000, the Federal 
Reserve began a series of interest rate cuts reducing the Fed Funds 
rate from 6.5 percent to 1.0 percent. As cheap credit flooded the 
markets, financial institutions adopted reckless lending practices 
under the political banner of increasing homeownership. These practices 
included liar loans, no verification of income or assets; no-money 
down, including seller-financed and other third-party contributions, 
and wrap-around loans; interest-only loans; negative amortization, 
missed payments are added to the principal; adjustable-rates; and 
balloon payments.
  As these risky loans were extended to marginal borrowers who could 
not afford their overpriced homes, the financial wizards on Wall Street 
devised schemes to theoretically insure themselves against default. 
These so called credit default swaps allowed investors who purchased 
mortgage-backed securities to pay fees to underwriters, like AIG, in 
exchange for a promise to cover any losses. Because regulators and 
other market participants did not seriously consider the possibility of 
falling home prices and rising default rates, these CDS contracts were 
not backed by adequate collateral to cover potential losses.
  By allowing those who bought and sold mortgage-backed securities to 
transfer risk to other market participants, it became more difficult to 
determine who would suffer the actual losses as home prices began to 
fall and default rates began to rise. The house of cards collapsed as 
financial institutions became less willing to lend to each other under 
the growing cloud of uncertainty.
  While there is plenty of blame to go around for getting us into this 
mess, and there were lots of contributing factors, ultimately this 
crisis was triggered by a new variation on the classic bank run. Here's 
how Gary Gordon of Yale University describes what happened:

       In a banking panic, depositors rush en masse to their banks 
     and demand their money back. The banking system cannot 
     possibly honor these demands because they have lent the money 
     out or they are holding long-term bonds [which can only be 
     sold at fire sale prices] . . . the panic in 2007 was not 
     like the previous panics in American history . . . it was not 
     a mass run on banks by individual depositors, but instead was 
     a run by firms and institutional investors on financial 
     firms.

  According to Mr. Gordon, this run was caused by the collapse of the 
repurchase agreement--or repo--market. Before the crisis, trillions of 
dollars were traded in the repo market. No one knows the exact amount 
because there are no data on the total size of this market or the 
identity of all its participants. Estimates suggest it could be as much 
as $10 trillion, which is roughly equal to the total assets of the 
entire U.S. banking system.
  As tempting as it may be to blame our current crisis on Wall Street 
greed

[[Page S4050]]

and irresponsible deregulation, the truth is a bit more complicated, as 
I think I have tried to show. To understand how we got to where we are 
today, it is necessary to review some history and some economics.
  There have been financial booms and busts throughout recorded 
history--from tulip mania, the South-Sea bubble, and the Mississippi 
scheme, to the Mexican peso crisis, the Asian crisis, and the dot-com 
boom.
  Economist Hyman Minsky argued there are five stages of a financial 
bubble: stage 1, investors get excited about some asset or commodity; 
stage 2, prices rise as more investors enter the market; stage 3, 
euphoria occurs as financial markets devise new ways to inflate the 
bubble; stage 4, investors begin to cash-out of the market; and, stage 
5, panic sets in as the bubble pops and everyone tries to get out 
before it is too late.
  There have been alternating cycles of financial fear and euphoria 
throughout history. While greed and speculation played an important 
role, there is another essential element that is all too often 
overlooked. That critical ingredient is money.
  The nature of money, the source of its value, and the determination 
of its supply are topics of extreme importance. Historically, money is 
believed to have developed from the concept of barter or exchange. 
Individuals wished to trade one good for another. The most desirable, 
divisible, and nonperishable goods were designated as money. Cows, 
wheat, rice, rocks, sea shells, silver, and gold have all served as 
money throughout history.
  The development of money soon led to the introduction of banking. 
Banks served not only as a place to store money, but also as a means to 
facilitate commerce by granting various types of loans.
  The deposit of money involves two different concepts. First, a 
demand, or checking, deposit implies a custody arrangement. The bank 
maintains 100 percent reserves. Thus, the funds are available at all 
times to meet the needs of the depositor. Second, a loan, or time, 
deposit implies a temporary transfer of ownership. The bank is 
authorized to make loans. Thus, the funds are transferred to someone 
else who is obligated to repay them at some future date.
  Initially, most banks recognized and accepted the distinction between 
these two different kinds of deposits. Moreover, they confined their 
lending activities within the limits of their total deposits. But they 
quickly discovered that not everyone sought to withdraw their money at 
the same time. Thus, they decided they could safely issue as much 
credit as they desired, as long they retained enough money to meet 
expected withdrawals. So began the practice of fractional reserve 
banking.
  According to economist Jesus Huerta de Soto, early European bankers 
often sought to conceal their use of fractional reserves while claiming 
to maintain 100 percent reserves. Only later upon receiving official 
government sanction did they openly admit to and defend the practice of 
fractional reserves.
  The most common defense of fractional reserve banking is that it is 
highly unlikely that most depositors will seek to withdraw their funds 
simultaneously. Thus, it is said the law of large numbers permits a 
bank to safely lend out most of its funds. But as Huerta de Soto 
observes:

     . . . in the field of human action the future is always 
     uncertain, . . . The open, permanent nature of the 
     uncertainty . . . differs radically from the notion of risk 
     applicable within the sphere of physics and natural science.

  History shows beyond a doubt that we cannot predict when a bank run 
will occur. The creation of deposit insurance and the establishment of 
a central bank as a lender of last resort would not be necessary if we 
could predict such events with any degree of certainty.
  The dangers created by misguided efforts to treat uncertainty of 
human action as some form of statistical risk is evident in the current 
crisis. The use of computer models to convert subprime loans into AAA 
securities ignored the human action of declining underwriting standards 
and the growing bubble in the housing market.
  Some observers may be tempted to conclude this crisis is simply the 
latest in the cycle of booms and busts that inevitably plague mankind. 
Others may be tempted to conclude we need a brand new systemic risk 
regulator--in other words, we need someone to oversee the safety and 
soundness of our entire financial system. The logic behind this 
approach is that our current hodgepodge of Federal and State regulatory 
agencies was too busy looking at the individual institutions within 
their jurisdiction. No one saw the big picture.
  However, the problem is not that we lack a systemic risk regulator. 
The problem is we already have a system risk creator, namely the 
Federal Reserve.
  Mark Thornton of the Ludwig von Mises Institute describes central 
banking as a confidence game:

       The Federal Reserve plays a confidence game with us. A 
     confidence game . . . is described as an attempt to defraud a 
     person or group by gaining their confidence. . . . [The] 
     Fed's basic confidence game [is] trying to gain and maintain 
     our confidence in its system and getting us not to take 
     proper precaution against the negative effects of its 
     policies. . . . [The] Fed's mission [is] to instill 
     confidence in us about the economy while simultaneously 
     instilling confidence in us about the abilities of the Fed 
     itself. The first mission is easy to see because Fed 
     officials are almost always publicly bullish and hardly ever 
     publicly bearish about the economy. The economy always looks 
     good, if not great. If there are some problems, don't worry, 
     the Fed will come to the rescue with truckloads of money, 
     lower interest rates, and easy credit. If things were to get 
     worse, which they won't, the Fed would be able to respond 
     with monetary weapons of mass stimulation. All this is 
     consistent with the viewpoint of mainstream economists who 
     see the business cycle as caused by psychological problems 
     and random shocks. In their view, it is your fault for 
     becoming overly speculative and risky and then lapsing into 
     risk aversion and depression. It is your fault!

  This may seem like an unfair characterization of the Fed, but 
consider the following quotes from 2007. Remember, by early 2007 
housing prices were falling in many areas.
  In January of 2007, Chairman Bernanke described the Fed's superhero-
like ability to access information, identify risk, anticipate crisis, 
and respond to any challenge.
  Mr. Barnanke said:

       Many large banking organizations are sophisticated 
     participants in financial markets, including the markets for 
     derivatives and securitized assets. In monitoring and 
     analyzing the activities of these banks, the Fed obtains 
     valuable information about trends and current developments in 
     these markets. Together with the knowledge obtained through 
     its monetary-policy and payments activities, information 
     gained through its supervisory activities gives the Fed an 
     exceptionally broad and deep understanding of developments in 
     financial markets and financial institutions. . . .
       In its capacity as a bank supervisor, the Fed can obtain 
     detailed information from these institutions about their 
     operations and risk-management practices and can take action 
     as needed to address risks and deficiencies. The Fed is also 
     either the direct or umbrella supervisor of several large 
     commercial banks that are critical to the payments system 
     through their clearing and settlement activities. . . .
       In my view, however, the greatest external benefits of the 
     Fed's supervisory activities are those related to the 
     institution's role in preventing and managing financial 
     crises.
       Finally, the wide scope of the Fed's activities in 
     financial markets--including not only bank supervision and 
     its roles in the payments system but also the interaction 
     with primary dealers and the monitoring of capital markets 
     associated with the making of monetary policy--has given 
     the Fed a uniquely broad expertise in evaluating and 
     responding to emerging financial strains.

  I could go on at length reading similar quotes from various Fed 
officials. But to save on time and embarrassment, I will simply put Mr. 
Thornton's article in the Record, and skip to his conclusion. Mr. 
Thornton says:

       We can see that the Fed is a confidence game. Their public 
     pronouncements, while heavily nuanced and hedged, uniformly 
     present the American people with a rosy scenario of the 
     economy, the future, and the ability of the Fed to manage the 
     market. Ben Bernanke told Congress [in March of 2010] that we 
     are in the early stages of an economic recovery. Of course, 
     he has been saying that since the spring of 2009 (if not 
     earlier). . . . These are the people who said that there was 
     no housing bubble, that there was no danger of financial 
     crisis, and then that a financial crisis would not impact the 
     real economy. These are the same people who said they needed 
     a multi-trillion dollar bailout of the financial industry, or 
     we would get severe trouble in the economy. They got their 
     bailout, and we got the severe trouble anyways. It is time to 
     bring this confidence game to an end.


[[Page S4051]]


  Mr. President, I ask unanimous consent that Mr. Thornton's article be 
printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 2.)
  Mr. GRASSLEY. The current financial reform bill will not end the 
cycle of financial booms and busts. This cycle is not the result of 
green, or capitalism, or animal spirits, or irrational exuberance. 
Ultimately, it is caused by our failure to recognize and enforce 
traditional legal principles, namely, the protection of private 
property.
  According to Huerta de Soto: It is a remarkable fact that three of 
the most noted monetary theorists of the eighteenth and early 
nineteenth centuries were bankers: John Law, Richard Cantillon, and 
Henry Thornton. Their banks all failed.
  Law was involved in the infamous Mississippi scheme, and Cantillon 
was involved in a fraudulent stock trading scheme. Only Thornton 
escaped controversy because his bank did not fail until after his 
death. All of these bankers were actively involved in convincing their 
colleagues and customers of the safety, soundness, and wisdom of 
violating traditional legal principles.
  Once upon a time, common sense as well as the law recognized the 
difference between a demand deposit and a loan deposit.
  According to Huerta de Soto, ancient Roman law made it clear that 
bankers carried out two different types of operations. On one hand, 
they accepted demand deposits, which involved no right to interest and 
obligated the bank to maintain the continuous availability of the 
money; and the depositor had absolute privilege in the case of 
bankruptcy. On the other hand, bankers also received loan deposits, 
which obligated the banker to pay interest on the money; and the 
depositor lacked all privileges in the case of bankruptcy.
  The clear distinction between these two types of deposits began to 
break down with the unfortunate choice of a penalty for the failure to 
return a demand deposit. A banker who accepted a demand deposit and 
later failed to return the money upon demand was obligated to pay a 
penalty in the form of interest.
  According to Huerta de Soto, the ban on usury by the three major 
monotheistic religions--Judaism, Islam, and Christianity--did much to 
complicate and obscure medieval financial practices. Historically, 
usury meant charging any interest on a loan. Today, it means charging 
excessive interest on a loan.

       Since it was forbidden to pay interest on loans, it is easy 
     to understand how convenient it was in the Middle Ages to 
     disguise a loan as a deposit in order to make the payment of 
     interest legal, legitimate and socially acceptable. For this 
     reason, bankers started to systematically engage in 
     operations in which the parties openly declared they were 
     entering into a deposit contract and not a loan contract.
       The method of concealment . . . was a simulated [demand] 
     deposit which . . . was not a true [demand] deposit at all, 
     but rather a loan [deposit]. At the end of the agreed-upon 
     term, the supposed depositor claimed his money. When the 
     [bank] failed to return [the money], [the bank] was forced to 
     pay a ``penalty'' in the [form] of interest on [its] presumed 
     ``delay.''
       Disguising loans as deposits became an effective way to get 
     around the canonical ban on interest and escape severe 
     sanctions, both secular and spiritual.

  It would appear the history of banking consists of a continuous 
effort to eliminate the distinction between these two types of 
deposits. I do not mean to criticize modern day bankers. I suspect they 
are largely unaware of this history. They simply operate under the 
rules as they exist today. Anyone who studies money and banking in 
college is taught about fractional reserves, deposit insurance, and the 
need for a central bank to serve as lender of last resort. This is 
standard fare that passes for higher education around the world.
  As economist John Maynard Keynes once observed, ``even the most 
practical man of affairs is usually in the thrall of the ideas of some 
long-dead economist.''
  Having said all this, the question remains: Where do we go from here?
  To answer that question let me return to the topic of money. In a 
world of paper currency--without the backing of any tangible 
commodity--the supply of money is ultimately determined by the 
government.
  In most countries, the power to create money has been delegated by 
the government to a central bank. The central bank in turn controls the 
money supply in a number of ways: buying and selling financial assets--
so-called discount window or open-market operations--and requiring 
banks to keep deposits at the central bank--so-called reserve 
requirements.
  As our Nation's central bank, it is often suggested that the Federal 
Reserve controls both interest rates and the money supply. However, the 
only interest rate the Fed controls is the discount rate. That is the 
rate the Fed charges other banks when they borrow money from the Fed. 
The Fed generally prefers that banks borrow from each other. So, it 
usually sets the discount rate higher than the rate banks charge each 
other. That rate is called the Federal funds rate.
  U.S. banks are required to hold reserves as a percentage of their 
demand deposits, but not their loan deposits. These reserves are 
designed to cover daily withdrawals. On any given day, some banks may 
have a reserve shortfall, while others may have excess reserves. Thus, 
banks borrow from each other on an overnight basis. The Fed sets a 
target for the interest rate banks charge each other--the Federal funds 
rate--and then it attempts to achieve its target.

  According to the textbook explanation, when the Fed wants to lower 
the Federal funds rate, it buys financial assets, such as government 
bonds, from other banks and pays for them by creating additional 
reserves. This is sometimes referred to as creating money out of thin 
air. Since the banks now have more reserves, they are generally willing 
to lend at a lower rate. When the Fed wants to raise the Federal funds 
rate, it sells financial assets back to the banks and withdraws the 
additional reserves. Since the banks now have fewer reserves, they will 
usually require borrowers to pay a higher interest rate.
  The Fed can also change the supply of money by changing the reserve 
requirement. By raising or lowering the reserve requirement, the Fed 
can control how much money banks must hold in reserve. Higher reserves 
mean less money is available for banks to lend, and lower reserves mean 
more money to lend.
  Although central banks control the money supply in the long run, in 
the short run individual banks are largely in control.
  As the Federal Reserve Bank of Chicago explained in its publication 
Modern Money Mechanics:

       In the real world, a bank's lending is not normally 
     constrained by the amount of reserves it has at any given 
     moment. Rather, loans are made, or not made, depending on the 
     bank's credit policies and its expectations about its ability 
     to obtain the funds necessary to pay its customers' checks 
     and maintain required reserves in a timely fashion.

  In other words, when banks make loans, they create new deposits, 
thereby increasing the money supply. In the short run, banks are free 
to make as many loans as they want based solely on their expectation of 
future repayment and their ability to meet required reserves and 
expected withdrawals, plus their capital requirements.
  In the long run, central banks control reserve requirements and the 
cost of borrowing excess reserves. Thus, they can eventually prevent 
individual banks from endlessly expanding the money supply.
  Money can be defined as the thing that all other goods and services 
are traded for, or as the means to achieve final settlement of all 
transactions. As the means of final payment, money is uniquely valued 
above all other assets. It is considered to be the most liquid because 
it is accepted by everyone and it trades at face value. That is, $1 is 
always equal to $1.
  Because banks have the power to create money--within limits set by 
the central bank--they are viewed with a high degree of suspicion. But 
banks are ultimately at the mercy of their customers because they are 
obligated to convert deposits into cash. When banks lose the confidence 
of their customers, they are subject to bankruptcy if too many 
customers try to withdraw their money. Banking panics in the past led 
to the creation of central banking and deposit insurance. These 
government safety nets were designed to prevent the collapse of the 
banking system.

[[Page S4052]]

  To further limit the risk of a banking failure, the government 
imposed various standards of safety and soundness. These standards 
range from underwriting loans to maintaining adequate levels of capital 
and reserves. While these standards make banking safer, they also make 
it more expensive. It takes time and effort to evaluate the 
creditworthiness of borrowers. Likewise, money that is set aside in 
reserves cannot be used to make a loan and earn a rate of return.
  As I have outlined earlier, Congress undermined both underwriting 
standards and capital requirements in an effort to expand home 
ownership. However, these actions alone would not have likely caused 
the crisis.
  Another major contributing factor was the fact that all of the limits 
placed on traditional deposit-based commercial banking led to the 
expansion of the alternative securities-based investment banking 
system. This system is sometimes referred to as the ``shadow'' banking 
system. While both types of banks are arguably clouded by a fog of 
confusion, the differences are very clear.
  Investment banks do not accept or create deposits. Instead, they help 
businesses and governments raise money by selling their stocks and 
bonds to investors. To accomplish this goal, they also perform two 
other important functions. They transform stocks, bonds, or mortgages 
into securities. This securitization process is designed to diversify 
the investments and reduce market risk. Many investment banks also 
serve as market-makers.
  Just as a commercial bank must meet a depositor's demand for cash, a 
market-maker must buy securities for cash. However, there are two 
important differences. Unlike deposits that must be redeemed $1-for-$1, 
securities are redeemable at the market-price, which could be more or 
less than the amount originally paid. The other important difference is 
that investment banks do not have an established government safety net.
  They do not have access to deposit insurance because they do not have 
deposits. They do not typically have the ability to borrow from the 
central bank as the lender of last resort, again because they do not 
have deposits. Nevertheless, when they lose the confidence of their 
customers, they are subject to the equivalent of a bank run.
  That is basically what happened. Investment banks borrowed short 
term, primarily through repos, and invested long term, primarily in 
mortgage-backed securities. When it finally became apparent to everyone 
that mortgage default rates were going up and home prices were going 
down, the short-term lending came to an end. Without the ability to 
borrow more short-term money or sell long-term securities at their 
original price, the investment banks faced insolvency.
  This was not our first crisis, and it won't be our last. Increased 
transparency and accountability are necessary, but they are not 
sufficient. A sound financial system requires a sound monetary policy. 
That means a strong and stable dollar.
  The history of U.S. monetary policy, indeed the history of monetary 
policy around the world, reveals an ongoing effort to devalue money 
through endless inflation.
  The reform we need most is to overcome the temptation to purchase 
prosperity with inflated dollars. Until that goal is achieved, I am 
afraid the current reform effort will amount to little more than 
rearranging the deckchairs on the Titanic.
  Mr. President, I yield the floor.

                               Exhibit 1

 President Harry S Truman Message to the Congress on the State of the 
                    Union and on the Budget for 1947

                            January 21, 1946


                        National housing program

       Last September I stated in my message to the Congress that 
     housing was high on the list of matters calling for decisive 
     action.
       Since then the housing shortage in countless communities, 
     affecting millions of families, has magnified this call to 
     action.
       Today we face both an immediate emergency and a major 
     postwar problem. Since VJ-day the wartime housing shortage 
     has been growing steadily worse and pressure on real estate 
     values has increased. Returning veterans often cannot find a 
     satisfactory place for their families to live, and many who 
     buy have to pay exorbitant prices. Rapid demobilization 
     inevitably means further overcrowding.
       A realistic and practical attack on the emergency will 
     require aggressive action by local governments, with Federal 
     aid, to exploit all opportunities and to give the veterans as 
     far as possible first chance at vacancies. It will require 
     continuation of rent control in shortage areas as well as 
     legislation to permit control of sales prices. It will 
     require maximum conversion of temporary war units for 
     veterans' housing and their transportation to communities 
     with the most pressing needs; the Congress has already 
     appropriated funds for this purpose.
       The inflation in the price of housing is growing daily.
       As a result of the housing shortage, it is inevitable that 
     the present dangers of inflation in home values will continue 
     unless the Congress takes action in the immediate future.
       Legislation is now pending in the Congress which would 
     provide for ceiling prices for old and new houses. The 
     authority to fix such ceilings is essential. With such 
     authority, our veterans and other prospective home owners 
     would be protected against a skyrocketing of home prices. The 
     country would be protected from the extension of the present 
     inflation in home values which, if allowed to continue, will 
     threaten not only the stabilization program but our 
     opportunities for attaining a sustained high level of home 
     construction.
       Such measures are necessary stopgaps--but only stopgaps. 
     This emergency action, taken alone, is good--but not enough. 
     The housing shortage did not start with the war or with 
     demobilization; it began years before that and has steadily 
     accumulated. The speed with which the Congress establishes 
     the foundation for a permanent, long-range housing program 
     will determine how effectively we grasp the immense 
     opportunity to achieve our goal of decent housing and to make 
     housing a major instrument of continuing prosperity and full 
     employment in the years ahead. It will determine whether we 
     move forward to a stable and healthy housing enterprise and 
     toward providing a decent home for every American family.
       Production is the only fully effective answer. To get the 
     wheels turning, I have appointed an emergency housing 
     expediter. I have approved establishment of priorities 
     designed to assure an ample share of scarce materials to 
     builders of houses for which veterans will have preference. 
     Additional price and wage adjustments will be made where 
     necessary, and other steps will be taken to stimulate greater 
     production of bottleneck items. I recommend consideration of 
     every sound method for expansion in facilities for insurance 
     of privately financed housing by the Federal Housing 
     Administration and resumption of previously authorized low-
     rent public housing projects suspended during the war.
       In order to meet as many demands of the emergency situation 
     as possible, a program of emergency measures is now being 
     formulated for action. These will include steps in addition 
     to those already taken. As quickly as this program can be 
     formulated, announcement will be made. Last September I also 
     outlined to the Congress the basic principles for the kind of 
     decisive, permanent legislation necessary for a long-range 
     housing program.
       These principles place paramount the fact that housing 
     construction and financing for the overwhelming majority of 
     our citizens should be done by private enterprise. They 
     contemplate also that we afford governmental encouragement to 
     privately financed house construction for families of 
     moderate income, through extension of the successful system 
     of insurance of housing investment; that research be 
     undertaken to develop better and cheaper methods of building 
     homes; that communities be assisted in appraising their 
     housing needs; that we commence a program of Federal aid, 
     with fair local participation, to stimulate and promote the 
     rebuilding and redevelopment of slums and blighted areas--
     with maximum use of private capital. It is equally essential 
     that we use public funds to assist families of low income who 
     could not otherwise enjoy adequate housing, and that we 
     quicken our rate of progress in rural housing.
       Legislation now under consideration by the Congress 
     provides for a comprehensive attack jointly by private 
     enterprise, State and local authorities, and the Federal 
     Government. This legislation would make permanent the 
     National Housing Agency and give it authority and funds for 
     much needed technical and economic research. It would provide 
     additional stimulus for privately financed housing 
     construction. This stimulus consists of establishing a new 
     system of yield insurance to encourage large-scale investment 
     in rental housing and broadening the insuring powers of the 
     Federal Housing Administration and the lending powers of the 
     Federal savings and loan associations.
       Where private industry cannot build, the Government must 
     step in to do the job. The bill would encourage expansion in 
     housing available for the lowest income groups by continuing 
     to provide direct subsidies for low-rent housing and rural 
     housing. It would facilitate land assembly for urban 
     redevelopment by loans and contributions to local public 
     agencies where the localities do their share.
       Prompt enactment of permanent housing legislation along 
     these lines will not interfere with the emergency action 
     already under way. On the contrary, it would lift us out of a 
     potentially perpetual state of housing emergency. It would 
     offer the best hope

[[Page S4053]]

     and prospect to millions of veterans and other American 
     families that the American system can offer more to them than 
     temporary makeshifts.
       I have said before that the people of the United States can 
     be the best housed people in the world. I repeat that 
     assertion, and I welcome the cooperation of the Congress in 
     achieving that goal.
                                  ____


                               Exhibit 2

                   [From Mises Daily, Mar. 24, 2010]

The Federal Reserve as a Confidence Game: What They Were Saying in 2007

                           (By Mark Thornton)

       In February of 2004, I published an article entitled 
     ``Greenspam.'' The general lesson was not to listen to 
     Greenspan's deceptive testimony. Delete it from your mind 
     like spam email messages. Watch what he has done and what he 
     is doing, in order to protect your wealth and capital. 
     Discount anything you read about his testimony, except 
     Congressmen Paul's questions and commentary.
       This talk will be a follow up to that article. I will 
     describe central banking as a confidence game. The Federal 
     Reserve plays a confidence game with us. A confidence game 
     (also known as a bunko, con, flimflam, hustle, scam, scheme, 
     or swindle) is defined as an attempt to defraud a person or 
     group by gaining their confidence. The victim is known as the 
     mark, the trickster is called a confidence man, con man, or 
     con artist, and any accomplices are known as shills. 
     Confidence men exploit human characteristics such as greed, 
     vanity, honesty, compassion, credulity, and naivete. The 
     common factor is that the mark relies on the good faith of 
     the con artist.
       Here I will concentrate on the Fed's basic confidence game 
     of trying to gain and maintain our confidence in its system 
     and getting us to not take proper precautions against the 
     negative effects of its policies.
       Inflation is surely a scam and part of the confidence 
     game--printing up money and lowering the value of all dollar-
     denominated assets while simultaneously benefitting political 
     friends and accomplices is surely a fraud that could be 
     classified as a confidence game. This is even more true 
     because when the people finally lose confidence in the Fed 
     system and realize what the Fed has been doing, the game will 
     be up, the dollar will go down, and the Fed will come to an 
     end!
       There are some more basic aspects of the fraudulent nature 
     of the Fed that I will not address here, Is the Fed a 
     ``conspiracy''? This is an aspect that is probably addressed 
     most fully by the G. Edward Griffin book, The Creature from 
     Jekyll Island. Or is the Federal Reserve just a cover for a 
     banking cartel? This question has been fully addressed in the 
     works of Murray Rothbard.
       We will set aside some other fraudulent issues with the 
     Fed. Issues like, why hasn't the nation's gold supply been 
     audited in decades? Why hasn't the Fed itself been properly 
     audited? And has the Fed been manipulating the gold market or 
     surreptitiously leasing out the nation's gold supply? I 
     suppose all of these issues are related to the basic general 
     con game, but they are not necessary to make our general 
     point here today.
       The basic focus here will be on the Fed's mission to 
     instill confidence in us about the economy while 
     simultaneously instilling confidence in us about the 
     abilities of the Fed itself. The first mission is easy to see 
     because Fed officials are almost always publically bullish 
     and hardly ever publically bearish about the economy. The 
     economy always looks good, if not great. If there are some 
     problems, don't worry, the Fed will come to the rescue with 
     truckloads of money, lower interest rates, and easy credit. 
     If things were to get worse, which they won't, the Fed would 
     be able to respond with monetary weapons of mass stimulation.
       All this is consistent with the viewpoint of mainstream 
     economists who see the business cycle as caused by 
     psychological problems and random shocks. In their view, it 
     is your fault for becoming overly speculative and risky and 
     then lapsing into risk aversion and depression. It is your 
     fault!
       I will also limit my analysis in terms of time. When the 
     subject of this talk was first constructed--so many months 
     ago--the only reason it was limited to 2007 was because that 
     was the period just prior to the onset of the current crisis. 
     The crisis finally revealed itself in 2007. With all the data 
     at their disposal, surely the Fed would have been alerting 
     the people to prepare for what was to come. In fact, we could 
     probably pick any time frame and find the consistently 
     bullish sentiment expressed by the establishment community. I 
     had no particular statements or testimony in mind when the 
     title of the talk was chosen, only the conviction that the 
     ``confidence game'' was a consistent and dependable part of 
     how the Fed operates.
       I also limit my analysis to the leading officials of the 
     Federal Reserve. It is, after all, their game. However, we 
     could also extend the investigation and dependably find 
     similar statements and testimony from other government 
     officials from the Treasury Department and White House, as 
     well as the advocates and promoters of malinvestments from 
     Wall Street and the real-estate complex. What I will do here 
     is to cut and paste their words and present the relevant 
     highlights from their speeches. Predictably, their testimony 
     and speeches are highly nuanced and hedged.


                                Bernanke

       ``Central Banking and Bank Supervision in the United 
     States.''--Speech given at the Allied Social Science 
     Association Annual Meeting, Chicago, January 5, 2007.
       Let us begin at the beginning of 2007 with the chairman of 
     the Fed, Ben Bernanke. The former economics professor from 
     Princeton gave an address to the annual meeting of the 
     American Economic Association. Bernanke is the first chairman 
     of the Fed from academia since Arthur Burns. It was Burns who 
     helped take us off the gold standard. God only knows where 
     Bernanke is leading us!
       In addressing his fellow mainstream academic economists, 
     Bernanke was unusually bold in describing the Fed's access 
     and ability to use information and data concerning financial 
     markets. This knowledge and expertise includes the market for 
     derivatives and securitized assets. He describes the Fed as a 
     type of superhero for financial markets. In discussing the 
     Fed's role as chief regulator of financial markets he makes 
     powerful claims concerning the Fed's ability to identify 
     risks, anticipate financial crises, and effectively respond 
     to any financial challenge.
       ``Many large banking organizations are sophisticated 
     participants in financial markets, including the markets for 
     derivatives and securitized assets. In monitoring and 
     analyzing the activities of these banks, the Fed obtains 
     valuable information about trends and current developments in 
     these markets. Together with the knowledge obtained through 
     its monetary-policy and payments activities, information 
     gained through its supervisory activities gives the Fed an 
     exceptionally broad and deep understanding of developments in 
     financial markets and financial institutions. . . .
       In its capacity as a bank supervisor, the Fed can obtain 
     detailed information from these institutions about their 
     operations and risk-management practices and can take action 
     as needed to address risks and deficiencies. The Fed is also 
     either the direct or umbrella supervisor of several large 
     commercial banks that are critical to the payments system 
     through their clearing and settlement activities.''
       In other words, the Fed knows everything about financial 
     markets. But it gets worse:
       ``In my view, however, the greatest external benefits of 
     the Fed's supervisory activities are those related to the 
     institution's role in preventing and managing financial 
     crises.''
       In other words, the Fed can prevent most crises and manage 
     the ones that do occur.
       ``Finally, the wide scope of the Fed's activities in 
     financial markets--including not only bank supervision and 
     its roles in the payments system but also the interaction 
     with primary dealers and the monitoring of capital markets 
     associated with the making of monetary policy--has given the 
     Fed a uniquely broad expertise in evaluating and responding 
     to emerging financial strains.''
       In other words, the Fed is an experienced, forward-looking 
     preventer of financial crises. This is a strong claim given 
     Bernanke's own abysmal record of forecasting near-term 
     events.
       Chairman Bernanke is infamous on the internet because of 
     the YouTube video that chronicles his rosy view of the 
     developing crisis from 2005 to 2007. He denied there was a 
     housing bubble in 2005, he denied that housing prices could 
     decrease substantively in 2005 and that it would affect the 
     real economy and employment in 2006, and he tried to calm 
     fears about the subprime-mortgage market. He stated that he 
     expected reasonable growth and strength in the economy in 
     2007, and that the problem in the subprime market (which had 
     then become apparent) would not impact the overall mortgage 
     market or the market in general. In mid-2007 he declared the 
     global economy strong and predicted a quick return to normal 
     growth in the United States. Remember, Austrians were writing 
     about the housing bubble, its cause, and the probable 
     outcomes as early as 2003. Possibly the worst of Bernanke's 
     statements occurred in 2006, near the zenith of the housing 
     bubble and at a time when all the exotic mortgage 
     manipulations were in their ``prime.'' This was the era of 
     the subprime mortgage, the interest-only mortgage, the no-
     documentation loan, and the heyday of mortgage-backed 
     securities. The new Fed chairman admitted the possibility of 
     ``slower growth in house prices,'' but confidently declared 
     that if this did happen he would just lower interest rates.
       Bernanke also stated in 2006 that he believed that the 
     mortgage market was more stable than in the past. He noted in 
     particular that ``our examiners tell us that lending 
     standards are generally sound and are not comparable to the 
     standards that contributed to broad problems in the banking 
     industry two decades ago. In particular, real estate 
     appraisal practices have improved.''
       This, my friends, is what the Fed is all about. Take a 
     $100-billion budget, thousands of economists and 
     statisticians, add in every piece of economic data, including 
     detailed information concerning every major financial firm, 
     and what do you come up with? They produced consistently 
     wrong answers, or answers that were designed to maintain the 
     ``confidence'' of the average citizen.


                                Mishkin

       ``Enterprise Risk Management and Mortgage Lending.''--
     Speech given at the Forecaster's Club of New York on January 
     17, 2007.

[[Page S4054]]

       Less than two weeks after Bernanke's address to the 
     American Economic Association, fellow academic Fred Mishkin, 
     a governor of the Federal Reserve Board, took the stage at 
     the Forecaster's Club of New York. A leading mainstream 
     economist and expert on money and banking, Mishkin addressed 
     the group on the topic of ``Enterprise Risk Management and 
     Mortgage Lending.''
       He begins,
       ``Over the past ten years, we have seen extraordinary run-
     ups in house prices . . . but . . . it is extremely hard to 
     say whether they are above their fundamental value. . . . 
     Nevertheless, when asset prices increase explosively, concern 
     always arises that a bubble may be developing and that its 
     bursting might lead to a sharp fall in prices that could 
     severely damage the economy. . . .
       The issue here is the same one that applies to how central 
     banks should respond to potential bubbles in asset prices in 
     general: Because subsequent collapses of these asset prices 
     might be highly damaging to the economy . . . should the 
     monetary authority try to prick, or at least slow the growth 
     of, developing bubbles? I view the answer as no.''
       In others words, if the Fed is not worried, you shouldn't 
     be either.
       ``There is no question that asset price bubbles have 
     potential negative effects on the economy. The departure of 
     asset prices from fundamentals can lead to inappropriate 
     investments that decrease the efficiency of the economy.''
       In other words, there are some theoretical problems with 
     bubbles. But Mishkin has a theory that says there can be no 
     such things as bubbles.
       ``If the central bank has no informational advantage, and 
     if it knows that a bubble has developed, the market will know 
     this too, and the bubble will burst. Thus, any bubble that 
     could be identified with certainty by the central bank would 
     be unlikely ever to develop much further.''
       He then tells his listeners that in the unlikely event of a 
     bubble, it really would not be a problem:
       ``Asset price crashes can sometimes lead to severe episodes 
     of financial instability. . . . Yet there are several reasons 
     to believe that this concern about burst bubbles may be 
     overstated.
       To begin with, the bursting of asset price bubbles often 
     does not lead to financial instability. . . .
       There are even stronger reasons to believe that a bursting 
     of a bubble in house prices is unlikely to produce financial 
     instability. House prices are far less volatile than stock 
     prices, outright declines after a run-up are not the norm, 
     and declines that do occur are typically relatively small. . 
     . . Hence, declines in home prices are far less likely to 
     cause losses to financial institutions, default rates on 
     residential mortgages typically are low, and recovery rates 
     on foreclosures are high. Not surprisingly, declines in home 
     prices generally have not led to financial instability. The 
     financial instability that many countries experienced in the 
     1990s, including Japan, was caused by bad loans that resulted 
     from declines in commercial property prices and not declines 
     in home prices.''
       Boy, I bet he would like to take back his words today. 
     Everything he just said turned out to be untrue; and he 
     should have known that all of the assumptions he used to 
     quell fear and instill confidence were simply not true.
       ``My discussion so far indicates that central banks should 
     not put a special emphasis on prices of houses or other 
     assets in the conduct of monetary policy. This does not mean 
     that central banks should stand by idly when such prices 
     climb steeply. . . .
       Large run-ups in prices of assets such as houses present 
     serious challenges to central bankers. I have argued that 
     central banks should not give a special role to house prices 
     in the conduct of monetary policy but should respond to them 
     only to the extent that they have foreseeable effects on 
     inflation and employment. Nevertheless, central banks can 
     take measures to prepare for possible sharp reversals in the 
     prices of homes or other assets to ensure that they will not 
     do serious harm to the economy.''
       In other words, the Fed likes bubbles. Mishkin says the Fed 
     is prepared to protect us from the bursting of the bubble, 
     but obviously he was wrong on that point too. Of course the 
     issue of the Fed causing bubbles is never broached, and if it 
     is, Fed officials will chime in to squash any such notion.


                                  kohn

       ``Financial Stability: Preventing and Managing Crises.''--
     Speech given at the Exchequer Club Luncheon, Washington, DC. 
     February 21, 2007.
       Fed Vice Chairman Donald L. Kohn downplayed the possibility 
     of a crisis but said,
       ``In such a world, it would be imprudent to rule out sharp 
     movements in asset prices and deterioration in market 
     liquidity that would test the resiliency of market 
     infrastructure and financial institutions.
       While these factors have stimulated interest in both crisis 
     deterrence and crisis management, the development of 
     financial markets has also increased the resiliency of the 
     financial system. Indeed, U.S. financial markets have proved 
     to be notably robust during some significant recent shocks.''
       In other words, just thinking about crises makes them less 
     likely.
       ``The Federal Reserve, in its roles as a central bank, a 
     bank supervisor, and a participant in the payments system, 
     has been working in various ways and with other supervisors 
     to deter financial crises. As the central bank, we strive to 
     foster economic stability. As a bank supervisor, we are 
     working with others to improve risk management and market 
     discipline. And in the payments and settlement area, we have 
     been active in managing our risk and encouraging others to 
     manage theirs.''
       In other words, the Fed will deter any crisis.
       ``The first line of defense against financial crises is to 
     try to prevent them. A number of our current efforts to 
     encourage sound risk-taking practices and to enhance market 
     discipline are a continuation of the response to the banking 
     and thrift institution crises of the 1980s and early 1990s.''
       ``Encourage sound risk-taking practices''--did I hear that 
     right?
       ``Identifying risk and encouraging management responses are 
     also at the heart of our efforts to encourage enterprise wide 
     risk-management practices at financial firms. Essential to 
     those practices is the stress testing of portfolios for 
     extreme, or ``tail,'' events. Stress testing per se is not 
     new, but it has become much more important. The evolution of 
     financial markets and instruments and the increased 
     importance of market liquidity for managing risks have made 
     risk managers in both the public and private sectors acutely 
     aware of the need to ensure that financial firms' risk-
     measurement and management systems are taking sufficient 
     account of stresses that might not have been threatening ten 
     or twenty years ago.''
       In other words, the Fed's number one job is to prevent 
     ``extreme'' events--or was that, to cause such events?
       ``A second core reform that emerged from past crises was 
     the need to limit the moral hazard of the safety net extended 
     to insured depository institutions--a safety net that is 
     required to help maintain financial stability. Moral hazard 
     refers to the heightened incentive to take risk that can be 
     created by an insurance system. Private insurance companies 
     attempt to control moral hazard by, for example, charging 
     risk-based premiums and imposing deductibles. In the public 
     sector, things are often more complicated.''
       I guess they are! In other words the Fed must refrain from 
     bailing out markets or it will encourage risk and 
     speculation.
       ``The systemic-risk exception has never been invoked, and 
     efforts are currently underway to lower the chances that it 
     ever will be.''
       Well, I think that record has now been broken--into several 
     trillion pieces.


                                Kroszner

       ``Recent Innovations in Credit Markets.''--Speech given at 
     the Credit Markets Symposium at the Charlotte Branch of the 
     Federal Reserve Bank in North Carolina, March 22, 2007.
       Fed Governor Randall S. Kroszner was the Fed's number-one 
     guy in terms of regulation of financial markets. He was the 
     point man in preventing things like systemic risk, but he 
     considered all this financial ``innovation'' and 
     ``engineering'' to be a good thing:
       ``Credit markets have been evolving very rapidly in recent 
     years. New instruments for transferring credit risk have been 
     introduced and loan markets have become more liquid. . . . 
     Taken together, these changes have transformed the process 
     through which credit demands are met and credit risks are 
     allocated and managed. . . . I believe these developments 
     generally have enhanced the efficiency and the stability of 
     the credit markets and the broader financial system by making 
     credit markets more transparent and liquid, by creating new 
     instruments for unbundling and managing credit risks, and by 
     dispersing credit risks more broadly. . . .
       The new instruments, markets, and participants I just 
     described have brought some important benefits to credit 
     markets. I will touch on three of these benefits: enhanced 
     liquidity and transparency, the availability of new tools for 
     managing credit risk, and a greater dispersion of credit 
     risk.''
       What he then goes on to discuss are ``recent developments'' 
     such as credit default swaps (CDS) of which the ``fastest 
     growing and most liquid'' are credit-derivative indexes 
     involving such things as packages of subprime residential 
     mortgages. He says that ``Among the more complex credit 
     derivatives, the credit index tranches stand out as an 
     important development.''
       He goes on to state that, historically, secondary markets 
     were illiquid and nontransparent (banks held their own 
     loans!). Now liquidity has improved and transparency has 
     improved. This promotes better risk management as risk is 
     measured and priced better because market participants have 
     better tools to manage risk. The result has been a ``wider 
     dispersion of risk.''
       ``On its face, a wider dispersion of credit risk would seem 
     to enhance the stability of the financial system by reducing 
     the likelihood that credit defaults will weaken any one 
     financial institution or class of financial institutions.''
       Yes, there are some concerns, but most of these concerns 
     are ``based on questionable assumptions.'' Yes, there is 
     risk, but it's the risk that has been out there all along; 
     now we can trade this risk among ourselves. There is 
     ``nothing fundamentally new to investors . . . credit 
     derivative indexes simply replicate the sort of credit 
     exposures that have always existed.'' Plus, remember that 
     this risk is greatly diminished because lenders require 
     borrowers to put up collateral.

[[Page S4055]]

       What Kroszner has failed to realize is that by allowing 
     institutions to disperse their risk, the regulators have 
     encouraged and allowed for a huge increase in the aggregate 
     amount of risk. When banks kept their own loans on their own 
     books, they were careful to make prudent loans, but with 
     nearly free money available from the Fed, they wanted to make 
     more loans, and the only way to do that is to make riskier 
     loans. They didn't want to hold the risky loans so they 
     ``dispersed'' them.
       Kroszner told his audience that the market already 
     experienced a surprise in May of 2005, but that since that 
     time much energy has been expended by market participants to 
     improve risk management.
       We don't have to worry, Kroszner tells us, because Gerald 
     Corrigan is in charge of making sure nothing goes wrong. 
     Corrigan--a former president of the New York Fed and a 
     managing director in the Office of the Chairman of Goldman 
     Sachs--has been in charge of a private-sector group that 
     controls ``counterparty risk management policy'' for the 
     financial industry.
       ``Cooperative initiatives, such as [this one led by 
     Corrigan] can contribute greatly to ensuring that those 
     challenges are met successfully by identifying effective 
     risk-management practices and by stimulating collective 
     action when it is necessary. . . . The recent success of such 
     initiatives strengthens my confidence that future innovations 
     in the market will serve to enhance market efficiency and 
     stability, notwithstanding the challenges that inevitably 
     accompany change.''
       Checking ahead, we find Kroszner still bullish later that 
     same year.
       ``Risk Management and the Economic Outlook.''--Speech given 
     at the Conference on Competitive Markets and Effective 
     Regulation, Institute of International Finance, New York. 
     November 16, 2007.
       ``Looking further ahead, the current stance of monetary 
     policy should help the economy get through the rough patch 
     [yes, he called it a rough patch] during the next year, with 
     growth then likely to return to its longer-run sustainable 
     rate. As conditions in mortgage markets gradually normalize, 
     home sales should pick up, and homebuilders are likely to 
     make progress in reducing their inventory overhang. With the 
     drag from the housing sector waning, the growth of employment 
     and income should pick up and support somewhat larger 
     increases in consumer spending. And as long as demand from 
     domestic consumers and our export partners expand, increases 
     in business investment would be expected to broadly keep pace 
     with the rise in consumption.''
       Over the next year, the Dow would lose 6,000 points; we 
     have now doubled the amount of unemployment, adding more than 
     7 million unemployed. Consumer confidence hit a 27-year low 
     this week, and sales of new homes hit the lowest level in a 
     half a century--the lowest level on record! Kroszner, an 
     economist groomed by the Institute for Humane Studies, has 
     since returned to the University of Chicago and the 
     directorship of the George Stigler Center.


                               Conclusion

       We can see that the Fed is a confidence game. Their public 
     pronouncements, while heavily nuanced and hedged, uniformly 
     present the American people with a rosy scenario of the 
     economy, the future, and the ability of the Fed to manage the 
     market. Ben Bernanke told Congress this week that we are in 
     the early stages of an economic recovery. Of course, he has 
     been saying that since the spring of 2009 (if not earlier). 
     These are the people who said that there was no housing 
     bubble, that there was no danger of financial crisis, and 
     then that a financial crisis would not impact the real 
     economy. These are the same people who said they needed a 
     multitrillion dollar bailout of the financial industry, or we 
     would get severe trouble in the economy. They got their 
     bailout, and we got the severe trouble anyways. It is time to 
     bring this game, this confidence game, to an end.

  Mr. REID. Mr. President, I note the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant bill clerk proceeded to call the roll.
  Mr. REID. I ask unanimous consent that the order for the quorum call 
be rescinded.
  The PRESIDING OFFICER (Mrs. Shaheen). Without objection, it is so 
ordered.
  Mr. REID. I ask unanimous consent that the Senate now be in a period 
of debate only with a 10-minute limitation on speeches, to accommodate 
the speakers on Wall Street reform or other matters; that there be no 
amendments or motions in order during this time.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REID. I want to amend my shortcoming. Sorry about that. I would 
ask that unanimous consent agreement be modified so that Senators Dodd 
and Shelby, the two managers of this banking bill, be recognized for up 
to 30 minutes each.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Louisiana is recognized.


                            Flood Insurance

  Mr. VITTER. I rise to discuss flood insurance extension and our need 
to address that now, to get rid of uncertainty in the market and real 
concern that this will not be done in time, and the vital National 
Flood Insurance Program may be allowed to lapse yet again, as happened 
in the recent past.
  Obviously, the National Flood Insurance Program is basic; it is 
necessary. It is necessary for the entire country, for real estate 
transactions everywhere. But it is certainly necessary in my home State 
of Louisiana and in a hurricane and flood zone.
  As we sit here today, the National Flood Insurance Program will 
expire in the first few days of June, during the Memorial Day recess. 
So it is necessary and important that program be extended. I suggest we 
take up this noncontroversial matter now, do it now. There is no 
controversy. There is no objection on the substance of the program.
  This will accomplish two things. First of all, our taking it up now 
rather than at the last moment right when we are pushed up against the 
Memorial Day recess will take care of real uncertainty in the market 
and give everyone--homeowners, those who need these extensions, those 
who need these policies, everyone in real estate--the security that 
this will be extended properly through at least the end of the year.
  Secondly, I think it is reasonable to take it out of the context of 
the extenders package, which is otherwise very controversial. There are 
a lot of elements of the extenders package which will merit debate. 
There are a lot of elements of the extenders package which will be 
controversial and which will garner legitimate ``no'' votes.
  This flood insurance extension is not one of them. This flood 
insurance extension, on its merits, does not have controversy and does 
not have objection, including because of the fact that it does not cost 
us anything. It is completely budget neutral, this extension through 
the end of the year.
  This approach, which would erase uncertainty, which would calm the 
markets, which would remove it from other unrelated more controversial 
issues, is supported by everyone in the marketplace. In that regard, I 
ask unanimous consent to have printed in the Record this letter from 
the National Association of REALTORS in strong agreement with this 
approach and a similar letter from the National Association of Mortgage 
Brokers in strong agreement with this approach.
  The PRESIDING OFFICER (Mr. Burris). Is there objection?
  Mr. REID. Reserving the right to object, did my friend propound a 
unanimous consent request?
  Mr. VITTER. Simply to make these letters a part of the Record.
  Mr. REID. No objection.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                     National Association of Realtors',
                                                     May 13, 2010.
     Hon. David Vitter,
     U.S. Senate,
     Washington, DC.
       Dear Senator Vitter: the National Association of 
     REALTORS' supports S. 3347, to extend authority 
     for the National Flood Insurance Program (NFIP) until 
     December 31, 2010. The authority should be extended to 
     provide market certainty and give Congress sufficient time to 
     enact meaningful reform.
       Most property buyers obtain federally related mortgage 
     loans to purchase property; for property located in a 
     federally designated floodplain, flood insurance is required 
     to obtain such a mortgage. When the NFIP expired earlier this 
     year, thousands of real-estate transactions were delayed, if 
     not cancelled. Extending the program until year's end will 
     provide much needed certainty to a recovering real estate 
     market and the millions of taxpayers nationwide who rely on 
     the program for basic flood protection.
       We urge the Senate to pass S. 3347 to extend the NFIP, and 
     look forward to working with you as legislation is developed 
     to reform and reauthorize the program.
           Sincerely,
                                            Vicki Cox Golder, CRB,
     2010 President.
                                  ____

                                           National Association of


                                             Mortgage Brokers,

                                                     May 13, 2010.
       Dear Senator, on behalf of the members of the National 
     Association of Mortgage Brokers (NAMB), I urge you to support 
     S. 3347, a bill introduced by Senator Vitter (R-LA)

[[Page S4056]]

     to extend the National Flood Insurance Program through 
     December 31, 2010. NAMB applauds Senator Vitter for his 
     diligent work on this necessary bill to ensure continued 
     availability of coverage for homeowners living in areas prone 
     to flooding.
       NAMB strongly supports this bill to extend the National 
     Flood Insurance Program to protect the nearly 5 million 
     homeowners living in high flood risk areas from losing their 
     property without being covered. This is particularly 
     significant for those home buyers in high flood risk areas 
     where flood insurance is required by law in order to qualify 
     for mortgage loans from federally regulated lenders. The 
     program has lapsed twice this year, severely hindering 
     borrowers from obtain homeownership in flood areas, and 
     countering any relief to the housing market. This legislation 
     is critical to the housing recovery, but is also equally 
     important to small businesses, which have suffered through 
     the economic decline. An extension to the program will 
     prevent any further disruptions to homeowners, and provide 
     much needed stability to the market.
       We urge timely passage of this critical legislation and 
     believe it will provide necessary protections for consumers 
     in high flood risk areas, as well as help in the housing 
     recovery and relieve small businesses.
           Sincerely,
                                                    Jim Pair, CMC,
                                         NAMB President 2009-2010.


                   Unanimous-consent Request--S. 3347

  Mr. VITTER. Mr. President, with that introduction, I would now 
propound my underlying unanimous-consent request. I ask unanimous 
consent that the Senate proceed to the immediate consideration of 
Calendar No. 372, which is the Vitter bill, S. 3347, a bill that 
extends the National Flood Insurance Program at no cost, deficit 
neutral, through December 31, 2010; that the bill be read a third time 
and passed, and that the motion to reconsider be laid upon the table.
  The PRESIDING OFFICER. Is there objection?
  Mr. REID. Mr. President, reserving the right to object, my friend 
knows we have an extenders package which we have to complete before we 
leave for the Memorial Day recess. There are a number of matters in 
that bill that are extremely important to people throughout this 
country, vital to people throughout this country.
  My friend said his issue is noncontroversial. The controversy is in 
the eye of the beholder. I object.
  The PRESIDING OFFICER. Objection is heard.
  Mr. VITTER. Mr. President, reclaiming my time, if I could inquire, 
through the Chair, what the basis of the objection is, I think that 
would further the debate.
  The PRESIDING OFFICER. Is there objection to the Senator propounding 
an inquiry to other Senators? There is no right to ask a question of 
another Senator who does not have the floor.
  Mr. VITTER. Well, again, I was inquiring through the Chair. I ask 
unanimous consent to inquire through the Chair and to propound the 
question, What is the nature of the objection?
  The PRESIDING OFFICER. There is no objection to the request. No 
Senator is compelled to respond.
  Mr. VITTER. I would simply make the request that we have a brief 
conversation about it, in that case. I realize no one is compelled to 
respond.
  The PRESIDING OFFICER. The Senator from Louisiana has the floor.
  Mr. VITTER. Well, it was a compelling argument. But, again, I am 
saddened by the fact that we cannot proceed in a straightforward way. 
There is no objection to the substance of this extension. This is a 
necessary program. It is a vital program. The extension, which my bill 
would accomplish through December 31, 2010, would be budget neutral and 
deficit neutral.
  We would take this out of a much more controversial debate. We would 
settle the issue well before the program would otherwise expire. We 
would give people confidence. We would settle the markets. We would 
help people in real estate. We would help people in the economy. I 
suppose they are all compelling reasons not to travel down that path up 
here in Washington.
  I think that is a shame. I think it is really sad because this should 
be, and is, on its substance noncontroversial.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Michigan is recognized.
  Mr. LEVIN. I ask unanimous consent that the speakers on this side be 
in the following order: Senator Cardin be recognized for 5 minutes; 
then the Senator from Oregon, Mr. Merkley, be recognized for 10 
minutes; then that I be recognize for 10 minutes on this side.
  Mr. REID. Mr. President, I ask my friend to modify his request so 
that if there are Republicans who wish to be recognized, we would do 
that alternately.
  Mr. LEVIN. I thank the Leader. I intended that when I said ``on this 
side'' there would be alternates.
  The PRESIDING OFFICER. The request is so modified. Without objection, 
it is so ordered.
  The Senator from Maryland is recognized.
  Mr. CARDIN. Mr. President, I take this time to call to my colleague's 
attention my pending amendment, amendment No. 4050. This is the 
amendment that would require the oil companies to disclose the payments 
that they make to countries for mineral rights.
  It is in order to give investors transparency and knowledge about the 
risks that may be involved in regards to oil companies. This is real if 
you look at what is happening in Nigeria and other countries.
  Investors have a right to know where oil companies are making 
payments. This amendment would also further good governance. I think 
most of us are familiar with the mineral curse; that is, countries that 
have mineral wealth are some of the poorest in the world. It also helps 
finance corruption because the government leaders are taking these 
payments for themselves rather than for the people of the country. My 
amendment would require the SEC to allow for the disclosure of the 
payments made by oil companies that are regulated by the SEC.
  This is mostly foreign companies. These are not U.S. companies by and 
large. It puts U.S. companies on a level playing field because U.S. 
companies are prohibited by law from being involved in any part of 
corruption.
  This is a bipartisan amendment. It is cosponsored by Senator Lugar. 
He has been one of the true leaders on this issue for many years. My 
cosponsors include Senators Durbin, Schumer, Feingold, Merkley, 
Johnson, and Whitehouse. It comes out of the work of the Helsinki 
Commission. We have held hearings on this within the Commission. This 
is one of the priorities we have on basic human rights. It is supported 
by the Obama administration.
  I say all that knowing full well we are now postcloture. It is 
unlikely we will get a vote on this amendment. I find that disturbing. 
We have made the technical changes in order to make sure we adhere to 
the concerns expressed by Members. Quite frankly, I am not aware of any 
Senator who objects to the substance of this amendment. I hoped perhaps 
we could move forward and include this, but I am a realist, and I 
understand the current circumstances.
  I want my colleagues to know I will try to work with the chairman and 
ranking member in conference to see whether we can get some of these 
provisions included. We do have a similar provision on disclosure 
related to the Congo. We do have this subject matter that will be 
before the conferees.
  I am hopeful, after conversations with Senators Dodd and Shelby, that 
we will be able to continue this discussion as this bill moves forward 
to conference. I will also look for other opportunities to bring this 
issue back.
  I know Senator Dodd has voiced his support for the amendment. I have 
talked to Senator Shelby. He has indicated to me that he is sympathetic 
to the amendment. I hope we will be able to find a way to prevent the 
citizens of Third World countries from being denied a share of the 
wealth of their own countries and to give investors the information 
they need in order to make intelligent decisions as to whether they 
want to invest in a particular company.
  I want my colleagues to know that if we don't get a chance to vote on 
this amendment tonight, it will not be the end. We will look for other 
opportunities, whether it is in conference or other bills that move 
forward.
  I thank many of my colleagues who have been supportive. I know we 
will succeed in protecting the mineral wealth of Third World nations 
for the people of the country rather than to fund corruption and giving 
investors the information they should have as to whether they want to 
invest in a mineral company.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.

[[Page S4057]]

  The bill clerk proceeded to call the roll.
  Mr. LEVIN. I ask unanimous consent that the order for the quorum call 
be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LEVIN. Mr. President, under the current unanimous consent 
agreement, there will be 10 minutes now for Senator Merkley, then to be 
alternated to the Republican side. Actually, it would go first to the 
Republican side, then back to Senator Merkley. Then, if there is a 
Republican, it would go back to the Republican and then back to me. 
That is the current agreement.
  Senator Enzi wishes to speak for up to 30 minutes. He has been 
gracious enough to agree that both Senator Merkley and I go with our 
10-minute remarks before him. I modify the unanimous consent agreement 
and ask unanimous consent that Senator Merkley be recognized for 10 
minutes and then I be recognized for up to 10 minutes and then Senator 
Enzi be recognized for up to 30 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Oregon.
  Mr. MERKLEY. Mr. President, we are coming to the end of a long path 
of consideration of fundamental financial reforms. A key piece of the 
discussion along that trail has been whether we are going to modify the 
way securities operate, how high-risk investment pools operate, and how 
ordinary banking that takes deposits and makes loans operate, so that 
all three will do better in their role of aggregating capital and 
allocating capital.
  We have some fundamental challenges in our society. One is that 
inside of a bank holding company, we have both the high-risk investing 
and the standard process of taking deposits and making loans. These two 
are both excellent systems, but they don't belong under the same roof. 
When they are under the same roof, they create two problems. The first 
problem is the bank that is providing the loans has access to a 
discount window in insured deposits. All of that is intended to make 
sure money gets to small businesses and families. But when they are 
under the same roof, we have the temptation of the resources being 
directed to high-risk investing rather than getting into the hands of 
our families and small businesses.
  In every corner of Oregon and in every corner of every State, folks 
are finding it hard to get loans. Lines of credit are being cut in 
half. Projects to expand and hire additional employees are being 
thwarted because the local bank says: We can't do any more lending 
because we have hit our limit on leverage and our capital is such-and-
such.
  We do not want large banks that have both functions to be diverting 
their energy and resources from the lending that is so important to 
Main Street into high-risk investing. They need to be separate for that 
reason.
  The second reason is that when the investing blows up, as it does 
periodically, then we have a situation where it blows up the lending, 
sends shock waves through lending. It causes lending to freeze. When 
that happens, the economy suffers, Main Street suffers, and families 
suffer. That is where we are right now.
  Let's take a look at the facts. We have a situation where over the 
past couple years we have seen Lehman Brothers, which had high-risk 
trading losses of over $30 billion, go down. Merrill Lynch had $20 
billion of loss, saved by TARP; Morgan Stanley, $10 billion, saved by 
TARP; JPMorgan Chase, $25 billion from TARP; Goldman Sachs, $10 billion 
from TARP; Bank of America, over $45 billion in TARP funds. Proprietary 
trading blew up some of our biggest financial institutions and froze 
lending to businesses on Main Street across this Nation.
  We need to have a firm separation. We need to make sure that if you 
are buying fireworks for the Fourth of July, you are not storing those 
in the living room. By that I mean high-risk investing is the 
fireworks, and you don't store them in your living room where you are 
doing the lending so important to Main Street.
  This is a Wall Street-Main Street battle. My colleague Senator Levin 
and I have been working on this for quite some time. We need to make 
our financial system work better for America.
  Two days ago, we offered to have our amendment voted on, not with a 
50-vote standard but with 60 votes. The leadership across the aisle 
thwarted that unanimous consent request and said: You may not have a 
vote on your amendment.
  Not even at 60 votes?
  No, you may not.
  Not even with two Democratic Senators off in their home States 
because they had primary elections?
  No, you may not. You may not debate this amendment on the floor.
  Quite frankly, that is the result of pressure from Wall Street saying 
that fundamental financial reform should not be discussed in this 
Chamber. What is this Chamber? Is this Chamber a puppet to Wall Street 
or are we a serious gathering of men and women from across the Nation 
whose responsibility is to build a better financial system?
  Another fundamental piece of this amendment is to end the conflict in 
securities. This is simple. If you design securities and you sell them, 
you don't take out insurance on them because you think they might fail 
after you have sold them. That is a fundamental conflict of interest.
  That is like somebody who wires your house; you bring them to your 
house and you say: Please do the wiring or fix the wiring. And they 
take out a fire policy on your house because they know they did such a 
bad job, they think your house is going to burn down. You would never 
hire that electrician. Or it is like a car dealer. The dealer says: I 
will sell you this car. And after they sell it to you, they take out a 
life insurance policy on you because they didn't do the brakes right. 
It would make you pretty nervous. You would not buy a car from an auto 
dealer who has taken out an insurance policy on your life. That is a 
simple issue addressed in the securities provision of this bill.
  We are hearing word that Republicans are going to go through a 
parliamentary maneuver, even though our amendment is now in order and 
pending, to kill debate on the pending Merkley-Levin amendment. We hope 
that is not true, but we are hearing that in not so many minutes, 
sometime this evening, there is going to be a process to kill the 
amendment our amendment is attached to so there will be no debate on 
this issue.

  I cannot believe the Senate of the United States is afraid to have a 
debate and vote on fundamental financial reforms important to the 
integrity of our securities and important to Main Street getting loans. 
But that seems to be where we are headed. I hope I am wrong. I hope my 
colleagues from across the aisle will come out and say: No, we have 
reconsidered. We think this body should debate serious issues. You 
might win, you might lose, but we should hold the debate.
  We have asked the Republican leadership to sever the connection 
between our amendment and the Brownback amendment, which are on 
different topics. One is on fundamental financial structures, and one 
is on automobile dealers and whether they are covered by the Consumer 
Financial Protection Bureau. We said: Sever them. Let each have a 
separate debate. They have told us no. They will not sever the 
connection and allow a debate on each topic. That is why, if the 
primary amendment is withdrawn, ours will go down, too, and the people 
of the United States will be deprived of having a legislature that 
debates seriously the structure of reform.
  I will wrap it up. I know my colleague is going to expand on these 
remarks. It has been a pleasure working with him. It has been a 
pleasure working with the Banking staff.
  But before I conclude, I want my colleagues to know that based on the 
conversations I have had in this body, if we were to have this vote, we 
would win tonight, based on the comments of folks who say they either 
support or are strongly leaning toward supporting it. That means we 
would go to conference with a very strong position, as we should. If 
this is withdrawn tonight, if we are not able to have this debate and 
vote, I hope the leadership on both sides of the aisle will say, even 
though we didn't debate it, we will take this strong position for 
financial reform to the conference.
  The USAA, which is a group that serves our veterans, has commented 
about this amendment. They said:


[[Page S4058]]


       Senators Merkley and Levin recognize the value of insurance 
     company investments which already are subject to well-defined 
     state insurance restrictions. . . . In that vein, we urge you 
     to support the amendment and include it in the Restoring 
     American Financial Stability Act that is passed out of the 
     United States Senate.

  May 13, 2010.
  A person from the Washington Post writes:

       Probably the most important amendment comes from Sens. Carl 
     Levin and Jeff Merkley, Democrats from Michigan and Oregon, 
     respectively. It would replace the vague language of the Dodd 
     bill, which gives discretion to regulators as to how much 
     proprietary trading they would allow, with a clear provision 
     banning federally insured banks from such trading 
     respectively (the ``Volcker rule''). If the banks want to 
     turn themselves into casinos, they can--but if Merkley-Levin 
     passes, they would do so without taxpayer support when their 
     bets go sour.

  A New York Times editorial:

       The Senate bill also imposes needless delays on the 
     enactment of the so-called Volcker rule, which would bar 
     banks from making risky market trades for their own accounts 
     and from owning hedge funds and private equity funds. 
     Senators Carl Levin of Michigan and Jeff Merkley of Oregon, 
     both Democrats, have an amendment to enact the Volcker rule 
     without undue delays or tinkering.

  The Independent Community Bankers of America is asking for this to be 
passed to strengthen our financial system.
  The Campaign for America's Future, the former head of Citibank, who 
watched as the two sides of his bank collided in a spectacular 
disaster, are supporting this amendment. This amendment should be 
debated and voted on on the floor of the Senate. To do otherwise would 
not fulfill our responsibility to the people of the United States of 
America.
  Thank you very much, Mr. President.
  The PRESIDING OFFICER. The Senator from Michigan is recognized for 10 
minutes.
  Mr. LEVIN. Mr. President, first of all, I thank Senator Merkley for 
his extraordinary work on this amendment of ours. We are very hopeful 
we are going to be able to get to a vote. As it stands right now, we 
are going to get to a vote because we are the pending amendment. That 
is where it stands. We are in order. We are germane. It is postcloture 
but we are germane. The only way we know of where we could be thwarted 
from getting to a vote is if there were a decision made on the other 
side to withdraw the underlying amendment. We hope that decision will 
not be made.
  These issues are too important not to be voted on. A parliamentary 
trick should not be used now to avoid a vote on this critically 
important amendment, which will strengthen in very significant ways the 
underlying Dodd bill.
  We saw, weeks ago, that the Republican leadership was going to try to 
deny us the opportunity to even get to this bill, and there was such a 
public outrage at the Republican filibuster that they had to back off 
from that. Well, if we do not get to a vote tonight on Merkley-Levin, 
there is going to be similar outrage from people because they 
understand what the stakes are. The stakes are whether we are going to 
take the steps to avoid a repeat of the deep recession we are now in--a 
recession that was brought about in large measure by the excesses, the 
extreme greed of Wall Street, taking high-risk mortgages, dubious 
mortgages, securitizing them, dicing them, slicing them in different 
ways, enlarging the risk dramatically, selling them to clients and 
customers, and then, to add insult to injury, betting against them--in 
the case of Goldman Sachs, making a fortune on those bets; in the case 
of the banks that bet the other way, ending up being bailed out by the 
taxpayers on the losing bets.
  That is what has happened. While our constituents may not be able to 
define what a collateralized debt obligation is or what a naked default 
swap is--and there are very few people in the country who can--they do 
know they have been had. They know how many houses in their 
neighborhoods have been vacated, have been foreclosed upon. They know 
because they themselves or their neighbors have been unable to keep up 
with mortgage payments because the value of housing has gone down, and 
they sense that the Wall Street greed was a big part of this.
  It is more than the greed. It is the conflicts of interest which 
accompanied that greed. Our bill addresses some of the major problems 
that got us here, and some of that is proprietary trading where the 
Wall Street banks put their own interests ahead of their clients' 
interests and gambled--gambled, as it ended up--with our taxpayers' 
money.
  So our constituents understand this. What I want to do is spend the 
few minutes I have left talking about the conflict of interest that 
existed on Wall Street: betting against themselves. I think yesterday's 
New York Times perhaps quoted someone who put it best--a man named 
Cornelius Hurley, director of the Morin Center for Banking and 
Financial Law at Boston University and former counsel to the Federal 
Reserve Board. This is what he said:

       Their business model--

  The business model that now exists at banks such as Goldman--

     has completely blurred the difference between executing 
     trades on behalf of customers versus executing trades for 
     themselves. It's a huge problem.

  That shift in the business model has to be addressed by us. We have 
to act to put an end to the conflict of interest which exists when a 
Goldman Sachs--as we showed at our hearing--is able to sell securities 
to customers, packaging these mortgage-based debts, these asset-backed 
securities or these securities which referred to assets--these are the 
synthetic ones where there is nothing there but a reference to some 
other security, a bet--and then betting against their own customers.
  This was one of the most dramatic findings of our subcommittee. Our 
subcommittee investigated this matter for about a year and a half. We 
had four hearings. We had millions of pages of documents. We started 
with a bank in the State of Washington which took dubious mortgages--
fraudulent mortgages, in many cases, in a large percentage of the 
cases--based on liar loans, where the mortgage companies would fill in 
the amount of people's income and then securitize them. Because they 
saw--and we had the evidence in their e-mails, where the mortgage 
companies saw--there was a high default rate in these mortgages, they 
decided they better get them off their books quick because there were 
high defaults coming down the river.
  So what happened? They securitized them, shipped these to a very 
welcoming Wall Street that would then resecuritize them, slice them in 
a different way, sell them to their customers, and then bet against 
them. The added insult was when, inside the same bank, the salespeople 
knew they were selling junk and said so in e-mails in words that are 
even worse than ``junk''--treating customers that way, putting their 
own interests at Goldman Sachs ahead of the interests of their 
customers.
  That is what happened. We have to end this conflict, and we have to 
give the Securities and Exchange Commission the running orders to end 
the conflict. That is what our amendment does. We do it in a very 
thoughtful way, a very careful way. We set forth the requirement that 
the conflict of interest be ended, but we assign the Securities and 
Exchange Commission the responsibility to end it, to implement the 
conflict of interest prohibition we have in our bill.
  As Senator Merkley said, we have heard there is a possibility that 
the Republicans are going to withdraw the underlying amendment. That 
would be an incredible signal of the power of Wall Street that the 
underlying amendment, which has the support of so many people on both 
sides of the aisle--and probably majority support in this body relative 
to the treatment of car loans--that that amendment might be withdrawn 
in order to kill Merkley-Levin. That is the rumor we keep hearing this 
afternoon. It is the only way they can stop this amendment from coming 
to a vote that we know of.
  We believe, as Senator Merkley said, there should be a vote on both 
amendments; that these two matters should be split. The only way we 
could get a vote on Merkley-Levin--this incredibly important 
strengthening amendment to the underlying Dodd bill--was by offering it 
as a second-degree amendment to the Brownback amendment. We are 
perfectly happy to have separate votes.

[[Page S4059]]

That is the best way to do it. We cannot do that without unanimous 
consent. But rather than agreeing to separate votes, so both matters 
could be voted on and disposed of by the Senate, what we keep hearing 
is they may withdraw the underlying amendment and bring down the 
pending Merkley-Levin amendment with it.
  If you needed any additional evidence of the power of Wall Street 
around this body, that would be it. If that happened--to withdraw an 
amendment which is so important to a majority, probably, of the body--
to make it impossible for us to vote on Merkley-Levin would be some of 
the most powerful evidence--and there has been plenty of it--of the 
power of Wall Street, the long arm of Wall Street reaching into this 
body.
  I hope it is not true. But being honest with our colleagues, this is 
what we hear is possibly in the wings. It would be a disservice to the 
people of the United States not to have a vote on Merkley-Levin.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Wyoming is recognized for 30 
minutes.
  Mr. ENZI. Mr. President, there was a request made to me by the 
Senator from Delaware if he could have 1 minute to add his name to this 
discussion that has just been held. I ask unanimous consent that it not 
be taken out of my time, but that 1 minute be given to the Senator from 
Delaware.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Delaware.
  Mr. KAUFMAN. Mr. President, I thank my neighbor across the hall from 
Wyoming. He is a gentleman, as always, and I appreciate it.
  I just want to stand and say, from the beginning I have talked about 
one of the most important parts of this bill is that we make sure we 
separate commercial banking activities from investment banking 
activities. It is very important we have commercial banks that are 
safe, with deposits supported by the FDIC, but that they not be in 
risky business.
  I just want to say, I agree with the Senator from Michigan and the 
Senator from Oregon that it is absolutely essential we have a vote on 
Merkley-Levin and find the will of the Senate on the fact that we 
should not have banks involved in proprietary betting, and that we go 
with what the President and former Fed Chairman Volcker said, and go 
with a bill that separates these and does not allow banks to be 
involved in proprietary trading. It is absolutely essential.
  Again, I thank the Senator from Wyoming, a gentleman, as always.
  The PRESIDING OFFICER. The Senator from Wyoming is recognized for 30 
minutes.
  Mr. ENZI. Mr. President, I want to make it clear that the amendment 
that has just been talked about is not the only one that is not getting 
a vote that is absolutely essential to making this bill work--the 
amendments the American people expect.
  There was some comment about the Brownback amendment. That is one to 
allow automobile dealers to still sell automobiles, which they may not 
be able to do under this bill the way it is written. Another concern, 
of course, comes from anybody else who sells something on installment. 
That would include dentists and realtors and a whole range of people 
who sell things that way, and they are not going to be allowed to get a 
fix under this bill.
  So I want you to understand how wide-ranging this bill is. This is 
going to get into everybody's pockets. I am not talking about 
businesses; I am talking about individuals. The dadgum government is 
going to be in everybody's pockets with this bill. This gives the 
government permission to look at your records. In fact, it requires 
your bank to keep them and send them to the Federal Government--to this 
new bureau we are creating.
  This little 1,408-page bill, which with amendments I think is now 
over 1,500 pages, probably should have been three bills. It probably 
should have been three bills. We could have worked it properly, and 
maybe people would have read it.
  The Republicans did stop cloture twice, and they did it so they could 
amend the too big to fail. Too big to fail was actually a bailout--a 
perpetual bailout--for big banks. That is why Goldman Sachs, at a 
hearing here, said: Well, we can live with that. That is why Citi said 
they could live with it. The big banks did not have any problem with 
it. But it has been revised now because it was held up, and we were 
finally able to get some amendments on the first section.
  There is another section in here. It is called derivatives. We talk 
about ``derivatives'' because we know America will not understand that, 
so they, again, will not understand how we are getting into their 
pockets. But that is a section that needed changes. I think the Senator 
from Connecticut, the chairman, Mr. Dodd, realized that and drew up 
some. But it is my understanding he was not allowed to put those in 
here, even though I read in the paper one morning, joyously, that he 
had some amendments that were going to make some corrections. But he 
was forced not to put them in.
  So that is one-third of the bill that, obviously, has some faults in 
it yet. But that is not even the part I am really concerned about. I am 
concerned about this last third of the bill. It is 268 pages. Of 
course, there are another 100 pages that follow that of other acts that 
are going to be affected by it.
  This is a brandnew bureau. We don't have enough government? We are 
going to start a whole new bureau, and we are going to turn everything 
financial over to that bureau. But don't worry about it. We are going 
to stick it into the Federal Reserve, which we don't have any control 
over, and we are telling the Federal Reserve: You don't have any 
control over this new bureau, but you have to give up to 12 percent of 
your money to operate this bureau. That is why we put it under there; 
it will be off budget so it will not show up right away in the 
deficits, but it does. It is going to cost us 12 percent of the 
operating revenue of the Federal Reserve. Does anybody know how much 
that is? Well, they are going to get 12 percent of it. What fascinates 
me is that following that, there is a paragraph that says it will be 
adjusted for inflation. Wow. Let's see. If I get 12 percent of 
something, it is probably an expanding amount from year to year anyway, 
but if it doesn't expand one year, this bureau is still going to get 
the money as though the economy had expanded.
  I get worked up over it because I had an amendment that I think might 
have solved things for people--it certainly would have calmed me down a 
little bit--and that is one that would have provided for personal, 
individual privacy. I wasn't allowed to bring that up. I wasn't allowed 
to make it pending, in which case it would have been germane now and in 
which case we would have been able to vote on it now. I was kept from 
doing that. That is because somebody intends to give this bureau 
unlimited power to snoop. It is going to be devoted to snooping into 
personal records. My amendment very simply would have prevented Big 
Brother from looking over your shoulder at your personal financial 
records unless you give permission.
  Part of what we want to do is, if you are having a problem with your 
credit card company, we are hoping there is some way to fix it. 
Sometimes that happens in your State, but it doesn't always happen in 
the State. So the way this was sold is if you are having a problem with 
your credit card and you get ahold of this bureau, by golly, they will 
straighten it out. They will be looking at your records whether you 
have a problem or not. Maybe they are going to decide whether you have 
a problem or not. There is no real jurisdiction in here. There are 268 
pages, but it doesn't say exactly what this outfit is going to do and 
they get to write their own rules and nobody gets to oversee the rules. 
Then they enforce those rules, and there isn't any real limit on that 
except for the amount of fines they can charge, which they mention, and 
they are pretty drastic anyway.
  So your bank is going to have to keep your records for 3 years, and 
they are going to have to send them to this bureaucracy. I will point 
out some other things they are going to require with your personal 
accounts. It should have been in there.
  When I was talking about this, I picked up several people on the 
other side of the aisle. It would have been a

[[Page S4060]]

bipartisan amendment that I am sure would have passed, but it created a 
little concern over there, so they came out with their own version of 
the privacy amendment. Mine was a mere couple sentences long; theirs 
was considerably longer than that. But mine did something, theirs 
didn't. So I proposed an amendment to protect consumer privacy to give 
each of us a choice in how little or how much financial data the 
Federal Government and this bureau would be able to access and if we 
wanted their help. My amendment very simply prevented Big Brother from 
looking over your shoulder on a daily basis at your personal financial 
records.
  Rather than fixing the problem, I mentioned this side-by-side 
amendment, No. 4082, that makes the government intrusion even worse. 
Under that privacy amendment, it didn't do anything to stop the so-
called Consumer Financial Protection Bureau--I think it ought to be 
called the Consumer Financial Control Bureau--from snooping wherever 
they want. In fact, your bank, as I mentioned, would have to send them 
records.
  I wish to be a little bit more specific. I will explain why the Dodd 
amendment is worse than the underlying bill because it tries to trick 
the people with the promise of privacy and, at the same time, uses 
weasel words to comb through your personal lives anyway. I will lay out 
how the Federal Government will be watching over your shoulders with 
freedoms just slipping away a little at a time.
  The underlying bill and the Dodd amendment both use slippery sleight 
of words, but this isn't some magic trick that will suddenly disappear. 
No, my friends, this would be one of the sickest jokes you can imagine.
  I stand before you to educate the people of America about the 
fallacies in this underlying bill. I stood before my colleagues a few 
days ago saying that I recognize some consumers out there may want the 
government in their lives monitoring their transactions. I still do not 
claim to understand that desire, but my amendment would not take away 
their choice in the matter. In fact, my amendment would allow me as a 
consumer--if I get into credit card trouble and want the bureau's help, 
all I have to do is contact the bureau and give them permission to look 
at my financial documents. People who are having problems with the 
Federal Government get ahold of our staff people in our State all the 
time so we can work on straightening out that problem with the Federal 
Government. But you know what. You better have them sign a privacy 
release or you could be in big trouble. This bureau isn't going to have 
to get a privacy release. My amendment would give consumers the ability 
and the personal option. As long as the bureau has written permission 
from a consumer, they can look at the financial past, present, and 
future. Without my amendment, they can look at your financial past, 
present, and future without your permission.
  I am adamantly opposed to this privacy amendment that was drafted by 
the other side. It paves the way for a radical shift away from your 
right to privacy. I hope you will take a few seconds necessary to read 
the two-page amendment, No. 4083, the side-by-side to my privacy 
amendment. If you do, you will instantly notice the weasel words in 
this amendment. That amendment and the underlying bill promote yet 
another government takeover of another portion of our lives. They want 
to take over how we spend our money.
  Think of all the takeovers there have been in the last year and a 
half. This one is the big one--your finances. The American people have 
had enough government takeovers already, and I don't think they will 
stand for the Federal Government accessing one more facet of our lives. 
Although I respect my colleague from Connecticut and the other people 
on the other side of the aisle, this version of sham privacy would 
actually encourage a takeover of your finances behind your back or 
merely in the name of protecting us from ourselves. As I mentioned, 
one-third of this bill is devoted to snooping into records. This bill 
was supposed to be about regulating Wall Street. Instead, it is 
creating a Google Earth of your every financial transaction. That is 
right. The government will be able to see every detail from the 50,000-
foot perspective or they can look right down into the tiny details to 
the time and place where you pulled cash out of an ATM. The real kicker 
is, despite claiming the Dodd amendment creates privacy protection, it 
doesn't do anything to stop this snooping into individuals' lives.
  Yesterday, I read an article in the Philadelphia Enquirer from former 
Senator Rick Santorum, who is a former colleague of mine from 
Pennsylvania. In this article, he talks about the lack of reform of the 
housing markets and more specifically how the greatest contributors to 
the collapse of the housing market--the GSEs, Fannie Mae, and Freddie 
Mac--have gone untouched and unreformed in this bill. We had a 
discussion on that in the Budget Committee. We had a little amendment 
that would have made sure the liabilities of Fannie Mae and Freddie Mac 
would show up on the Federal financial statement because the Federal 
Government is liable for them. The answer was: Well, we can't take it 
off their balance sheet and put it on ours because that would make them 
look good. I said: Oh, no, no. You wouldn't take it off theirs. It 
would be a consolidated statement. It would show up on both of them. 
But what the Federal Government owes ought to be clear--not that we do 
good governmental accounting around here.

  This bill even leaves their $800 billion spending ability intact for 
Fannie Mae and Freddie Mac.
  So then Senator Santorum asked if Fannie and Freddie had gone 
untouched and this entire bill was meant to rein in Wall Street--``What 
is the 1,565-page''--looking at the printed copy on our desks--
``financial reform bill that's up for a vote this week in the Senate?''
  He says:

       My favorite among the bill's assaults on free enterprise--
     and, more important, individual liberty--is the proposed 
     Consumer Financial Protection Bureau. This latest concept to 
     come from the Obama administration's ivory tower types is not 
     your run-of-the-mill bureaucracy. The theory behind it is 
     behavioral regulation.
       Let's talk about that a little more. Behavioral regulation 
     is studying human behavior interactions and habits such as 
     how we spend our money, go about our daily lives, so humans 
     can be better governed, ruled, or controlled. You can pick 
     your verb, but no matter what, this ``behavioral regulation'' 
     sets up the government to interject and use its strong arm in 
     our daily financial transactions.

  To continue with the Senator's article, he says:

       The academic-turned-bureaucrat who came up with the bureau 
     is Assistant Treasury Secretary Michael Barr, who has penned 
     such articles as ``Behaviorally Informed Financial Services 
     Regulation.'' Wonder what might be in store? Think czar for 
     checking accounts and credit cards. According to Barr 
     himself, `` . . . regulatory choice ought to be analyzed 
     according to the market's stance towards human fallibility.'' 
     That's right: He thinks our market-based economy is composed 
     of businesses designed to bilk people by exploiting their 
     flaws. I assume his research shows that government 
     bureaucrats don't share that human fallibility.

  Let me say that again. He talks about business trying to bilk people, 
but evidently his research doesn't show that government bureaucrats 
would have that same potential flaw.
  Continuing:

       How would the Consumer Financial Protection Bureau come to 
     know you and what financial products are best for you? It 
     would be given the power to collect information on businesses 
     and individuals. It would even be able to require you--

  Now listen carefully to this--

       It would even be able to require you to answer questions 
     under oath about your personal finances.
       Barr and his nanny-state administration colleagues are 
     working to require that some banks ``geo-code'' deposits to 
     allow tracking of their origins and provide other information 
     about their accounts. Think Google Earth for all our personal 
     financial transactions. I hope the data are more secure than 
     the Department of Veterans Affairs.
       While the President has deceptively characterized this 
     debate as being about Wall Street vs. Main Street, 
     congressional Democrats have refused to police their side of 
     the street--Fannie and Freddie. Instead, they continue to 
     deny public opinion and push a bill that will further expand 
     government, invade our privacy, and assume even more control 
     over our lives.

  That is the end of the quote from former Senator Santorum.
  Think about this: The Federal Government would now be allowed to 
collect all kinds of financial data about consumers, not just about 
potentially deceptive practices or even shady Wall Street actions but, 
more specifically,

[[Page S4061]]

monitoring how we as consumers do our banking, how and why we purchase 
products, where and when we pull $20 out of the ATM. I ask you: How 
does this snooping into our daily personal lives protect consumers? 
This bill was sold to the public as a way to rein in Wall Street, but 
near as I can tell, this one section that we haven't talked much about 
is the perfect excuse for Big Brother to worm his way even further into 
our lives and our privacy.
  I now wish to read two paragraphs in the underlying bill. These 
paragraphs are from the misnamed ``Consumer Protection'' title X. On 
page 1,239, section 1022(c)(4)(b)--isn't that fascinating--it says:

       The Bureau may: (B) require persons to file with the 
     Bureau, under oath or otherwise, in such form and within such 
     reasonable period of time as the Bureau may prescribe, by 
     rule or order, annual or special reports, or answers in 
     writing to specific questions, furnishing such information as 
     the Bureau may require.

  The reference on that was section 1022(c)(4)(b), which in the printed 
copy is on a different page than the page I stated. It is closer to the 
beginning of the section.
  So the paragraph I just read says the bureau can gather and comb 
through your financial information ``as the Bureau may require.''
  Remember, I said they get to set their own rules. Nobody approves 
their rules. They do the enforcement. Nobody is over them in 
enforcement.
  So continuing on to the following paragraph (c), which is on page 
1,240 if you are looking on the computer:

       The Bureau may: Make public such information obtained by 
     the Bureau under this section, as is in the public interest 
     in reports or otherwise in the manner best suited for public 
     information and use.

  In case you missed the implications of this, I will spell it out 
further. Not only does the bureau have the power under this bill to 
make consumers testify under oath, the bureau could then publish any or 
all information they have gathered about consumers and publish or use 
this information as they see fit.
  In reality, this bill encourages consumers to rely on government to 
protect us from ourselves, from bad decisions we make, instead of 
empowering personal due diligence. We have the inherent freedom in this 
country to make choices and even the freedom to make bad choices. In 
America, that is the way it works, and that is how it is supposed to 
work.
  I went to an honor flight yesterday for Wyomingites who fought in 
World War II, to visit their memorial--it was very late in happening--
and all of them are over 80 years old. They are paying more attention 
than they ever have in my lifetime to what is going on in the Federal 
Government. They had questions about what is going on here. They said: 
You know, we didn't fight for that. We fought for freedom.
  This bureau may create some much needed protections for consumers, 
but it goes too far. Without my amendment, the bureau will be required 
to collect daily transactional financial services information on every 
consumer. The government would see every time you need money or buy 
anything online, if they want to.
  I offer another choice to my colleagues and the people of the United 
States. This choice allows consumers to let the bureau into their 
personal lives if they so choose. I am hoping that before this comes 
back from conference committee, they build privacy into section 10. 
They really need to. If there was going to be a managers' amendment, it 
wasn't going to have the privacy piece. But there is not going to be a 
managers' amendment now because we are limiting amendments because this 
is taking so long. There are 1,408 pages, and it ought to take a while 
to talk about this.
  I had a visit from the economic adviser of the President, Mr. 
Summers. I just talked about this section. He said: No, no, no, this 
will work like the FDA and OSHA.
  I know people aren't too pleased about OSHA, but I couldn't buy that 
argument because I am ranking member on the HELP Committee. OSHA is 
under us and FDA is under us. We know about oversight and who has 
control and who writes the regulations and who gets to oversee the 
regulations and, just as important, where they get their budget, the 
appropriations, the money to operate.
  Remember, I said this one is going to get 12 percent of the operating 
revenues of the Federal Reserve. That won't show up in the score 
because the Federal Reserve is over on the side. The amendment we had 
to have an audit of the Federal Reserve--which is probably long 
overdue--will show that. But it won't show up in the score because they 
are spending it before it comes into the Federal Government's budget. 
But it will reduce the amount of money that comes to the Federal 
Government. So it will add to the debt and the deficit.
  I think we ought to require this new bureau--new bureau? How many 
people do you think they will hire? In the health bill, we gave 
permission and I guess it is for IRS agents to look at who is buying 
insurance and who is not and whether they are buying the mandatory 
insurance, the mandatory minimum we put on there--we hired 16,000 IRS 
agents. That is where the growth is in the job market. It is still 
stagnant, but we are adding a lot of government employees--16,000 IRS 
agents--to see if you are buying the right kind of insurance or paying 
a fee if you don't.
  Well, that is minor in light of this one. We didn't even say how big 
this bureau could be. We didn't limit their money. We didn't say we 
would ever look at anything they do. I am sure we are going to have to 
because we are going to have people from all over this country yelling 
and screaming about somebody getting into their pockets.
  I urge my colleagues to consider the amendment I have offered when 
they get to conference committee. I am certain they are going to make a 
conference committee or I hope they have a conference. There are still 
problems in every single section, and maybe they can solve some of 
them.
  The way we do it now is we lay down a bill and say: This is the way 
it is going to be. If you want to make a little tweak, OK, but don't 
count on making any major changes.
  When Senator Kennedy and I worked on bills, we went through the 
committee process, and we looked at every amendment that came in, 
recognizing there was this seed of an idea there that maybe needed to 
be included in the bill. The whole thing might not work, but there 
ought to at least be a seed there because somebody thought of a way the 
bill ought to be improved.
  We have eliminated that this year. Now we are going to take it to the 
floor, and if you want to try to make an amendment, you can. But 
remember, we have the majority of the votes, and we will put a 60-vote 
threshold on it, which means neither side will be able to do many 
amendments, and that has been shown here. Immediately, we will complain 
about how much time has been taken to debate this bill. Let me tell 
you, a whole lot more time should have been taken to debate this bill, 
and more amendments should have been looked at with this bill. We might 
have made a unanimous consent that they all had to be relevant, but we 
should have considered the relevant ones and not gone off into 
different areas.
  A lot of people are complaining about this. They have looked at their 
part of the bill, and they know it is going to damage their business. 
That is why there was the amendment to fix things for the auto dealers. 
That is just one small part of people who do things on a series of 
payments. An orthodontist talked to us, and they do dental work over a 
period of time and take payments. I don't know if that will be possible 
anymore. We are not going to exempt anybody; we are not going to exempt 
any individual. They are all going to be required to pony up and show 
what they have, no matter how personal their finances are to them.
  I ask my colleagues and all Americans to think about what this 
amendment and underlying bill will do to their privacy. To my 
colleagues especially, your constituents will not stand for this 
invasion of privacy or these sham attempts at privacy. Do them a favor: 
let them make their own choices about who can get in their bank 
accounts and who can't.
  I don't very often get upset. But I am upset. I think I am just a 
reflection of the average person out there--the average person who 
might have looked through a little bit of this, and they can do that on 
the computer now--and they expect us to read it, and I expect a lot of 
people have not read title X. If

[[Page S4062]]

they did, I think they would be just as upset as I am--all 268 pages of 
it. A brandnew bureau, new bureaucracy, total autonomy, funded by the 
Federal Reserve, as I mentioned--12 percent of their operating 
revenues. Does anybody know how much that is? Again, they do that so it 
is off budget. The Federal Reserve will not have any control over this 
outfit. It is just under there for the purpose of the money.
  Here is another thing that fascinates me. If they have revenue left 
over at the end of the year, they get to invest it. It doesn't say we 
can look and see how much they have and how much they are investing and 
how much autonomy they have because of the money they banked. It 
doesn't say that if they have excess money one year, the amount they 
will get will be less the next year. No, they are guaranteed 12 percent 
the next year, plus inflation. I don't know how we write bills like 
that.
  They have the exclusive enforcement authority. They can coordinate 
examinations with other regulators, but they are the primary 
enforcement authority, not anybody who might have some oversight. They 
are the primary authority, and you will find that on page 1103 of the 
hard copy.
  Let's see. At first, when you are reading this section, you think 
this is just going to cover banks that have over $10 billion. That is 
page 1101. Then you think, I don't have very many banks over $10 
billion, and I am for small business anyway. So my community banks and 
credit unions are going to be OK. Then you get to page 1110, which says 
the rules cover everybody under $10 billion. Let's see. If it covers 
everybody over $10 billion and everybody under $10 billion, with my 
math, that is everybody. Everybody is going to be controlled by this 
new consumer protection bureau. It really ought to be called a consumer 
control bureau.
  Well, let's move to page 1139, the mortgage loan disclosure document. 
You are going to get another disclosure document now when you buy a 
house. We get to oversee the director, but that is the last oversight 
we get. He gets to hire anybody he wants. Then he gets--if he gets 
around to it--to write rules and regulations and make up a new mortgage 
loan disclosure document. You don't have any obligation to maintain 
personal records--1141. They are going to look at them, and you are 
going to want to answer when they do that.
  Page 1145 is going to provide a private education loan ombudsman. 
Normally, that sounds good. This would be somebody who straightens 
things out, I guess, with your loan operator or maybe even with the 
consumer protection bureau that will have all this control over you. 
Page 1146 says the ombudsman evaluates his own effectiveness annually. 
How zealous is he going to be?
  I have a whole list of things here I won't go into. My time is up. I 
should have asked for my whole hour under postcloture. Look at this 
bill, and you will be just as upset as I am.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Oregon is recognized.
  Mr. WYDEN. Mr. President, I rise to talk about a bipartisan amendment 
I have spent many weeks working on with Senator Brown of Massachusetts. 
It is an amendment dealing with a very crucial issue--a major gap in 
our system of financial regulation. It has been approved by Senator 
Shelby, the distinguished ranking Republican, and also by Senator Dodd. 
In fact, I think it is fair to say that if we can get a vote on it 
tonight, it would have enormous bipartisan support in the Senate.
  I am concerned that we won't get a vote on amendment No. 3982, and as 
a result it is very likely this bill will pass.
  After all the problems the country has seen with these large banks 
and large financial institutions, it still will be possible for a bank 
to sell a product to an institution or a consumer, bet against that 
product, and it will not be disclosed to the buyer. That is not right.
  What Senator Brown and I have been able to do, working with Senator 
Shelby's very capable staff and Senator Dodd's very capable staff, is 
we have been able to put together a bipartisan amendment--the new 
Senator from Massachusetts and myself--that would close this loophole, 
that would ensure there is at least simple, garden-variety, basic 
disclosure so that someone purchasing one of these financial products 
would know that the seller is actually betting against the product that 
is being sold to the consumer.
  If I were to sell you a financial product and without your knowledge 
placed a separate bet that the product would decline in value, there is 
no question in my mind that the distinguished Presiding Officer, the 
Senator from Illinois, would feel wronged by that transaction and 
everyone would say: Rightly so. If I stood to gain by convincing my 
clients to buy something that I knew would fail, they would have every 
reason to feel betrayed, to feel swindled, to feel they had been had.
  The fact is, some of these major financial institutions invented and 
sold incredibly complicated financial products that they actually were 
hoping would fail, and they hid their positions behind a wall of 
omission and complexity.
  I think it would surprise most Americans to learn that somehow this 
kind of mischievous--actually devious--business behavior was actually 
legal. The tragedy, of course, is it may be legal but it is certainly 
not right.
  At present, under current law and if this bill clears the Senate 
tonight in its current form, the major financial institutions, these 
Wall Street banks, would not be required to disclose an absolutely 
essential piece of information to a client, what, in my view, would be 
a material conflict of interest.
  From everything I have heard, the folks on Wall Street see these 
transactions in which a bank constructs and invests in a financial 
product that is designed to fail and then markets this product to those 
with an interest in its success as an honest transaction. Boy, I do not 
know of anybody at home in Oregon who sees something like this as 
honest or, in light of the recent hearings, fabulous.
  Senator Brown of Massachusetts and I said: We are going to get 
together on a bipartisan basis and do something about it. We put 
together an amendment, which I wish to point out to colleagues tonight 
is acceptable to Senator Shelby, is acceptable to Chairman Dodd. We are 
getting ready to vote on an amendment where we have bipartisan Senate 
sponsorship, we have the very constructive and very valuable input of 
Senator Shelby's staff, and we have Chairman Dodd's involvement. If we 
got it before a vote, we would have an overwhelming, bipartisan vote 
for a simple proposition that everybody can understand on the streets 
of Illinois, Oregon, or anywhere else, and that is, you ought to 
disclose when, in fact, you are selling a product that you are betting 
against.
  The disclosure of conflicts amendment I am describing, coauthored by 
Senator Brown of Massachusetts, would direct the new financial 
stability oversight council, which is established in the underlying 
bill, to put forward rules requiring banks to disclose to their clients 
whether they have a material conflict of interest with respect to a 
financial product they are selling. It comes down to a simple 
proposition: If these firms are willing to create and sell these 
products, they ought to stand behind them and be honest with their 
clients. It is a very short amendment.
  On Main Street, all across the country, everybody would understand 
what the bipartisan amendment that Senator Brown and I are offering--
disclosure. We are not saying we are going to ban all of these sales. 
Colleagues made a very compelling case, by the way, on going further 
than we do. But certainly there ought to be disclosure. We want to 
bring greater honesty and transparency to the relationship between 
buyers and sellers of complicated financial products.
  It is fair to say--and I surely consider myself a market-oriented 
Democrat. That is what I tried to do on health care and what I 
continued to try to do in a bipartisan proposal with Senator Gregg to 
fix our tax system--you cannot have functioning markets without honesty 
and transparency. Without it, we end up with a game that is rigged 
against the typical American investor and taxpayer.
  I also wish to express my appreciation to my new colleague from 
Massachusetts for working with me to advance this simple and 
straightforward

[[Page S4063]]

proposition. As I stated, I am very appreciative of Chairman Dodd and 
Senator Shelby and their counsel with respect to our bipartisan idea.
  I also want to make it clear that I do not see a problem with 
financial firms taking steps to manage their risks. In fact, I 
encourage it. If firms had done so in the early part of this decade, 
our economy might not have suffered in the meltdown we have seen in 
financial services.
  My concern--and I see the chairman of the full committee, Senator 
Dodd, in the Chamber--my concern from the very beginning, as Chairman 
Dodd has done his very good work on this legislation, is the opaque 
nature of these transactions. The fact is, it is so hard for the 
American people and the purchaser to understand what these transactions 
are all about, and certainly they ought to be given information when 
the person selling it is taking a very different financial position 
than the person who is buying.
  We ought to turn this curtain back on the current financial model and 
show it to the rest of the country. Let's pull the curtain back on the 
Wall Street business model and show it to the rest of the country.
  I have wracked my brain to try and find another industry that would 
bet against their own product while selling it to the American people. 
Does the person selling me a toy for the Wyden twins stand to make 
additional money if the toy breaks? Obviously not.
  Mr. President, I ask unanimous consent for 3 additional minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered. The 
Senator still has 30 seconds left on his original time.
  Mr. WYDEN. Mr. President, it is obvious that in no other part of the 
American economy do we have people betting against their own product 
while selling it to the American people. You do not see Apple creating 
the iPod in the hope that sales will be far below expectations and then 
going out and betting some of its own money on the failure. No 
industry--none--thinks of betting against their own product while 
selling it to the American people. I do not even think that owners of 
racehorses bet against their own ponies.
  The kind of disclosure that Senator Brown and I have called for is 
fundamental for investment confidence in the integrity of the U.S. 
financial system. If financial firms can market products they are 
betting will fail without disclosing that to their clients, the 
conditions that caused the current financial crisis, in my view, will 
be recreated with Wall Street firms packaging up toxic assets and 
marketing them as securities to unsuspecting buyers. ``Buyer beware'' 
will again become ``taxpayer beware.'' That should not be acceptable to 
any Senator.
  I know colleagues are waiting to speak. I repeat, amendment No. 3982, 
authored by Senator Brown of Massachusetts and myself, will fill a 
loophole in this bill that is going to be passed tonight that, in my 
view, is a glaring omission that does not meet the test of the consumer 
protection the American people deserve.
  This bill is clearing the Senate tonight without even minimal 
consumer protection, without even disclosure of financial institutions 
betting against products they are going to sell. That is not right. I 
hope we will return to this subject as soon as possible.
  I see Chairman Dodd on the floor. I thank him for the time he has 
given me in the course of this legislation. I commend him for all his 
efforts on this bill.
  I also thank Senator Shelby and his very able staff director, Mr. 
Duhnke, whom we know from our Intelligence work, for their support in 
putting together this amendment. I surely hope it will come out of 
conference because the American people deserve this kind of consumer 
protection and this kind of disclosure.
  I yield the floor.


                               Exemptions

  Mr. DODD. Mr. President, it is my understanding that one of the 
reasons for providing the Federal Reserve Board, and, eventually, the 
bureau, with authority to provide exemptions under paragraph (7) of 
this new section 129(l) of the Truth in Lending Act, is to allow the 
regulator to make adjustments to the points and fees cap with respect 
to smaller loans. I further understand that it is not the intent of the 
new section 129(l) to cover a streamline refinancing as provided by 
government programs such as FHA, and that the Board/bureau will 
establish appropriate guidelines for exemption. Is this view correct?
  Ms. SNOWE. Mr. President, I want to associate myself with the words 
of Chairman Dodd. There are a number of lenders in Maine that make 
smaller size loans. Because the points and fees cap in the Merkley-
Klobuchar amendment, which I supported, is based on a percentage of the 
principal amount of the loan, the points and fees cap established in 
the amendment may limit the ability of some lenders to make smaller-
size loans. As a result, like Senator Dodd, I assume that it is the 
Senator's intention that the regulator use the authority to make 
adjustments to the standards in the case of these smaller loans. Is 
this correct?
  Mr. MERKLEY. Mr. President, the points made by my colleagues from 
Maine and Connecticut are correct. The purpose of the amendment is to 
ensure that consumers are sold loans that they are able to repay. The 
authority granted to the agency to prescribe rules establishing other 
criteria--and to ``revise, add to, or subtract from'' the existing 
criteria--relating to the presumption of compliance is intended to 
allow the agency to craft criteria that would permit lenders who extend 
low-dollar loans to meet the presumption of compliance, while promoting 
fair pricing and sustainable lending. This is particularly important in 
rural areas and other areas where home values are lower.
  Mr. President, the gentleman is also correct in regard to streamline 
refinancing under rules of the FHA, the VA, and other government 
agencies. It is intended that the Federal Reserve Board, or the bureau, 
will exempt such loans under the exemption authority of paragraph 
(7)(A).
  Mr. DODD. I thank the Senator very much. I agree with the Senator.
  Mr. KOHL. Mr. President, I understand that it is not the intent of 
paragraph (6)(C) of this new section 129(l) of the Truth in Lending Act 
to include regular periodic mortgage insurance premiums that are paid 
after the closing date in meaning of ``points and fees payable in 
connection with the loan.''
  Mr. MERKLEY. The gentleman is correct that we would expect the 
Federal Reserve Board, and, in time, the bureau, to exempt any mortgage 
insurance premiums that are required to be paid after closing that 
might otherwise be covered, consistent with the exemption authority 
under paragraph (7)(A). Post-closing mortgage insurance premiums are 
distinct from points and fees charged at the time the loan is obtained, 
and those post-closing premiums are not contemplated to be covered 
under this section.
  Mr. KOHL. I thank the Senator very much. I agree with the Senator.


                        sc accredited investors

  Mr. BEGICH. Would the distinguished chairman of the Banking Committee 
yield for a question on provisions of the bill relating to SEC rules on 
``accredited investors.''
  Mr. DODD. I would be happy to yield for a question.
  Mr. BEGICH. Section 412 of the legislation requires the Securities 
and Exchange Commission to conduct a rulemaking to implement changes to 
the definition of ``accredited investor'' in regulation D, and other 
sections of the legislation will require the SEC to conduct other 
rulemaking to implement the new law. It is my understanding, and I 
believe the understanding of my colleague from Alaska, that the SEC has 
authority under existing law to amend the definitions of ``accredited 
investor'' in Regulation D and related SEC rules and ``qualified 
institutional buyer'' in rule 144A under the Securities Act of 1933, to 
expressly include Federal, State and local government bodies within 
those definitions. In fact, the SEC proposed to do so in 2007 but has 
not completed that rulemaking. Does the Senator from Connecticut concur 
that the SEC already has the authority to amend these definitions?
  Mr. DODD. The Senator from Alaska is correct. The SEC certainly has 
existing authority to add State and local governments to the 
definitions of ``accredited investor'' and ``qualified institutional 
buyer'' under its Securities Act rules.

[[Page S4064]]

  Ms. MURKOWSKI. Would the Senator from Connecticut yield for another 
question?
  Mr. DODD. I would be happy to yield for a question.
  Ms. MURKOWSKI. Our State--the great State of Alaska--believes that it 
would be appropriate and in the public interest and, in the interests 
of State and local governments across the Nation, for the SEC to add 
governmental entities to the definitions of ``accredited investor'' and 
``qualified institutional buyer'' when it promulgates rules pursuant to 
this legislation. The reasons for including governmental entities in 
these definitions are as sound today as they were 3 years ago. In 
particular, governments are large and sophisticated investors with 
professional treasury management staffs that manage large amounts of 
the government's own money and seek to invest in bonds and other 
securities investments in order to prudently diversify their investment 
portfolios and obtain a favorable return. Many of the most attractive 
investments are offered only in private placements to institutional 
investors conducted under regulation D or rule 144A. Without access to 
these investments, the government earns a lower return and has less 
diversification in its investments than would be optimal. Does the 
chairman agree with us that when the SEC promulgates its rules under 
this legislation, it should address, while taking care to ensure 
appropriate minimum asset protections are in place, the inclusion of 
State and local governments in the definitions of accredited investor 
and qualified institutional buyer?
  Mr. DODD. I believe it would be appropriate for the SEC to take the 
opportunity presented by the rulemakings under this legislation, to 
consider whether to include State and local government bodies within 
those definitions.


                              credit sales

  Ms. SNOWE. During the Senate's consideration of this legislation, I 
authored an amendment approved by voice vote to confirm that small 
business merchants and retailers would not be subject to regulation by 
the Consumer Financial Protection Bureau, CFPB, when they engage in 
credit sales. This amendment was supported by a number of key small 
business stakeholders, including the National Federation of Independent 
Business, IBNF, and the U.S. Chamber of Commerce. The amendment 
included a three-prong test that excludes such entities from the CFPB 
when they (1) only extend credit for the sale of nonfinancial goods and 
services; (2) retain the credit they have extended on their books; and 
(3) meet the relevant industry size threshold to be a small business, 
based on annual receipts, pursuant to the Small Business Act. It is my 
understanding that wholesale merchants and distributors and 
manufacturers would not generally need to avail themselves of that 
exclusion because their sales of nonfinancial goods and any related 
financing they may provide, are not to consumers in the first instance. 
Is this view correct?
  Mr. DODD. I believe point of the Senator from Maine is well taken. 
Wholesalers and manufacturers do not provide any products to consumers 
for their personal, family, or household use, let alone consumer 
financial products or services. Thus, wholesalers' and manufacturers' 
sales of nonfinancial goods to other businesses would be outside the 
bureau's jurisdiction.
  Mr. LEVIN. Mr. President, I would support the Feinstein amendment No. 
4113 to close the London loophole. Senator Feinstein and I and other 
colleagues have been working together for years to put a cop back on 
the beat in U.S. commodity markets, and it is a pleasure to be here 
today at the verge of Senate approval of a bill that has so many strong 
disclosure and regulatory provisions for commodity markets. The prices 
paid for energy commodities like oil, natural gas, jet fuel, diesel 
fuel, not to mention food commodities like wheat, corn and soybeans 
have a profound impact on our economy, our markets, and our way of 
life. They matter to consumers, business, and governments. For too 
long, our commodity markets have been out of control, with undisclosed 
trades in unregulated markets, wildly gyrating prices unconnected to 
market forces, and unconscionable profits for commodity traders 
operating outside the real economy. This bill will go a long way toward 
rectifying those problems, and I commend Senators Dodd, Reed, Lincoln, 
and so many others for their hard work.
  The amendment introduced by Senator Feinstein focuses on an area that 
has long concerned me and other observers of the commodity markets--the 
way that commodity traders living right here in the United States are 
using terminals located here to trade U.S. produced goods on foreign 
markets outside of U.S. regulatory control. I am talking, for example, 
about U.S. West Texas Intermediate crude oil traded on the ICE exchange 
in London. That oil is produced and used right here--it never leaves 
our shores--but U.S. traders are trading its oil futures in London--in 
part to duck U.S. position limits and other regulatory controls. Other 
countries are trying to set up similar exchanges and win permission for 
U.S. traders to trade on their foreign exchanges, affecting U.S. 
commodity prices, without those commodity traders ever leaving our 
soil.
  The bill as currently drafted takes a number of steps to get foreign 
boards of trade to enforce the same rules for U.S. commodities that we 
have here at home. But the bill fails to take one critical step that is 
essential to U.S. enforcement authority--it doesn't require foreign 
boards of trade to formally register with the Commodity Futures Trading 
Commission or CFTC, our watchdog agency for commodity markets, in order 
to obtain approval for their trading terminals to be physically located 
here in the United States. Most of the CFTC's enforcement authority 
applies only to entities that are registered with the Commission. Right 
now, foreign boards of trade don't have to register here before 
installing trading terminals here. That constituted regulatory evasion 
and defies common sense.
  I know my colleagues want a cop on the beat in all commodity markets 
where U.S. commodities are traded. And they want a cop that can enforce 
the law to prevent excessive speculation and market manipulation. That 
means we need to require foreign boards of trade seeking to locate 
trading terminals here in the United States to register with the CFTC. 
It is straightforward, it is simple, and it is essential. The CFTC has 
asked for this registration requirement, and I commend Senator 
Feinstein for her determination to get this done. I urge my colleagues 
to vote for this amendment to ensure U.S commodities are traded on fair 
and open commodity markets free of excessive speculation, manipulation, 
and deception.
  Mr. FEINGOLD. Mr. President, there were two amendments I supported 
during debate on the financial reform bill that would take steps to 
improve our Nation's housing policy. Unfortunately, only one of these 
amendments was adopted by the Senate. Senator McCain offered an 
amendment, that I supported, that would have required the Federal 
Government to end its conservatorship of Fannie Mae and Freddie Mac 2 
years after the financial reform bill was signed into law. While the 
amendment was not perfect, I supported it because neither the current 
structure of Fannie and Freddie nor the billions of taxpayer dollars 
that the Federal Government is using to prop up Fannie and Freddie are 
sustainable. Federal taxpayer support of Fannie and Freddie needs to 
end, and the McCain amendment would have provided a timetable for 
bringing that Federal support to an end.
  I was pleased that the Senate did adopt an amendment I supported, 
offered by Senator Merkley, to curb predatory lending practices 
throughout the Nation. These unconscionable predatory lending practices 
contributed to the subprime housing mess, and the Merkley amendment 
included commonsense provisions to address some of these practices. Too 
often, loan originators received higher compensation if they steered 
borrowers into subprime loans than if they had placed those borrowers 
into qualifying prime loans. The Merkley amendment would address this 
perverse financial incentive to put borrowers into predatory loan 
products by preventing loan originators from receiving payments based 
on the terms of loans. The amendment, which also includes stronger 
underwriting standards, provides sensible protections to Wisconsin's 
borrowers.

[[Page S4065]]

  Mr. KAUFMAN. Mr. President, I rise today, as I have many times this 
Congress, to talk about the role of fraud at the heart of the financial 
crisis.
  I have previously discussed the urgent need for law enforcement to 
give high priority to the investigation and prosecution of financial 
fraud, and for Congress to provide law enforcement with the tools it 
needs to do so, including increased funding and stiffer sentences.
  I was proud to work with Senator Leahy last year on the Fraud 
Enforcement and Recovery Act. I was proud to work again with Senator 
Leahy, as well as Senator Baucus, the leader, and many others to 
include key antifraud provisions in the health care legislation signed 
into law in March.
  Last month, I, along with the other members of the Permanent 
Subcommittee on Investigations, my Senate colleagues, and Americans 
watching at home, were treated to a truly revelatory series of hearings 
chaired by Senator Levin.
  Chairman Levin and his staff deserve high praise for their tenacity 
and diligence: Beginning in the fall of 2008 and culminating this 
spring, the chairman and his staff reviewed millions of pages of 
documents, conducted over 100 interviews, and consulted with dozens of 
experts.
  Thanks to the Levin hearings, we now have a thorough accounting of 
what happened--and what went wrong.
  Mortgage origination practices were rife with fraud, and bank 
management and bank regulators failed miserably in their oversight.
  The practice of mortgage securitization allowed everyone in the 
financial industry to earn lucrative fees and commissions, even though 
banks knew that these securitized mortgages were filled with liar's 
loans and other fraudulent products that practically guaranteed their 
eventual collapse.
  At all levels of the industry, compensation structures favored the 
riskiest loans and the most minimal oversight. As a result, 
underwriting standards were laughable. Banks didn't care that they were 
writing bad loans because they did not believe those loans would stay 
on their books.
  The regulators and ratings agencies were totally captured by the 
banks, due in part to their absolute dependence on the banks for 
revenue. The Office of Thrift Supervision relied on Washington Mutual 
for 12-15 percent of its operating budget.
  The credit ratings agencies gamed by investment banks, which had 
reverse engineered their models--bent over backwards to stamp AAA and 
other investment grade ratings on what was actually junk because they 
needed the fees.
  Investment banks marketed synthetic CDOs, which they had permitted 
the ``big shorts'' to design so that they were most likely to fail, in 
some cases without disclosing that material information to their 
customers and despite their own inherent conflict of interest.
  As long as the music played, there was plenty of money to go around. 
But when the music stopped, banks were bailed out and the American 
taxpayers were left without a chair.
  Fixing the system requires an all out effort by the bank regulators, 
the FBI, the SEC, and the Justice Department. And Congress should not 
rest until in its oversight capacity we are convinced that a systemic, 
strategic and foundational approach to targeting and prosecuting fraud 
is well funded and well underway.
  Bank regulators, especially, must execute a 180-degree cultural turn, 
assisting the FBI by providing roadmaps to the fraud that has occurred.
  But we still need to do far more than just add more cops to the beat 
and ensure that they're looking in all the right places. We also need 
to realign incentives so that banks are encouraged to make sound loans, 
so that credit ratings agencies can dispense untainted evaluations of 
creditworthiness, and so regulators aren't beholden to those they 
regulate.
  That is why I am proud to support Senator Levin's package of 
amendments. Each of the eight proposals in the package grows directly 
out of lessons learned through the Levin hearings.
  The Levin-Kafuman package will restore regulatory independence by 
instituting a cooling off period for regulators--putting a stop to the 
revolving door between industry and regulator. The amendment will also 
guarantee that the FDIC as secondary regulator can never again be shut 
out of an examination by the primary regulator.
  To realign bankers' incentives, the Levin-Kaufman package will 
require that anybody who securitizes a pool of loans must maintain at 
least a 5-percent stake in a representative sampling of those 
securities. Other risky lending practices would be banned outright, 
such as synthetic asset-backed securities, which have no purpose other 
than speculation.
  Finally, the package will improve oversight and operation of the 
credit ratings agencies by prohibiting them from relying on faulty due 
diligence and by permitting the SEC to monitor and regulate the 
methodologies that the ratings agencies employ.
  The Levin hearings also set in stark relief the untenable conflicts 
that rest at the heart of our financial system.
  The Levin hearings focused on the residential housing market. But 
conflicts of interest permeate almost every corner of our capital 
markets, whether in the context of asset backed securities, or 
proprietary trading, or a broker selling private order flow into a 
private dark pool, or the prioritization of trades by a broker ahead of 
its clients.
  We simply cannot leave it to the banks and the brokers to manage 
conflicts of interest in any way they see fit. If we can learn one 
thing from the financial crisis, surely, it is that.
  Under current law, broker-dealers are not required to disclose 
conflicts of interest to their clients. They are not required to 
resolve conflicts in favor of their clients. They are not required to 
act in the best interests of their clients.
  In fact, they are permitted to knowingly fleece their clients, 
provided the client is ``sophisticated'' enough and provided the broker 
has disclosed the requisite information about the product.
  This must change. We can't expect a full economic recovery without 
restoring the public's trust in markets. This is why I support, and 
have cosponsored, two amendments that would impose a fiduciary duty on 
the part of broker-dealers to their customers, one sponsored by Senator 
Specter and the other by Senator Akaka.
  Imposing such a duty would protect investors and improve the level of 
integrity in our capital markets. No longer would brokers like Goldman 
Sachs be able to withhold critical information about its conduct from 
clients and conceal fraud under the cover of caveat emptor.
  Just as important, it would help address the widespread and 
understandable mistrust of the securitization process, which in turn 
makes capital more expensive and hinders recovery.
  I also support Senator Specter's aiding and abetting amendment, which 
would reinstate an important deterrent to the sorts of fraud that 
contributed to our current financial crisis.
  On March 15, 2010, I came to the Senate floor to discuss the 
Bankruptcy Examiner's report on Lehman Brothers and said--as many of us 
have suspected all along--that there was fraud at the heart of the 
financial crisis.
  Lehman Brothers could not have accomplished this apparent fraud--the 
use of so-called Repo 105 transactions to ``window dress'' its balance 
sheet and mislead investors--without the help of its accounting firm.
  And that is true of many sophisticated fraud schemes, where the 
advice or analysis of third parties enables or facilitates the fraud.
  Those third parties were answerable to their victims in court, and 
therefore faced a real deterrent, at least until 1994. That year, in 
Central Bank of Denver v. First Interstate Bank of Denver, a divided 
Supreme Court rejected years of settled precedent and limited Federal 
law in this area to so-called ``primary violators.'' The Central Bank 
decision, like many others since, reflected the Court's probusiness 
bias. It also left the SEC alone to bring civil suits against aiders 
and abettors, and too often left victims holding the bag.
  Regulators will fail. When they do, however, we must depend on 
professionals such as accountants and lawyers to acquit their roles as 
gatekeepers against accounting fraud, not to materially aid that fraud. 
One way

[[Page S4066]]

to make sure they learn their lesson this time around is to reinstitute 
the ability of victims to seek compensation from these fraud 
facilitators.
  Senator Specter and I have worked hard to make sure that this 
amendment is narrowly drawn, ensuring that only truly culpable third 
parties are subject to liability.
  The amendment allows suits only against those who have actual 
knowledge that their conduct is assisting another person to violate the 
Federal securities laws.
  Until those who facilitate the fraud of others understand that they 
will be held accountable, whether criminally or civilly, we can't hope 
to change their behavior.
  Finally, I want to mention a bipartisan package of antifraud measures 
that I have worked on with Chairman Leahy and Senators Grassley and 
Specter.
  These measures will deter schemes that damage the economy and hurt 
hard-working Americans by increasing sentences for securities fraud and 
bank fraud. They will give prosecutors new tools to investigate and 
prosecute fraud cases and will foster vital cooperation between 
regulators and prosecutors. And they will extend important 
whistleblower protections.
  Whistleblowers provide a vital early warning system to detect and 
expose fraud in the financial system. With the right protections, 
whistleblowers can help root out the kinds of massive Wall Street fraud 
that contributed to the current financial crisis.
  As I have said before, this is ultimately a test of whether we have 
one justice system in this country or two. For our citizens to have 
faith in the rule of law, we must treat fraud on Wall Street like we 
treat fraud on Main Street. And for our economy to work for all 
Americans, investors must have faith in the honest and open functioning 
of our financial markets.
  The amendments I have discussed today will promote both the rule of 
law and faith in the markets two cornerstones of our democracy.
  I urge my colleagues to support these amendments.
  Mr. President, today I will support the Wall Street Reform Act.
  I applaud Chairman Chris Dodd and my colleagues for having crafted a 
bill that includes many provisions that I support, in particular the 
establishment of a consumer finance protection division and urgently 
needed reforms of the over-the-counter derivatives markets. These are 
legislative achievements that will significantly improve our financial 
system. I am also pleased that the bill bans stated income loans, which 
were a major source of fraud at the root of the crisis. I will be 
watching carefully to ensure the bill is not weakened in conference.
  I remain deeply concerned, however, that when it comes to the 
stability and health of the U.S. financial markets and its 
institutions, much unfinished business remains. We must never rest in 
our efforts to prevent another financial crisis like that which 
occurred in 2007-08, which shattered the American economy and deeply 
harmed the lives of millions of our fellow Americans. Indeed, much work 
remains to be done so that we can restore the credibility of our 
financial markets and the rule of law on Wall Street, both of which are 
badly in need of repair.
  Some of my concerns are rooted in shortcomings of the bill; others 
neither fell within the scope of the bill's ambitions nor were a part 
of the Senate debate; and still others fall legitimately on the 
shoulders of our regulatory and law enforcement agencies.
  As for the bill, for the past 4 months I have addressed at length 
what I believe to be the central issue to preventing future financial 
crises: Passing laws that will stand for generations to ensure 
financial stability by separating speculative risky activities from the 
government-guaranteed portion of our financial industry, as well as by 
mandating limits on the size and leverage of our shadow banks.
  Instead, the bill reshuffles existing regulatory powers that banking 
regulators already possessed--and failed to exercise in ways that would 
have prevented the financial crisis. It relies on regulatory discretion 
to decide limits on the size, leverage and activities of dangerously 
concentrated financial institutions. Rather than statutorily limit the 
size and risk of megabanks through limits on unstable nondeposit 
liabilities, rather than statutorily impose specific and higher 
leverage requirements on our largest banks, the bill simply hands the 
responsibility for regulating ``too big to fail'' banks back to the 
regulators. Moreover, it vests the hopes of the American taxpayers--who 
should never again be forced to step into the breach in a banking 
crisis--in a resolution authority limited by U.S. law, which I fear 
cannot possibly work to resolve large global institutions. I remain 
deeply concerned that it does not represent lasting and effective 
reform of our largest financial institutions, which I have said 
repeatedly have become too big to manage, too big to regulate and too 
big to fail.
  In the next few years, chastened U.S. regulators may try their best 
to insist that U.S. megabanks not gorge themselves again on highly 
leveraged risky investments. But one need only look to Europe today to 
understand that, without additional preventive measures, bailouts lie 
in our future, too.
  I predict Congress will one day revisit these issues, unfortunately 
in the wake of a future crisis in which average Americans again will be 
forced to come to Wall Street's rescue to fend off a possible 
depression. When that day arrives, Congress I expect will pass needed 
structural reforms, including a version of the Brown-Kaufman amendment 
preemptively to address the problem of dangerous financial 
concentration--and also a restoration of the Glass-Steagall separation 
of commercial and investment banking activities, the repeal of which in 
1999 was one of this country's costliest mistakes.
  There are other issues that this debate never addressed.
  Naked Short Selling--We still have not restored the uptick rule, 
which worked for 70 years as a systemic check on predatory bear raids. 
We still have an unenforceable rule that fails to prevent naked short 
selling of stocks. I remain concerned that until we impose a pre-trade 
``hard locate'' requirement, bank stocks in particular will remain 
vulnerable to predatory bear raids.
  Market Structure issues--High frequency trading has echoes of the 
derivatives market: I have said repeatedly that whenever you have a lot 
of money pouring into a financial activity, markets that are changing 
dramatically, no transparency in those dark markets, and therefore no 
effective regulation, that is a prescription for disaster. That was the 
case in the over-the-counter derivatives market. And I believe the so-
called flash crash of May 6 in our stock market revealed the fault 
lines that have long concerned me about the structure of our equity 
markets and how it has come to be dominated by high frequency traders. 
Congress cannot simply look backward at the last financial crisis; 
Congress and regulators alike must instead try also to look over the 
horizon and identify systemic risks before they occur.
  As I wrote to the SEC on August 21, 2009, ``The current market 
structure appears to be a consequence of regulatory structures designed 
to increase efficiency and thereby provide the greatest benefits to the 
highest volume traders. The implications of the current system for buy-
and-hold investors have not been the subject of a thorough analysis.'' 
Nine months later, our stock markets failed for 20 minutes to meet 
their essential function: discover the prices of securities by 
balancing buyers and sellers. Two weeks later, the SEC and CFTC still 
cannot say why, but the answer is no doubt wrapped up in the fact that 
in the past few years technology developments have moved us rapidly 
from an investor's to a trader's market. Our fragmented market of more 
than 50 market centers have become dominated by black-box algorithmic 
and high-frequency traders, and they are too opaque for our regulators 
to understand or to police.
  Fannie Mae and Freddie Mac--My Republican colleagues are correct in 
pointing out that we must deal with the problems of Fannie Mae and 
Freddie Mac, which continue to siphon off billions in taxpayer funds. 
It is wrong and irresponsible to offer rash and unwise solutions, 
however. Almost all mortgage originations currently receive government 
support, whether from Fannie Mae or Freddie Mac or from the FHA. Lest 
there be any confusion, without this government backstop, our housing 
system and economy

[[Page S4067]]

could have collapsed. Solving these problems and developing a new 
mortgage finance system will take a great deal of thoughtful 
consideration, and I urge the Congress to begin this important work.
  Finally, and perhaps of most concern, we simply must concentrate the 
needed resources and effort that will return the rule of law to Wall 
Street. The hearings of the Permanent Subcommittee on Investigations, 
chaired by Senator Carl Levin and in which I was proud to participate, 
revealed that the U.S. real estate boom was fueled in part by pervasive 
fraud within the mortgage-securitization-derivatives complex 
effectively at the heart of Wall Street. Congress in its oversight 
capacity must ensure that bank regulators, the Federal Bureau of 
Investigation, the Securities and Exchange Commission and the Justice 
Department are working together in a foundational, strategic, and 
coordinated fashion to ensure that every last perpetrator of fraud--
from the smallest mortgage broker to the senior-most executives of our 
most powerful Wall Street institutions--is thoroughly investigated and, 
where appropriate, brought to justice.
  Mr. KERRY. Mr. President, in order to protect the economic health of 
our Nation and the security of the financial system on which it 
depends, I will support the financial reform legislation before the 
Senate today. I want to thank Majority Leader Reid and Senate Banking 
Committee Chairman Dodd for their efforts to bring to the floor 
legislation that is so critical to our Nation's prosperity.
  Over the past decade, the greed on Wall Street has destroyed millions 
of jobs and wiped out the life savings of too many Americans. That 
greed turned our Nation's financial markets into a casino where 
fairness and full disclosure were lost in complexity of riskier and 
more lucrative new financial products. Unfortunately, even those 
running the casino didn't understand the dangerous hand they were 
dealing to unsuspecting consumers.
  As a result, American taxpayers had to bail out the big financial 
companies that made the mess. It didn't seem fair and nobody liked it, 
except those getting the bail out. But it had to be done in order to 
stop the economy from going over the cliff not just ours but the whole 
global economy.
  It all started in 2008 with the Federal Government stepping in to 
prevent financial institutions, investment banks, mortgage providers, 
and insurance companies from going under. Even though these steps were 
necessary, they certainly reinforced the view of many Americans that 
bad behavior was being rewarded with taxpayer bailouts.
  The experience made it clear that Congress needs to update our 
outdated financial regulatory scheme and reestablish transparency, 
fairness and long-term stability to our financial system.
  We have an obligation to restore responsibility and accountability to 
our financial system to insure this never happens again. We have got no 
choice. Strong medicine is needed to avoid a future economic 
catastrophe.
  I believe this critical legislation will reign in Wall Street, create 
jobs on Main Street, and protect consumers from fraud and abuse. It 
also will help restore confidence in our capital markets and our 
financial institutions.
  We have to make sure that taxpayers never again pick up this tab. And 
this bill does just that.
  Under this legislation, firms that are supposedly ``too big to fail'' 
can be shut down and liquidated before their systemic failure endangers 
our financial markets. No more taxpayer bailouts that increase our 
Federal debt.
  The Financial Reform Act creates the Federal Stability Oversight 
Council to identify and address systemic risks posed by large, complex 
companies, products, and activities before they threaten the stability 
of the economy. It also imposes new capital and leverage requirements 
that make it more difficult for financial companies to become ``too big 
to fail''. It will require such companies to periodically submit so 
called ``funeral plans'' for their rapid and orderly shutdown should 
they fail. And those who fail to submit acceptable plans will be 
subject to higher capital requirements as well as restrictions on 
growth and activity.
  A critical part of this legislation deals with the costs of future 
bank failures. There is no rationale for banks to continue gambling 
with taxpayer-backed funds in the stock market or anywhere else. I am 
pleased the bill includes a recommendation from the Obama 
administration, called ``the Volcker rule'' after the former Federal 
Reserve Bank Chair and current National Economic Recovery Advisory 
Board Chairman, Paul Volcker. The Volcker rule will stop financial 
institutions from using their assets to invest in the stock market or 
engage in privately owned trading operations, unrelated to serving 
customers for its own profit. Banks can once again focus on lending, 
especially to small businesses, which is why they receive special 
access to the Federal Reserve in the first place.
  Some of the things that have happened on Wall Street are 
unbelievable. For example, the Securities and Exchange Commission 
alleges that that Goldman Sachs worked with a third party, Paulsen and 
Company, to select pools of subprime mortgages sold the securities to 
investors without telling them they were designed to fail. Then both 
Goldman Sachs and Paulsen bet against those securities. How can that be 
fair?
  Over the past decade, irresponsible lending, irresponsible borrowing 
and a lack of basic oversight and effective regulation put millions of 
families in homes they could not afford. Too many Americans took 
unreasonable risks to buy a home when markets were booming. Too many 
financial institutions lowered their lending standards but didn't plan 
appropriately for increased risk. At the same time, some borrowers 
inflated their incomes and misrepresented themselves in order to buy 
expensive homes that they could not afford.
  The damage has been staggering. Millions of homeowners are facing 
foreclosure. The loans financing these homes are now frozen on the 
balance sheets of banks and other financial institutions, preventing 
them from providing new loans. Today we are living with the 
consequences: an economy teetering on the edge.
  One of the most importation provisions of this legislation sets up a 
new independent Consumer Financial Protection Bureau to protect 
consumers from unfair, deceptive and abusive financial products and 
practices. The goal of the new bureau is to insure that when families 
apply for a mortgage, a bank loan or other complicated financial 
products, they will also receive clear information that they need to 
make the best decision possible. With a watchdog in place, families 
will be less likely to enter into mortgages they don't understand or be 
a victim of unfair and deceptive loan practices. It will increase 
fairness and help reduce the casino atmosphere of too many financial 
products.
  Another crucial ingredient in today's crisis is the use of complex 
financial derivatives. Warren Buffett has called them `` financial 
weapons of mass destruction, carrying dangers that, while now latent, 
are potentially lethal.''
  These complex financial maneuvers hidden from the view of most 
Americans have quietly become a crucial part of managing risk in our 
economy. In May, the Bank for International Settlements estimated that 
the total value of derivative contracts was approximately $600 
trillion. To put this speculation in context--that's 200 times larger 
than the Federal budget.
  Derivatives are essentially bets on future economic behavior: 
financial contracts which can gain or lose value as the price of some 
underlying commodity, financial indicator or other variable changes. 
Unfortunately their rise to prominence in our economy was not matched 
with an increase in regulation or transparency.
  The legislation gives the SEC and CFTC the authority to regulate 
over-the-counter derivatives to stop irresponsible practices and 
excessive risk-taking. It requires central clearing and exchange 
trading for derivatives that can be cleared. It requires margin for 
uncleared trades in order to offset the greater risk they pose to the 
financial system and encourage more trading to take place in 
transparent, regulated markets. It increases data collection and 
publication through clearing houses or swap repositories to improve 
market transparency and provide regulators important tools for 
monitoring and responding to risks.
  When you add it all up, the financial crisis is a result of failures 
over the

[[Page S4068]]

past generation to provide appropriate regulation and supervision of 
the financial services industry. During the Bush administration, 
however, what was effectively a trend toward deregulation turned into a 
stampede.
  We have an obligation to prevent another stampede. We have an 
obligation to restore responsibility and accountability to our 
financial system. We have an obligation to make sure America's 
taxpayers are not left with the casino's bill.
  So I urge my colleagues to support this financial reform legislation 
because it will protect the continued health of our economy. It will 
revamp our regulatory practices, fix the derivatives market, and 
provide liquidity for small businesses and families looking to buy a 
home. More importantly, it will rebuild the trust that the American 
people have lost in our financial system.
  Mr. LEAHY. Mr. President, I strongly support the reform bill before 
us, S. 3217, the Restoring American Financial Stability Act of 2010.
  I commend Banking Committee Chairman Christopher Dodd and Majority 
Leader Harry Reid for shepherding this significant piece of legislation 
through the Senate. Getting to this point was no small feat given the 
near-unanimous opposition to Wall Street reform that this effort has 
encountered from the other side of the aisle. But Senators Dodd and 
Reid persevered because they know that fixing our troubled financial 
system is absolutely, unequivocally in the best interests of our 
country and its citizens.
  The recent financial crisis revealed several flaws in our current 
regulatory system. Many large Wall Street investment banks and 
insurance companies hid their shaky finances from stockholders and 
government regulators. Corporate executives saw their salaries rise to 
extreme heights, even as their companies were failing and seeking 
government assistance. Through it all, federal regulatory agencies 
failed to provide the necessary oversight to rein in reckless actions. 
If this crisis has taught us anything, it is that the look-the-other 
way, hands-off deregulatory policies that were in vogue in recent times 
can jeopardize not only private investments, but our entire economy.
  The bill we are voting on today goes directly at the heart of the 
Wall Street excesses that brought our economy to the brink. For far too 
long Wall Street firms made risky bets in the dark and reaped enormous 
profits. Then, when their bets went sour, they turned to America's 
taxpayers to bail them out. This bill is about changing the culture of 
rampant Wall Street speculation and doing what needs to be done to get 
our economy back on track. We need more transparency and oversight of 
Wall Street, and this legislation finally will allow regulators to go 
after the fraud, manipulation, and excessive speculation on Wall 
Street.
  As chairman of the Senate Judiciary Committee, I am particularly 
pleased that the bill includes provisions I authored to ensure law 
enforcement and federal agencies have the necessary tools to 
investigate and uncover financial crimes; to protect whistleblowers who 
help uncover these crimes; and to introduce true transparency and 
sunshine into the complex operations of large financial institutions 
and the federal agencies that regulate them.
  Another major step forward is the derivatives section of the bill, 
which was authored by the Agriculture Committee on which I serve. These 
reforms will finally bring the $600 trillion derivatives market out of 
the dark and into the light of day, ending the days of backroom deals 
that put our entire economy at risk. The narrow end-user exemption in 
the bill will allow legitimate commercial interests, such as electric 
cooperatives and heating oil dealers, to continue hedging their 
business risks, but it will stop Wall Street traders from artificially 
driving up prices of heating oil, gasoline, diesel fuel and other 
commodities through unchecked speculation.
  The bill also includes an amendment by Senator Dick Durbin that I 
supported to protect our small businesses from complicated predatory 
rules that big credit card companies impose on Vermont grocers and 
convenience stores. The Durbin amendment will ensure that a small 
business will be able to advertise a discount for paying cash, or for 
using one card instead of another. I do not want Vermonters to pay more 
for a gallon of milk just because the credit card companies are 
demanding a high fee on small transactions and are not allowing the 
grocer to ask for cash instead of credit.
  I am also pleased that the bill includes an amendment I cosponsored 
with Senator Bernie Sanders to shine more sunshine on the bailout 
transactions made by the Federal Reserve. Under the Sanders amendment, 
the Government Accountability Office will conduct a one-time audit of 
all of the emergency actions the Federal Reserve has taken since the 
financial crisis began, to determine whether there were any conflicts 
of interest surrounding the Federal Reserve's emergency activities. It 
is time we know more about the closed-door decisions made by the 
Federal Reserve throughout this financial crisis.
  The Senate has before it today a bill that will reign in Wall Street 
abuses, end government bailouts, and give everyday Americans the 
consumer protection they deserve and expect. I believe that cleaning up 
these Wall Street abuses will help build confidence in our economy and 
continue our progress toward economic recovery.
  Mr. AKAKA. Mr. President, I strongly support the Wall Street reform 
bill. The chairman of the Banking Committee, my friend from 
Connecticut, has done such tremendous work on this historic 
legislation. Senator Dodd has worked with me and other members to 
create a bill that will better educate, protect, and empower consumers 
and investors. I am extremely proud of this legislation and appreciate 
the willingness of the chairman to work to address so many issues 
important to working families.
  Education is a primary component of financial literacy. In this bill, 
we create an Office of Financial Literacy within the Consumer Financial 
Protection Bureau. The Office will develop and implement initiatives to 
educate and empower consumers. A strategy to improve the financial 
literacy among consumers, that includes measurable goals and 
benchmarks, must be developed.
  The Administrator of the bureau will serve as vice chairman of the 
Financial Literacy and Education Commission to ensure meaningful 
participation in Federal efforts intended to help educate, protect, and 
empower working families.
  The legislation also requires a financial literacy study to be 
conducted by the Securities and Exchange Commission, SEC. The SEC will 
be required to develop an investor financial literacy strategy intended 
to bring about positive behavioral change among investors.
  This legislation provides essential consumer and investor protections 
for working families. It establishes a regulatory structure that will 
have a greater emphasis on investor and consumer protections. 
Regulators failed to protect consumers and that contributed 
significantly to the financial crisis. Prospective homebuyers were 
steered into mortgage products that had risks and costs that they could 
not understand or afford. The Consumer Financial Protection Bureau will 
be empowered to restrict predatory financial products and unfair 
business practices in order to prevent unscrupulous financial services 
providers from taking advantage of consumers.
  I take great pride in my contributions to the investor protection 
portion of the legislation. Section 914 will strengthen the ability of 
the SEC to better represent the interests of retail investors by 
creating an Investor Advocate within the SEC. The Investor Advocate is 
tasked with assisting retail investors to resolve significant problems 
with the SEC or the self-regulatory organizations, SROs. The Investor 
Advocate's mission includes identifying areas where investors would 
benefit from changes in Commission or SRO policies and problems that 
investors have with financial service providers and investment 
products. The Investor Advocate will recommend policy changes to the 
Commission and Congress on behalf of investors.
  The SEC's existing Office of Investor Education and Advocacy provides 
a variety of services and tools to address the problems and questions 
that confront investors. The Office posts information to warn people 
about scams, compiles complaints, and provides help for people seeking 
to recover funds.

[[Page S4069]]

  The proposed Office of the Investor Advocate will be a very different 
office. The Investor Advocate is precisely the kind of external check, 
with independent reporting lines and independently determined 
compensation, that cannot be provided within the current structure of 
the SEC. It is not that the SEC does not advocate on behalf of 
investors, it is that it does not have a structure by which any 
meaningful self-evaluation can be conducted. This would be an entirely 
new function. The Investor Advocate would help to ensure that the 
interests of retail investors are built into rulemaking proposals from 
the outset and that agency priorities reflect the issues confronting 
investors. The Investor Advocate will act as the chief ombudsman for 
retail investors and increase transparency and accountability at the 
SEC. The Investor Advocate will be best equipped to act in response to 
feedback from investors and potentially avoid situations such as the 
mishandling of information that could have exposed Ponzi schemes much 
earlier.
  Organizations in support of section 914 include the Consumer 
Federation of America, CFP Board of Standards, Inc., Consumer Action, 
Consumer Assistance Council, Consumers for Auto Reliability and Safety, 
Community Reinvestment Association of North Carolina, Financial 
Planning Association, Fund Democracy, International Brotherhood of 
Teamsters, Massachusetts Consumers' Council, National Association of 
Consumer Advocates, National Consumers League, New Jersey Citizen 
Action, North American Securities Administrators Association, Oregon 
Consumer League, Sargent Shriver Center on Poverty Law, and Virginia 
Citizens Consumer Council.
  I also worked to include in the legislation clarified authority for 
the SEC to effectively require disclosures prior to the sale of 
financial products and services. Working families rely on their mutual 
fund investments and other financial products to pay for their 
children's education, prepare for retirement, and be better able to 
attain other financial goals. This provision will ensure that working 
families have the relevant and useful information they need when they 
are making decisions that determine their financial future.
  This legislation also includes important protections for remittance 
transactions. Working families often send substantial portions of their 
earnings to family members living abroad. In Hawaii, many of my 
constituents remit money to their family members living in the 
Philippines. Consumers can have serious problems with their remittance 
transactions, such as being overcharged or not having their money reach 
the intended recipient. Remittances are not currently regulated under 
Federal law, and State laws provide inadequate consumer protections.
  The bill will modify the Electronic Fund Transfer Act to establish 
consumer protections. It will require simple disclosures about the cost 
of sending remittances to be provided to the consumer prior to and 
after the transaction. A complaint and error resolution process for 
remittance transactions would be established.
  This legislation also includes essential economic empowerment 
opportunities for working families. Title XII is the most important 
economic empowerment provision in the bill. I appreciate the efforts of 
Senator Kohl in helping me put this title together. I appreciate the 
support and contributions made to this title provided Senators Schumer, 
Brown, Merkley, and Menendez. I appreciated the work done by Chairman 
Dodd to include this amendment at the committee mark up.
  I grew up in a family that did not have a bank account. My parents 
kept their money in a box divided into different sections so that money 
could be separated for various purposes. Church donations were kept in 
one part. Money for clothes was kept in another and there was a portion 
of the box reserved for food expenses. When there was no longer any 
money in the food section, we did not eat. Obviously, money in the box 
was not earning interest. It was not secure.
  I know personally the challenges that are presented to families 
unable to save or borrow when they need small loans to pay for 
unexpected expenses. Unexpected medical expenses or a car repair bill 
may require small loans to help working families overcome these 
obstacles.
  Mainstream financial institutions are a vital component to economic 
empowerment. Unbanked or underbanked families need access to credit 
unions and banks and they need to be able to borrow on affordable 
terms. Banks and credit unions provide alternatives to high-cost and 
often predatory fringe financial service providers such as check 
cashers and payday lenders. Unfortunately, approximately one in four 
families are unbanked or underbanked.
  Many of the unbanked and underbanked are low- and moderate-income 
families that cannot afford to have their earnings diminished by 
reliance on these high-cost and often predatory financial services. 
Unbanked families are unable to save securely for education expenses, a 
down payment on a first home, or other future financial needs. 
Underbanked consumers rely on non-traditional forms of credit that 
often have extraordinarily high interest rates. Regular checking 
accounts may be too expensive for some consumers unable to maintain 
minimum balances or afford monthly fees. Poor credit histories may also 
limit their ability to open accounts. Cultural differences or language 
barriers also present challenges that can hinder the ability of 
consumers to access financial services. I also want to clarify that in 
section 1204, small dollar-value loans and financial education and 
counseling relating to conducting transactions in and managing accounts 
are only examples of, and not limitations on, eligible activities.
  More must be done to promote product development, outreach, and 
financial education opportunities intended to empower consumers. Title 
XII authorizes programs intended to assist low- and moderate-income 
individuals establish bank or credit union accounts and encourage 
greater use of mainstream financial services. It will also encourage 
the development of small, affordable loans as an alternative to more 
costly payday loans.
  There is a great need for working families to have access to 
affordable small loans. This legislation would encourage banks and 
credit unions to develop consumer friendly payday loan alternatives. 
Consumers who apply for these loans would be provided with financial 
literacy and educational opportunities.
  The National Credit Union Administration has provided assistance to 
develop these small consumer-friendly loans. Windward Community Credit 
Union in Hawaii implemented a very successful program for the U.S. 
Marines and other community members in need of affordable short term 
credit. More working families need access to affordable small loans. 
This program will encourage mainstream financial service providers to 
develop affordable small loan products.
  I am proud of the work we have done on this legislation. However, 
there is one issue that still has not been resolved. There is one 
provision in the legislation that needs to be changed. Section 913, 
contains a study and rulemaking regarding obligations of brokers, 
dealers, and investment advisers. This study is unnecessary. The 
section does not provide the authority needed by the Securities and 
Exchange Commission to effectively protect investors. The decisions 
that the heads of households make with their investment choices 
determine their future financial condition. Investment professionals 
that provide personalized advice can significantly influence investor 
decisions.
  Imposing a fiduciary duty on brokers, when giving personalized 
investment advice is necessary because it will ensure that all 
financial professionals, whether they are an investment advisor or a 
broker, have the same duty to act in the best interests of their 
clients. Investors must be able to trust that their broker is acting in 
their best interest.
  Unfortunately, too many investors do not know the difference between 
a broker and an investment advisor. Even fewer are likely to know that 
their broker has no obligation to act in their best interest. 
Investment advisors currently have fiduciary obligations. However, 
brokers must only meet a suitability standard that fails to 
sufficiently protect investors.
  In a complicated financial marketplace, for investors in which 
revenue

[[Page S4070]]

sharing agreements and commissions can vary significantly for similar 
products, we must ensure that all investment professionals that offer 
personalized investment advice have a fiduciary duty imposed on them.
  In 2005, I first introduced legislation that would have imposed a 
fiduciary duty on brokers. I knew then that action was necessary. In 
the wake of the Permanent Subcommittee on Investigations hearing 
highlighting the activities of Goldman Sachs that appeared to put firm 
profits before the interest of their clients, this issue becomes even 
more important to include in the bill.
  We must act to ensure that brokers have an obligation to do what is 
best for their clients and not allow brokers to push higher commission 
products that may be inappropriate for a particular client. The 
imposition of a fiduciary duty on brokers has extensive support.
  There are brokers that are supportive of doing what is in the best 
interest of their clients. I greatly admire the recent bold statements 
made by Ms. Sallie Krawcheck, president of Bank of America Global 
Wealth and Investment Management. Ms. Krawcheck said that brokers 
should ``do right by our clients by embracing our fiduciary 
responsibilities for them . . . embracing reform will enable us to 
champion what is indisputably right for clients.''
  There is widespread support for imposing a fiduciary duty on brokers. 
AARP, the Consumer Federation of America, the North American Securities 
Administrators Association, the National Association of Secretaries of 
State, the National Governors Association, Americans for Financial 
Reform, the Investment Advisers Association, the National Association 
of Personal Financial Advisers, the Council of Institutional Investors, 
and the Financial Planning Association are several examples of 
organizations that support this important investor protection.
  There are not many that continue to oppose imposition of a fiduciary 
duty. Insurance agents and the insurance industry remain among the few 
that oppose this investor protection. Some within the industry have 
even chosen to misrepresent our efforts as ending the commission-based 
model. If they were to merely read the proposed legislative language, 
they would know that this is not true.
  I thank my friend from New Jersey, Senator Menendez, and his staff, 
for working with me on this issue. I also want to acknowledge all of 
the tremendous work done to advance this vital consumer protection by 
House Financial Services Chairman Barney Frank. I will continue to work 
to ensure that that this obligation is included in the final version of 
the legislation that is enacted.
  I also thank the Banking Committee staff for all of their 
extraordinary work, including Levon Bagramian, Julie Chon, Brian 
Filipowich, Amy Friend, Catherine Galicia, Lynsey Graham Rea, Matthew 
Green, Marc Jarsulic, Mark Jickling, Deborah Katz, Jonathan Miller, 
Misha Mintz-Roth, Dean Shahinian, Ed Silverman, and Charles Yi.
  Also, I appreciate all of the work done by the legislative assistants 
of Members of the Committee, including Laura Swanson, Kara Stein, Jonah 
Crane, Ellen Chube, Michael Passante, Lee Drutman, Graham Steele, 
Alison O'Donnell, Hilary Swab, Harry Stein, Karolina Arias, Nathan 
Steinwald, Andy Green, Brian Appel, and Matt Pippin.
  In conclusion, this bill will improve the lives of working families. 
I will continue to work to bring about enactment of this legislation 
that will educate, protect, and empower consumers and investors.
  Mr. CHAMBLISS. Mr. President, I rise to express my disappointment at 
the posture of the massive legislative overhaul of our financial 
markets that appears set to pass this body.
  I am disappointed at what this bill, as written, means for businesses 
on Main Street and for the livelihoods of Americans who had nothing to 
do with the financial meltdown.
  I am also disheartened at how this body has made a bad bill even 
worse. For all the times the other side of the aisle has accused the 
minority of being obstructionists, for all the claims of partisanship, 
the process by which this bill has become the government power-grab it 
is today illustrates how the majority has served as its own ``party of 
no''.
  After repeated efforts by Republicans in the past 18 months to reach 
a middle ground on necessary reforms for America's financial regulatory 
structure, reasonable compromises we presented were rejected at every 
turn.
  And two years after the jolt of the economic crisis, and with no hope 
in sight for cooperation from the White House, a 1,400-page, one-sided 
piece of legislation was brought to the Senate floor.
  Now with more than 400 amendments filed, and just 10 percent of those 
considered, this administration is again set to sign into law another 
mammoth piece of legislation--one with enormous and long-lasting 
repercussions for this country--with little to no Republican input.
  The consequences of actions we take here in the coming days will be 
drastic in their reach into American businesses of all sizes.
  Make no mistake: This bill will not punish Wall Street. In fact, the 
CEOs of Wall Street firms are supportive of this bill as written.
  After all, it is difficult to say this bill goes after Wall Street 
when the CEO of one of its largest financial institutions says ``. . . 
the biggest beneficiaries of reform will be Wall Street itself.'' Lloyd 
Blankfein, CEO, Goldman Sachs, Homeland Security & Government Affairs 
hearing, 4/27/10.
  No, the real targets will be businesses across America, not just big 
firms on Wall Street but auto dealers in suburbs or appliance stores on 
small-town Main Streets. Everywhere a small business allows its 
customers to pay with lines of credit, the Federal Government will be 
there.
  One of the biggest problems with this legislation is that it does not 
address one of the root causes of America's economic crisis: Fannie Mae 
and Freddie Mac.
  These entities--effectively deemed by the White House and others as 
``too big to legislate''--continue to perpetuate a sickness on the 
American economy.
  As structured, these ``bailout behemoths'' continue to rely on 
taxpayer money to maintain their fiscal imprudence--to the tune of $145 
billion. But nothing in this bill attempts to stop that drain on 
taxpayers' wallets.
  Another glaring example of government intrusion in this bill is the 
creation of a Consumer Financial Protection Bureau empowered to collect 
any information it chooses from private businesses and consumers, 
including personal and financial information.
  This new agency will have the authority to share that information 
with the very financial firms it is attempting to regulate. In other 
words, taxpayers will be paying for Wall Street's market research.
  As for Title VII--the derivatives title--it is simply a debacle.
  As ranking member of the Agriculture Committee, I have spent a great 
deal of time examining how derivatives have played a role in the market 
meltdown, and not surprisingly, we have found that there are a number 
of regulatory improvements we need to make relative to the oversight of 
swap market participants.
  However the language we are considering today is, quite frankly, 
another power grab by the administration and the regulators for 
provisions in law that had absolutely nothing to do with the crisis we 
experienced in the market place 2 years ago.
  This administration, along with the majority in this body, want to 
regulate Ford Motor Credit the same as they regulate large banks such 
as JP MorganChase and Goldman Sachs. Guess who is going to end up 
paying the price for that change in regulation? My Georgia constituents 
who want to buy cars. They will be paying more in the form of interest 
because if this bill is enacted into law, Ford will be forced to pay 
more to hedge its interest-rate risk.
  The majority wants to make it more difficult for clearinghouses to 
approve swaps for listing, which is senseless, as they also require 
mandated clearing.
  The majority claims that by forcing more swaps into a clearinghouse 
it will lessen systemic risk. Why, then, are we making the 
clearinghouses jump through more hoops to clear these contracts?
  As I understand it, the current system where clearinghouses have the 
discretion to list contracts for clearing

[[Page S4071]]

have experienced no problems. And as we know, the clearinghouses 
certainly aren't responsible for the financial crisis.
  The majority is also requiring major swap participants to hold more 
capital in reserve. I can understand the need for requiring those who 
hold large swaps positions to margin, or collateralize, their 
positions. But why are we also going to make them set aside capital? 
Again, we are treating them like banks and they are not banks.
  If we make manufacturers set aside capital, it will only tie up money 
they would otherwise have available to hire workers, pay benefits and 
run their companies. With unemployment approaching 10 percent, we 
should not make it more difficult for employers to hire. We should not 
apply a banking model to market participants that are not banks.
  As for market participants that need swaps to manage risk and have 
negotiated individualized arrangements where they pledge noncash 
collateral: How are they going to pledge collateral to a clearinghouse? 
Last time I checked, the Chicago Mercantile Exchange, CME, and 
International Continental Exchange, ICE, did not accept natural-gas 
leases as margin.
  This bill will now require theses customers to post cash collateral 
to the clearinghouse, thereby tying up resources they would otherwise 
be investing in locating more natural gas or petroleum. This is not a 
very smart plan when we so desperately need to become less dependent on 
foreign sources of energy.
  Rather than focusing on perfecting what actually could help lessen 
risk within the derivatives system, we have a clear case of what I 
believe the administration and some in this body see as an opportunity 
to regulate simply for the sake of regulating.
  The financial crisis and its causes seem to have become 
afterthoughts. The objective has shifted from regulating Wall Street to 
regulating manufacturers, energy producers, food producers, hospitals 
and anyone else who might seek to enter into a contract to manage their 
risk.
  Meanwhile, consumers will pay the price. Why? Because the White House 
and the majority in Congress lost sight of the problem that should be 
fixed and seized the opportunity to insert government into every 
industry, financial and otherwise.
  Mr. President, our side came to the table in good faith with ideas on 
necessary reforms to America's financial markets.
  We presented our thoughts on how best to prevent another meltdown. We 
negotiated, we compromised, and we tried to work across the aisle 
toward a common goal.
  Ultimately, these efforts were fruitless. The other side stonewalled, 
and our ideas were opposed.
  Now this bill--which will have a similar economic impact as the 
health care bill, yet which has only been debated for a fraction of the 
time--will soon be law. And our economy and the livelihoods of 
Americans who work in large and small businesses will be worse for it.
  I yield the floor.
  Mr. McCAIN. Mr. President, it is with regret that I come to the floor 
to announce my opposition to this piece of legislation. I express 
regret not because this is somehow a good bill with a few flaws serious 
enough to warrant a no vote--I express regret because this bill is an 
abysmal failure and serves as yet another example of Congress' 
inability to tackle tough problems and institute real, meaningful and 
comprehensive reform.
  In the past 2 years America has faced her greatest fiscal challenges 
since the Great Depression. When the financial markets collapsed it was 
the American taxpayer who came to the rescue of the banks and big Wall 
Street firms--but who has come to the rescue of the American taxpayer? 
Certainly not Congress. So what has Congress done? By enacting policies 
that can only be described as inexplicable generational theft--we've 
saddled future generations with literally trillions of dollars of debt. 
Since January of 2009 we have been on a spending binge the likes of 
which this nation has never seen. In that time our debt has grown by $2 
trillion. We passed a $1.1 trillion ``stimulus'' bill. We spent $83 
billion to bail out the domestic auto industry. We passed a $2.5 
trillion health care bill. The President submitted a budget for next 
year totaling $3.8 trillion. We now have a deficit of over $1.4 
trillion and a debt of over $12.9 trillion. Unemployment remains at 
almost 10 percent. And, according to Forbes.com, a record 2.8 million 
American households were threatened with foreclosure last year, and 
that number is expected to rise to well over 3 million homes this year. 
And how has the Senate responded to this crisis of staggering debt, 
catastrophic job loss and unimaginable foreclosure rates? Did the 
majority take on the special interests? Did they seize the opportunity 
to develop a bill that goes right to the heart of the problem and make 
serious, meaningful and comprehensive reforms? Nope. They punted. Out 
of pure political expediency, they shrugged their shoulders and kicked 
the can down the road and left the tough decisions for an unluckier 
group of Americans.
  It is clear to any rational observer that the housing market has been 
the catalyst of our current economic turmoil. And it is impossible to 
ignore the significant role played by the government-sponsored 
enterprises--GSEs--Fannie Mae and Freddie Mac. The events of the past 
two years have made it clear that never again can we allow the taxpayer 
to be responsible for poorly-managed financial entities who gambled 
away billions of dollars. Fannie Mae and Freddie Mac are synonymous 
with mismanagement and waste and have become the face of `too big to 
fail'.
  A May 6th editorial in the Wall Street Journal stated:

       Fan and Fred owned or guaranteed $5 trillion in mortgages 
     and mortgage-backed securities when they collapsed in 
     September 2008. Reforming the financial system without fixing 
     Fannie and Freddie is like declaring a war on terror and 
     ignoring al Qaeda.
       Unreformed, they are sure to kill taxpayers again. Only 
     yesterday, Freddie said it lost $8 billion in the first 
     quarter, requested another $10.6 billion from Uncle Sam, and 
     warned that it would need more in the future. This comes on 
     top of the $126.9 billion that Fan and Fred had already lost 
     through the end of 2009. The duo are by far the biggest 
     losers of the entire financial panic--bigger than AIG, 
     Citigroup and the rest.
       From the 2008 meltdown through 2020, the toxic twins will 
     cost taxpayers close to $380 billion, according to the 
     Congressional Budget Office's cautious estimate. The Obama 
     Administration won't even put the companies on budget for 
     fear of the deficit impact, but it realizes the problem 
     because last Christmas Eve it raised the $400 billion cap on 
     their potential taxpayer losses to . . . infinity.
       Moreover, these taxpayer losses understate the financial 
     destruction wrought by Fan and Fred. By concealing how much 
     they were gambling on risky subprime and Alt-A mortgages, the 
     companies sent bogus signals on the size of these markets and 
     distorted decision-making throughout the system. Their 
     implicit government guarantee also let them sell mortgage-
     backed securities around the world, attracting capital to 
     U.S. housing and thus turbocharging the mania.

  During the debate on this financial reform bill, we heard much about 
how the U.S. Government will never again allow a financial institution 
to become too big to fail. We heard countless calls for more regulation 
to ensure that taxpayers are never again placed at such tremendous 
risk. Sadly, the bill before us now completely ignores the elephant in 
the room--because no other entities' failure would be as disastrous to 
our economy as Fannie Mae's and Freddie Mac's. Yet the majority chose 
not to address them at all in the bill before us.
  There have been numerous warnings about the mismanagement of both 
Fannie and Freddie over the years. In May of 2006, after a 27 month 
investigation into the corrupt corporate culture and accounting 
practices at Fannie Mae, the Office of Federal Housing Enterprise 
Oversight--OFHEO--the Federal regulator charged with overseeing Fannie 
Mae--issued a blistering, 348-page report which highlighted the culture 
of corruption which was rampant at Fannie Mae. The report stated things 
such as:

       Fannie Mae senior management promoted an image of the 
     Enterprise as one of the lowest-risk financial institutions 
     in the world and as ``best in class'' in terms of risk 
     management, financial reporting, internal control, and 
     corporate governance. The findings in this report show that 
     risks at Fannie Mae were greatly understated and that the 
     image was false.
       During the period covered by this report--1998 to mid-
     2004--Fannie Mae reported extremely smooth profit growth and 
     hit announced targets for earnings per share precisely each 
     quarter. Those achievements

[[Page S4072]]

     were illusions deliberately and systematically created by the 
     Enterprise's senior management with the aid of inappropriate 
     accounting and improper earnings management.
       A large number of Fannie Mae's accounting policies and 
     practices did not comply with Generally Accepted Accounting 
     Principles (GAAP). The Enterprise also had serious problems 
     of internal control, financial reporting, and corporate 
     governance. Those errors resulted in Fannie Mae overstating 
     reported income and capital by a currently estimated $10.6 
     billion.
       By deliberately and intentionally manipulating accounting 
     to hit earnings targets, senior management maximized the 
     bonuses and other executive compensation they received, at 
     the expense of shareholders. Earnings management made a 
     significant contribution to the compensation of Fannie Mae 
     Chairman and CEO Franklin Raines, which totaled over $90 
     million from 1998 through 2003. Of that total, over $52 
     million was directly tied to achieving earnings per share 
     targets.
       Fannie Mae consistently took a significant amount of 
     interest rate risk and, when interest rates fell in 2002, 
     incurred billions of dollars in economic losses. The 
     Enterprise also had large operational and reputational risk 
     exposures.
       Fannie Mae's Board of Directors contributed to those 
     problems by failing to be sufficiently informed and to act 
     independently of its chairman, Franklin Raines, and other 
     senior executives; by failing to exercise the requisite 
     oversight over the Enterprise's operations; and by failing to 
     discover or ensure the correction of a wide variety of unsafe 
     and unsound practices.
       Fannie Mae senior management sought to interfere with 
     OFHEO's special examination by directing the Enterprise's 
     lobbyists to use their ties to Congressional staff to (1) 
     generate a Congressional request for the Inspector General of 
     the Department of Housing and Urban Development (HUD) to 
     investigate OFHEO's conduct of that examination and (2) 
     insert into an appropriations bill language that would reduce 
     the agency's appropriations until the Director of OFHEO was 
     replaced.

  So what steps were taken by the Congress to punish Fannie Mae for 
such deliberate manipulation and outright corruption at that time? 
Basically: none. And nothing is done to rein them in under this bill 
either.
  Just this morning the Heritage Foundation wrote the following:

       There is still nothing in this bill that addresses the 
     perverse incentives and moral hazard that is created when the 
     federal government sticks its nose into the housing market. 
     Last year, the two financed or backed about 70 percent of 
     single-family mortgage loans. They hold about $5 trillion in 
     their investment portfolios. Both are losing money fast, with 
     those losses being covered by the U.S. taxpayer. Last month, 
     Freddie announced it had lost $8 billion in the first quarter 
     of 2010 and would be asking for another $10.6 billion in 
     taxpayer help. Not to be outdone, Fannie announced an $11.5 
     billion loss and asked for another $8.4 billion from 
     taxpayers. That's atop the nearly $145 billion of your 
     dollars that Fannie and Freddie have already received. Fannie 
     and Freddie alone prove this bill does nothing to end ``too 
     big to fail.'' Fannie and Freddie should be partly wound 
     down, the rest broken up and sold off--not replaced, 
     reformed, or rejuvenated. The Dodd bill does none of that.

  As my colleagues know, I offered a good, common-sense amendment 
designed to end the taxpayer-backed conservatorship of Fannie Mae and 
Freddie Mac by putting in place an orderly transition period and 
eventually requiring them to operate--without government subsidies--on 
a level playing field with their private sector competitors. 
Unfortunately that amendment was defeated by a near-party-line vote.
  The majority, however, did offer an alternative proposal to my 
amendment. Was it a good, well thought out, comprehensive plan to end 
the taxpayer-backed free ride of Fannie and Freddie and require them to 
operate on a level playing field with their private sector competitors? 
Nope. It was a study. The majority included language in this bill to 
study the problem of Fannie and Freddie for six months. Wow! Instead of 
dealing head-on with the two enterprises that brought our entire 
economy to its knees--entities which have already cost taxpayers over 
$145 billion in bailouts--the Democrats want to study them for 6 more 
months. It is no wonder the American people view us with such contempt.
  Additionally, I cosponsored an amendment with my colleague from 
Washington, Senator Cantwell, to ensure that we never again stick the 
American taxpayer with another $700 billion-plus tab to bailout the 
financial industry. If big Wall Street institutions want to take part 
in risky transactions--fine. But we should not allow them to do so with 
federally insured deposits.
  Paul Volcker, a top economist in the Obama administration and former 
Federal Reserve Chairman, wants the nation's banks to be prohibited 
from owning and trading risky securities, the very practice that got 
the biggest ones into deep trouble in 2008. Mr. Volcker argues that 
regulation by itself will not work. Sooner or later, the giants, in 
pursuit of profits, will get into trouble. Congress and the 
administration should accept this and shield commercial banking from 
Wall Street's wild ways. ``The banks are there to serve the public,'' 
Mr. Volcker said, ``and that is what they should concentrate on. These 
other activities create conflicts of interest. They create risks, and 
if you try to control the risks with supervision, that just creates 
friction and difficulties'' and ultimately fails.
  The amendment we offered precluded any member bank of the Federal 
Reserve System from being affiliated with any entity or organization 
that is engaged principally in the issue, flotation, underwriting, 
public sale or distribution of stocks, bonds or other securities. 
Essentially, commercial banks may no longer inter-mingle their business 
activities with investment banks. It is that simple.
  Since the repeal of the Glass-Steagall Act in 1999, this country has 
seen a new culture emerge in the financial industry: one of dangerous 
greed and excessive risk-taking. Commercial banks traditionally used 
people's deposits for the constructive purpose of main street loans. 
They did not engage in high risk ventures. Investment banks, however, 
managed rich people's money--those who can afford to take bigger risks 
in order to get a bigger return, and who bore their own losses. When 
these two worlds collided, the investment bank culture prevailed, 
cutting off the credit lifeblood of Main Street firms, demanding 
greater returns that were achievable only through high leverage and 
huge risk taking, and leaving taxpayers with the fallout.
  When the glass wall dividing banks and securities firms was 
shattered, common sense and caution went out the door. The new mantra 
of ``bigger is better'' took over--and the path forward focused on 
short-term gains rather than long-term planning. Banks became 
overleveraged in their haste to keep up in the race. The more they 
lent, the more they made. Aggressive mortgages were underwritten for 
unqualified individuals who became homeowners saddled with loans they 
couldn't afford. Banks turned right around and bought portfolios of 
these shaky loans.
  Sub-prime loans made up only 5 percent of all mortgage lending in 
1998, but by the time the financial crisis peaked in late 2008, they 
were approaching 30 percent. Since January 2008, we have seen 264 state 
and national banks fail. In my home State of Arizona, eight banks have 
shut their doors, leaving small businesses scrambling to find credit 
from other banks that may have already been overleveraged.
  Banks sold sub-prime mortgages to their affiliates and other 
securities firms for securitization, while other financial institutions 
made risky bets on these and other assets for which they had no 
financial interest. As the market grew bigger, its foundation became 
shakier. It was like a house of cards waiting to fall. And fall it did.
  In October 2008, the financial system was on the brink of collapse 
when Congress was forced to risk $700 billion of taxpayer dollars to 
bailout the industry. These financial institutions had become too big 
to fail. In fact, the special inspector general of Troubled Asset 
Relief Program--TARP--testified before Congress last year that ``total 
potential Federal Government support could reach $23.7 trillion'' to 
stabilize and support the financial system. Ironically, some of these 
``too big to fail'' institutions have now become even bigger. A recent 
editorial from the New York Times stated:

       The truth is that the taxpayers are still very much on the 
     hook for a banking system that is shaping up to be much 
     riskier than the one that led to disaster.
       Big bank profits, for instance, still come mostly courtesy 
     of taxpayers. Their trading earnings are financed by more 
     than a trillion dollars' worth of cheap loans from the 
     Federal Reserve, for which some of their most noxious assets 
     are collateral. They benefit from immense federal loan 
     guarantees, but they are not lending much. Lending to 
     business, notably, is very tight.

[[Page S4073]]

       What profits the banks make come mostly from trading. Many 
     big banks are happy to depend on the lifeline from the Fed 
     and hang onto their toxic assets hoping for a rebound in 
     prices. And the whole system has grown more concentrated. 
     Bank of America was considered too big to fail before the 
     meltdown. Since then, it has acquired Merrill Lynch. Wells 
     Fargo took over Wachovia. And JPMorgan Chase gobbled up Bear 
     Stearns.
       If the goal is to reduce the number of huge banks that 
     taxpayers must rescue at any cost, the nation is moving in 
     the wrong direction. The growth of the biggest banks ensures 
     that the next bailout will have to be even bigger. These 
     banks will be more likely to take on excessive risk because 
     they have the implicit assurance of rescue.

  The Federal Government has set a dangerous precedent here. We sent 
the wrong message to the financial industry: you engage in bad, risky 
business practices, and when you get into trouble, the government will 
be there to save your hide. It amounts to nothing more than a taxpayer-
funded subsidy for risky behavior.
  The consolidation of the banking world was also riddled with 
conflicts of interest, despite the purported firewalls that were put 
into place. If an investment bank had underwritten shares for a company 
that was now in financial trouble, the investment bank's commercial arm 
would feel pressure to lend the company money, despite the lack of 
merits to do so. This amendment would have eliminated some of these 
conflicts.
  It is time to put a stop to the taxpayer financed excesses of Wall 
Street. No single financial institution should be so big that its 
failure would bring ruin to our economy and destroy millions of 
American jobs. This country would be better served if we limit the 
activities of these financial institutions. Banks should accept 
consumer deposits and invest conservatively, while investment banks 
engage in underwriting and sales of securities.
  In an op-ed titled ``Bring Back Glass-Steagall,'' Wall Street Journal 
columnist Thomas Frank summed up the situation very nicely recently 
when he wrote:

       One of these days, we will finally dispel the `New Economy' 
     mysticism that beclouds this issue and begin to think 
     seriously about how to re-regulate the financial sector. And 
     when we do, we may find the answer involves some version of 
     the idea behind Glass-Steagall--drawing a line between banks 
     that the government effectively guarantees and banks that 
     behave like big hedge funds, experimenting with the latest 
     financial toxins. Hopefully, that day will come before Wall 
     Street decides to take another headlong run at some 
     attractive cliff.

  Unfortunately, our amendment was defeated by a procedural motion and 
was not even brought up for a vote.
  Again, I regret that I have to vote against this bill. I assure my 
colleagues, and the American people, that if this were truly a bill 
that instituted real, serious and effective reforms--I would be the 
first in line to cast a vote in its favor. But it is not. It serves as 
evidence of a dereliction of our duty and a missed opportunity to 
provide the American people with the protections necessary to avert yet 
another financial disaster. They deserve better from us.
  The PRESIDING OFFICER. The Senator from Alabama is recognized.
  Mr. SHELBY. Mr. President, tonight we are nearing the end of the 
Senate's consideration of a historic piece of legislation. In response 
to the most significant financial crisis this country has seen in a 
generation, we have been engaged in a debate about the future of our 
financial system.
  Two years ago, our economy came to a grinding halt. Credit markets 
shut down, business activity basically stopped in some areas, and world 
trade virtually collapsed. Millions of Americans lost their jobs and 
their homes, and they saw trillions in savings wiped out.
  As a witness to the near collapse of our financial system and the 
economic devastation it has wrought, I am fully aware of the 
fundamental importance of the legislative effort we will soon complete. 
Because the financial system serves as the heart of our economy, this 
legislation will have a profound effect on the economic future of this 
country. The decisions we have made will have an impact on the lives of 
Americans for decades to come. Furthermore, the impact of this 
legislation will extend far beyond our shores.
  For these reasons, I believe we must get it right. In the end, we 
will be judged by whether we have created a more stable, durable, and 
competitive financial system. That judgment will not be rendered by 
self-congratulatory press releases, but, rather, by the marketplace. 
And the marketplace does not give credit for good intentions.
  Knowing that millions of Americans suffered greatly because of the 
financial crisis and that generations of future Americans are relying 
on us to get this right, how did we go about this proceeding that 
brought us to where we are tonight? I am going to pose a number of 
questions.
  Did we conduct a thorough review of every facet of the crisis?
  Did we look at the structure of our markets, examine the role of the 
regulators, and determine how the existing regulations drove certain 
market actions?
  Did we investigate the GSEs, examine their capital and leverage, 
address the inherent weaknesses in their dual and conflicting 
objectives of maximizing returns for private owners while serving as a 
public housing mission?
  Did we explain Bear Stearns and the causes of its collapse, along 
with the SEC regulatory program entrusted at that time with its 
oversight?
  Did we collect and analyze data regarding the areas hardest hit by 
foreclosures?
  Did we determine whether there were any specific loan types, however 
characterized, that led to the foreclosures?
  Did we take time to learn lessons from the debacle of the AIG 
financial products division or securities lending operations or of 
overheated tri-party repo activity?
  Did we analyze how maturity transformation allowed the shadow banking 
system to, in effect, create money out of AAA rated securities?
  Did we analyze how activities in the shadow banking system led to an 
increased concentration of inherently runnable activities?
  Did we analyze liquidity buffers at broker dealers?
  And did we wait for the Financial Crisis Inquiring Commission, a 
creation of this Congress, to deliver lessons that it learned about the 
financial crisis so as to inform our deliberations even more?
  The answer to all of these questions I posed is no, we did not. In my 
view, this represents a fundamental failure of this body to do its own 
due diligence before we even attempt such a significant undertaking as 
we are about to tonight.
  Millions of people lost their jobs, their homes, and trillions of 
dollars of wealth. The American people expect more and certainly 
deserve more, I believe, from us.
  Nonetheless, it certainly did not take much investigation to know 
that the heart of the crisis was massive failures in our mortgage 
underwriting and securitization systems. Therefore, the most 
incredulous shortcoming of this bill, in my judgment, is the lack of 
any serious attention by the Senate being paid to the government-
sponsored enterprises that we know as Fannie Mae and Freddie Mac.
  Yesterday, one of my colleagues on the other side of the aisle said 
we were not dealing with the GSEs in this bill because it is too hard. 
I have to say we certainly have come a long way in the wrong direction.
  There was a time not long ago when we did things because they are 
hard and because they are worth doing. What a difference a few years 
makes. It is simply a failure of will that nothing is being done to 
reform the GSEs or, at the very least, cap the allowable losses.
  This bill has 12 titles totaling well over 1,500 pages. It has been 
amended dozens of times. Yet the bill does nothing to affect the 
ongoing, unlimited bailouts of Fannie Mae and Freddie Mac that to date 
have cost the American taxpayers at least $146 billion, one of the 
largest bailouts in history, and it is growing. Our distinguished 
chairman, the Senator from Connecticut, has expressed his outrage on a 
number of occasions that consumers paid around $40 billion in overdraft 
fees in 2009, and he is right. The GSEs now have cost the American 
taxpayers over 3\1/2\ times that amount and counting. To quote my old 
friend and former majority leader, Bob Dole: Where is the outrage here?

  Perhaps what is most disappointing about the lack of attention to 
Fannie and Freddie is the fact that there is no end in sight. Losses 
continue to mount

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and the taxpayer exposure is unlimited. For example, in a recent SEC 
filing, Fannie Mae reported a need for another $8\1/2\ billion from the 
taxpayers. Hardworking Americans in my State of Alabama and throughout 
the Nation will be asked to pony up again and again until we do 
something to stop it. When will it stop? According to my Democratic 
friends, not yet. The best they can do for the American people in this 
bill is a study. That is simply incredible.
  The GSEs should have been our primary focus. Instead, they were 
ignored and further enabled by the administration when they raised the 
cap on losses in December of last year. In an attempt to do something 
about the GSEs, Senators McCain, Gregg, and I, joined by several of our 
Republican colleagues, introduced an amendment to this bill that would 
have ended these bailouts. However, just as they presented action to 
rein in Fannie and Freddie in the past, Democrats once again embraced 
the status quo and blocked the road to real GSE reform.
  Once our amendment failed, several of my Republican colleagues and I, 
led by Senator Crapo of Idaho, decided that if we could not end these 
unlimited bailouts, we would try to cap the losses and provide for a 
true accounting of the costs. Our amendment would have capped these 
bailouts at $400 billion, which is a lot of money. Yet even at nearly 
$\1/2\ trillion, the Democrats could not bring themselves to stop the 
hemorrhaging of Fannie and Freddie and voted against the amendment.
  How much will the GSEs have to lose before my Democratic friends will 
say enough is enough? Will $\1/2\ trillion be enough? Will Democrats 
allow reform of Fannie and Freddie before it costs the taxpayers $1 
trillion? How much is too much?
  The supporters of this bill have argued that it will stabilize our 
financial sector--the bill itself. I am not sure, however, it can 
stabilize anything when it does nothing--nothing--to address the two 
largest destabilizing forces of the crisis, Fannie Mae and Freddie Mac. 
The fact that it is costing taxpayers nearly $7 billion every month 
should be enough to convince anyone that something needs to be done and 
done now. Unfortunately, my Democratic friends, led by the President, 
are telling the American people they are going to have to pony up and 
wait again.
  The failure to address the GSEs is the most glaring omission in this 
legislation. There are, however, many things that are in this bill that 
raise similar concerns for the future of our economy, and I will go 
through some of them.
  A major component of the bill deals with the creation of a massive 
new consumer bureaucracy, along with a separate title 12, which is a 
liberal activist's dream come true. Provisions in this title will 
compel financial institutions to provide free services to selected 
community groups. This is the exact same model that led us to the 
crisis in the first place, except for one distinct difference. The 
government bailout is built in from the beginning through the use of 
taxpayer guarantees.
  The American people are being misled. The authors of this bill are 
telling them this legislation has been drafted to address the recent 
financial crisis and that it will tame Wall Street. I am afraid they 
are going to be disappointed. By the Democrats' own admission, the most 
important facet of this legislation is the creation of a massive new 
consumer bureaucracy. It has been described by my Democratic friends as 
the ``third rail'' of this bill.
  During our negotiations on the consumer bureaucracy, my Democratic 
friends were not focused on the mortgage market. Their sights were set 
on the rest of the economy. Make no mistake, behind the veil of anti-
Wall Street rhetoric is an unrelenting desire to manage every facet of 
commerce under the guise of consumer protection. They may be interested 
in protecting consumers, but they are more interested in managing them. 
All one has to do is read the academic writings of the authors of this 
new bureaucracy and it becomes very clear what their goals are.
  The Democrats' new bureaucracy is an enormous reach across virtually 
every segment of our economy and a massive expansion of government 
influence in our daily financial lives. The people of America have been 
clear: They do not want a massively intrusive, continuously growing, 
and overly expansive government. They do not want a continuation of our 
unsustainable government promises, government spending, government 
deficits, and government debt. They saw what happened in Greece when it 
overpromised and overspent, and Americans do not want to leave European 
fiscal legacy to their children.
  Yet this bill does not listen to the American people. It promises 
massive government overreach into even routine daily financial 
transactions of ordinary Americans and businesses, large and small. Why 
does the Federal Government need information on ``pertinent 
characteristics''--whatever that might mean--of persons covered by the 
new consumer bureaucracy?
  This new consumer bureaucracy will become massive, populated with 
thousands of bureaucrats who will create, within the new bureau, what 
administration officials have referred to as a correct ``culture'' of 
consumerism. What is that? The new consumer protection bureaucracy is 
funded by over $\1/2\ billion per year, funded through an Argentina-
style raid on our central bank. Of course, this opens the door for 
unlimited Federal taxpayer funds for community organizers and groups 
such as ACORN.
  I favor consumer protection. I believe all of us do. This new bureau, 
however, promises to be more abusive than protective. By abuse, I mean 
that the bureau will lower the living standards of Americans. This new 
consumer bureaucracy is intended, by its architects in the Treasury, to 
begin the process of financial regulation with the intent of changing 
the behaviors of the American people.
  I have faith in the American people and their ability to make good 
choices. Granted, we do not always choose well, but that is the human 
condition. I believe a poor choice freely made is far superior to a 
good choice that is made for me. I am afraid the architects of this 
bill do not share this sentiment, nor do they share my faith in the 
American people.
  They view us as victims in need of their guidance. They view us as 
fallible and in need of government bureaucrats to protect us from 
ourselves. It is a bit ironic, however, that the sponsors of this new 
bureaucracy seem to believe regulators do not share the same 
fallibility of ordinary Americans. Tell that to the hundreds of Bernie 
Madoff victims.
  This is the world view that is driving this bill, and it should 
concern every American. It seems, increasingly, that the view of the 
Democrats toward virtually all American business is a cynical view that 
Americans are out to take advantage of one another. I don't share that 
view either. My presumption is Americans are honest and hardworking and 
history has shown that to be true.
  This bill promises to slow economic growth and kill jobs because it 
will place onerous regulatory burdens on businesses large and small. 
This bill will stifle innovation in consumer financial products and 
reduce small business activity. It will lead to reduced consumer credit 
and higher costs for available credit. Less credit at a higher price 
will dampen the very small business engines of job creation so 
desperately needed right now, when unemployment hovers near double 
digits nationally and is at 11 percent in my home State of Alabama. I 
cannot support legislation that threatens business conditions and the 
potential for job creation, especially at a time when we are crawling 
out of a severe recession.
  Aside from onerous new consumer regulations, another avenue through 
which the bill will slow economic activity is in the treatment of 
derivatives. This bill will chase risky financial trades overseas and 
further into the unregulated shadow banking system, thereby magnifying, 
not reducing, unmonitored systemic risks.
  This bill demonstrates an imprudent disregard for the economic 
effects of a severely misguided approach to derivatives. Given the 
treatment of derivatives in this bill, end users--that is everyone from 
candy bar makers to beer brewers--who rely on these financial 
instruments to manage their risks will face massive increases in costs. 
Because risk management will now be

[[Page S4075]]

significantly more expensive, we can expect lower business investment, 
which, again, means fewer jobs.
  Why are we increasing costs to ordinary end users of derivatives, 
such as your home heating provider or makers of candy bars? There seems 
to be an irrational desire to make all financial products of certain 
types standard, whether that can or should be done. Once again, the 
attitude seems to be: We are government and we know best. That attitude 
will almost surely lead to massive concentrations of risks in central 
derivatives clearinghouses. It will also, ironically, chase derivatives 
activities overseas and into the unregulated shadow banking system. Who 
will back up these clearinghouses at the end of the day should market 
stresses prove to be severe? The Federal Government and the Federal 
Reserve will back them up, promising even more bailouts in the future--
this time possibly for clearinghouses.
  The approach to hedge fund oversight in this bill is symptomatic of 
an overall careless approach to assigning regulatory responsibility. 
Hedge funds have not been identified as a cause of the financial 
crisis, but hedge funds have been identified as a potential source of 
systemic risk.
  However, rather than subjecting hedge funds to a systemic risk 
oversight regime, hedge fund advisers will be subject to a registration 
regime and the investor-protection oriented requirements that go along 
with it.
  On its face, registration sounds reasonable.
  The SEC, however, is not a systemic risk regulator, and when it tried 
to be one through the Consolidated Supervised Entity--``CSE''--program, 
it failed. Yet, now, we are doubling down on the SEC, the very agency 
that failed us to begin with.
  An unfortunate consequence of the treatment of hedge funds in the 
bill is that investors will likely treat SEC registration as an SEC 
seal of approval. Fraudulent hedge fund advisors will be virtually 
invited to use registration as a marketing tool.
  Investor protection is an important job for the SEC, but its 
resources are not endless, and the SEC has been notoriously unable to 
inspect advisors on a regular basis.
  Limited SEC resources should not be diverted from regulated public 
investment companies, such as mutual funds, to the monitoring of hedge 
fund advisors, as the reported bill proposes to do.
  If the SEC is spending its resources in this manner, it will not be 
long before investors that do not meet the accredited investor 
threshold start demanding to be allowed to invest in hedge funds.
  It will be hard to counter the argument that they should have access 
to such investments when the SEC is on the case.
  Mr. President, there are dozens of problems with the Lincoln-Dodd 
over-the-counter--OTC--derivatives title, which I would be more than 
happy to document. In the interest of brevity, however, I will point 
out just a few of the most egregious examples:
  The Lincoln-Dodd derivatives title does not provide regulators with 
access to the information they need to do their job.
  The title is unworkable. In a 6-month marathon rulemaking session, 
regulators are to make massive changes in a huge market without the 
usual notice-and-comment that allows for broad public input.
  Neither the SEC nor the CFTC has the staff that it needs to write the 
rules, let alone implement them. Companies, including Main Street 
businesses, all across the United States will also face operational, 
legal, and financial challenges as they strive to come into compliance 
with record keeping, reporting, capital, margin, clearing, and business 
conduct requirements.
  Key provisions in the Lincoln-Dodd derivatives title directly 
contradict key provisions in other titles and current law. Section 716, 
for example, would preclude a clearinghouse--even one that does not 
clear swaps--from receiving access to the discount window. This is 
directly contrary to title 8, which empowers the Federal Reserve to 
grant discount window access to clearinghouses.
  The proposed regulatory framework in the Lincoln-Dodd derivatives 
title poses new risks to the system. For-profit clearinghouses will 
have an incentive to clear as many swaps as possible.
  If they do not properly assess and collect margin for risks 
associated with these products or do not have sufficient operational 
capacity, an unanticipated event in the market could topple a 
clearinghouse and send shock waves throughout the rest of the system.
  The Lincoln-Dodd derivatives title will benefit big dealers who can 
shift their swaps business overseas over small dealers who cannot.
  The so-called end user exemption contained in the Lincoln-Dodd 
derivatives title is illusory. Main Street businesses will not be able 
to continue hedging their business risks as they now do.
  Many end users will find themselves subject to clearing mandates, 
bank-like capital requirements, and extensive dealer-like business 
conduct requirements. As a result, Main Street businesses will face 
higher costs that will ultimately be borne by consumers.
  Consumers will be paying more for everything from electricity to 
candy bars. The Lincoln-Dodd derivatives title will work as an 
antistimulus plan that will pull resources out of the economy, hurt 
growth, and slow job creation. The derivatives title has real world 
consequences that cannot be wished away with a few technical fixes at 
the margins.
  Those are but a few of nearly one hundred flaws in the derivatives 
title. Yet there is another title--title 8--which has received less 
attention than derivatives, but is equally troublesome.
  Title 8 would give a stability Council broad power to identify 
financial market utilities, payment, clearing, or settlement activities 
that it deems to be now, or likely to become, systemically important. 
Those entities and activities would then be subject to risk regulation 
by the Federal Reserve Board of Governors.
  This title is another example of an inappropriate delegation of an 
congressional responsibility to decide who should be regulated and by 
which regulator. The extent of delegation is left uncomfortably open, 
as it depends on open-ended language in which key terms are undefined.
  The definition of ``payment, clearing, and settlement activities,'' 
for example, include any ``activity carried out by 1 or more financial 
institutions to facilitate the completion of financial transactions.'' 
With definitions like this one guiding the Council, it could decide to 
assign any aspect of the financial market to the Fed.
  Lack of regulatory accountability contributed to the recent financial 
crisis. Title 8 exacerbates the problem by allowing the Council to 
bring the Fed into significant sectors of the financial system as a 
back-up regulator. If a problem arises, both the Fed and the relevant 
supervisory agency will have someone else to blame. And both will be 
able to blame Congress for its careless delegation of its own 
responsibilities.
  Yet another troublesome title is title 9, which could appropriately 
be labeled the ``Grab-Bag'' title, since it is a grab-bag of items on 
the years-old wish lists of special-interest groups.
  These items are not designed to respond to problems identified in the 
last crisis or likely in any crisis, and have not been considered in 
hearings.
  The grab bag includes puzzling items, like a provision that would 
create a redundant office at the SEC and another provision that 
requires disclosure of the ratio of the median employee's compensation 
to the chief executive officer's compensation.
  It looks to me like the way is being paved to achieve so-called 
``social justice'' in income distribution. This is another disturbing 
example of the government getting its nose under the private sector's 
tent.
  The grab bag also includes anti-investor provisions. The proxy access 
provision, for example, enables special interest groups to push their 
agendas at the expense of the rest of the shareholders.
  It also includes a surprising self-funding provision that will give 
the SEC complete control over the size and allocation of its budget. 
Let me repeat that. The Democrats are going to give the SEC virtual 
budget autonomy from congressional oversight after the SEC

[[Page S4076]]

dropped the ball in the Madoff and Stanford frauds, and in the wake of 
the SEC's pornography scandal.
  When the ``grab bag'' title does attempt to address issues related to 
the crisis, it takes the wrong approach.
  With respect to credit rating agencies, for example, the effort to 
pull ratings out of the statutes and regulations is lost in a 
complicated new regulatory framework that only the big credit rating 
agencies will be able to navigate. This will stifle competition--the 
very thing we need to be encouraging. The failure of the ratings 
agencies was central to the crisis and this bill represents half 
measures at best.
  The heightened liability standards, corporate governance 
requirements, and qualification standards for credit rating analysts 
will lull investors into greater apathy and discourage competition.
  With respect to securitization, rather than focus on the root cause 
of the housing bubble by establishing clear, tough, and fair 
underwriting standards, this title imposes a 5 percent risk-retention 
requirement across-the-board for securitizations.
  In combination with changes in accounting and bank capital rules, a 
risk retention requirement could force an entire securitization to be 
retained on a bank's balance sheet for accounting and capital purposes. 
Securitization activity would then become economically unviable.
  This approach to securitization is a risky gamble to take at a time 
when our securitization markets are just starting to recover and show 
some signs of life.
  The whistleblower provisions are well-intentioned attempts to address 
the SEC's failure during the Madoff scandal.
  However, the guaranteed massive minimum payouts and limited SEC 
flexibility ensure that a line of claimants will form at the SEC's door 
hoping for some of the hundreds of millions in the whistleblower pot. 
The SEC will spend limited resources sorting through these claims that 
would have been better spent bringing enforcement cases.
  Title 9 devotes 250 pages to provisions that either have nothing to 
do with the crisis or purport to provide solutions that will not 
actually solve problems but, rather, promise to give rise to many new 
problems.
  This bill has been largely outsourced to Treasury officials and to 
regulators who have written key provisions to bolster their own power 
and authority.
  This bill reflects a series of deals made, not by lobbyists, but by 
the executive branch along with the existing financial regulators who 
failed to do their jobs during the last crisis.
  In negotiating key features of the bill, delays were the norm as 
responses to my offers or inquiries had to pass through a long and 
winding road of approval from Treasury, the Fed, the FDIC and on and 
on.
  Unfortunately, we have outsourced the writing of this legislation to 
the Fed, Treasury, OCC, SEC, CFTC, among other government 
bureaucracies.
  Let me give an example. Consider the derivatives title in the bill. 
This title was largely authored by the CFTC. We see this manifested in 
numerous provisions that give the CFTC broad new authority, sometimes 
to the exclusion of other regulators.
  The CFTC used this bill as an opportunity to grab jurisdiction from 
the SEC, which was purposely excluded from the negotiating room during 
critical meetings.
  As a result, the derivatives title gives the CFTC regulatory 
authority over a wide swath of Wall Street and Main Street companies.
  The CFTC, in addition to its traditional role of overseeing the 
commodity futures markets, will be charged with protecting retail 
investors, assessing systemic risk, imposing capital requirements on 
manufacturing companies, regulating banks, and assessing the regulatory 
capability of the Securities and Exchange Commission.
  This is the sort of result you get when you hand the legislative pen 
to the regulators.
  My Democrat colleagues like to talk about the influence of Wall 
Street lobbyists, but the real influence in this process has been 
exerted by the bureaucracies. I thought that one of the main objectives 
of this legislation was to plug regulatory gaps and streamline our 
financial regulatory structure?
  We still have the Fed, the FDIC, the SEC, the CFTC, and the OCC. We 
have also added some new letters to the alphabet soup, as with the CFPB 
and the OFR.
  We have also seen a complete about face with respect to the Federal 
Reserve.
  The process seemed to have begun with a commitment to rein in their 
bailout powers and take away their consumer protection authority, given 
the Fed's failures. By contrast, this legislation actually expands the 
Fed's powers.
  Americans see developments in Europe, where a monetary union faces a 
severe test and market participants are running away from the debts of 
profligate governments. Americans are increasingly worried that the 
out-of-control spending here in the U.S. and the massive expansion of 
government will very soon test American fiscal viability.
  An appropriate response would be to rein in the costs and breadth of 
runaway government spending and bureaucratic expansion. The wrong 
response would be the financial regulation bill before us.
  From legislative process to the final bill language, this bill is 
flawed. This bill promises more government, more costs, slower economic 
growth, and fewer jobs. It threatens privacy rights and fails to 
address crucial elements of the recent crisis.
  I urge my colleagues to vote against this bill.
  I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant editor of the Daily Digest proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REID. Mr. President, on behalf of the Republican leader, and I 
and the managers of the bill and a number of others who worked long and 
hard on this consent agreement, I now ask unanimous consent that all 
postcloture time be yielded back; except for 5 minutes for the 
Republican leader or his designee to raise a budget point of order 
against the Dodd-Lincoln substitute amendment No. 3739; Senator Dodd or 
his designee be recognized to waive the applicable point of order; that 
the Senate then vote on the motion to waive the budget point of order 
without further intervening action or debate; that if the waiver is 
successful, then all pending amendments be withdrawn; the substitute 
amendment, as amended, be agreed to; the bill, as amended, be read a 
third time; and the Banking Committee then be discharged of H.R. 4173, 
the House companion; that the Senate then proceed to its consideration; 
that the text of the Senate bill, as read a third time, be inserted in 
lieu thereof, the bill be advanced to a third reading and the Senate 
then proceed to vote on passage of the bill; that upon passage, the 
Senate insist on its amendments, request a conference with the House on 
the disagreeing votes of the two Houses; further, that on Monday, May 
24, it be in order for Senator Brownback to be recognized for a period 
not to exceed 10 minutes, and Senator Dodd for the same period; prior 
to Senator Brownback offering a motion to instruct the conferees with 
respect to H.R. 4173 on the subject of auto dealers; that after the 
motion is made, the Senate then proceed to vote on the motion to 
instruct; upon disposition of the motion to instruct, Senator Hutchison 
or her designee be recognized for a period of up to 10 minutes to make 
a motion to instruct with respect to proprietary trading, and Senator 
Dodd also be recognized for the same period of time; that upon the use 
or yielding back of the time, the Senate then proceed to vote on the 
Hutchison motion to instruct; that upon disposition of the above-
referenced motions to instruct, no further motions be in order, and 
that the Chair be authorized to appoint conferees on the part of the 
Senate with a ratio of 7-5; that the Senate bill then be returned to 
the Calendar; provided further that if the waiver is not agreed to, 
then this agreement be null and void; and the cloture motion on the 
bill be withdrawn; provided further, no amendments or motions be in 
order to the

[[Page S4077]]

motion to instruct; and the title amendment, which is at the desk, be 
agreed to.
  The PRESIDING OFFICER. Is there objection? Without objection, it is 
so ordered.
  Mr. DODD. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. SESSIONS. Mr. President, I ask unanimous consent the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SESSIONS. Mr. President, I am here to raise a budget point of 
order. The substitute and the underlying bill came to the floor 
spending money the Banking Committee did not have in its 302(a) budget 
allocation. It has exceeded the budget allocation. How much direct 
spending is in the Dodd-Lincoln substitute as amended? About $21 
billion, partially offset by raising revenues resulting in an increase 
to the deficit by $10.6 billion over the 5-year timeframe--that is the 
timeframe we are using for budget enforcement--and over the 10-year 
period, reflected in the baseline, it would increase the deficit by 
$19.7 billion.
  So our 10-year deficit outlook--the Obama administration policies 
will contribute to the debt by running massive deficits for the next 10 
years, averaging nearly $1 trillion a year from 2011 through 2020. The 
projected deficit of 8.9 percent of GDP for 2011 will come at a time 
when the administration is predicting a return to prerecession economic 
growth. The total public debt stands at over $13 trillion, with fiscal 
year 2009's $1.4 trillion deficit having contributed significantly to 
our Nation's credit card bill. With unsustainable levels like this, the 
Senate must knowingly, consciously, and with full awareness decide each 
time a bill comes to the floor to increase our debt burden further.
  I object and therefore raise a budget point of order under section 
302(f) of the Congressional Budget Act, which prohibits consideration 
of legislation that exceeds an authorizing committee's 302(a) 
allocation. The substitute, as amended, provides for net increases in 
direct spending of $21 billion and, if adopted, would cause the 
underlying bill to exceed the allocation to the Banking Committee over 
the 2010-2014 period.
  Mr. DODD. Reserving the right to object, I want to be heard on the 
matter.
  The PRESIDING OFFICER. The Senator from Connecticut is recognized.
  Mr. DODD. First of all, the Budget Committee, like all authorizing 
committees, has the option, at the outset, when the budget resolution 
is considered, to set aside a reserve fund in anticipation of some 
piece of legislation coming along that may cost more. We did not do 
that. We did not know what that would be. That is what we are talking 
about.
  If we had spent $1, since we had zero in terms of a budget allocation 
for our committee, $1 over it would have provoked a potential budget 
point of order. So the fact that the committee has spent money in this 
bill on a major restructuring of our financial structures of the Nation 
should not come as any great surprise. But, secondly, it is somewhat 
ironic the only reason we find ourselves at the point of $19.7 billion 
over is because--at the request, I might point out, of my good friends 
on the minority side--we eliminated the upfront prepayment cost of the 
$50 billion we had in the bill.
  Many believed the optics of that just did not look good so we took 
that money out, as you recall, in the Shelby-Dodd amendment, one of the 
first amendments we considered.
  Had that money stayed in, of course we would not be talking about any 
deficit at all in this bill. The fact is, of course, that post payments 
coming out of creditors, coming out of the industry itself, and the 
fact the bankrupt company does not have the assets, then it will be 
paid for.
  I say to my colleagues respectfully here, it is a very technical 
amendment dealing primarily with 302. It has to do with the allocations 
given to committees. Had we been $1 over, we would have been subjected 
to this point of order. But we have not. But on that basis, 
theoretically we ought to be waiving.
  Pursuant to section 904 of the Congressional Budget Act of 1974, I 
move to waive the applicable sections of that act for purposes of the 
pending amendment. I ask for the yeas and nays.
  The PRESIDING OFFICER. The point of order must first be raised.
  Mr. DODD. Was a point of order made?
  Mr. SESSIONS. I raise a point of order under section 302(f) of the 
Congressional Budget Act, which prohibits the consideration of 
legislation that exceeds an authorizing committee's 302(a) allocation. 
The substitute, as amended, provides for net increases in direct 
spending of $21 billion, and if adopted it would cause the underlying 
bill to exceed the allocation of the Banking Committee over the 2010-
2014 period.
  Mr. DODD. Mr. President, pursuant to section 904 of the Congressional 
Budget Act of 1974, I move to waive the applicable sections of that act 
for purposes of the pending amendment.
  I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The clerk will call the roll.
  The assistant legislative clerk called the roll.
  Mr. DURBIN. I announce that the Senator from Pennsylvania (Mr. 
Specter) is necessarily absent.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The yeas and nays resulted--yeas 60, nays 39, as follows:

                      [Rollcall Vote No. 161 Leg.]

                                YEAS--60

     Akaka
     Baucus
     Bayh
     Begich
     Bennet
     Bingaman
     Boxer
     Brown (MA)
     Brown (OH)
     Burris
     Byrd
     Cantwell
     Cardin
     Carper
     Casey
     Collins
     Conrad
     Dodd
     Dorgan
     Durbin
     Feinstein
     Franken
     Gillibrand
     Hagan
     Harkin
     Inouye
     Johnson
     Kaufman
     Kerry
     Klobuchar
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     McCaskill
     Menendez
     Merkley
     Mikulski
     Murray
     Nelson (NE)
     Nelson (FL)
     Pryor
     Reed
     Reid
     Rockefeller
     Sanders
     Schumer
     Shaheen
     Snowe
     Stabenow
     Tester
     Udall (CO)
     Udall (NM)
     Warner
     Webb
     Whitehouse
     Wyden

                                NAYS--39

     Alexander
     Barrasso
     Bennett
     Bond
     Brownback
     Bunning
     Burr
     Chambliss
     Coburn
     Cochran
     Corker
     Cornyn
     Crapo
     DeMint
     Ensign
     Enzi
     Feingold
     Graham
     Grassley
     Gregg
     Hatch
     Hutchison
     Inhofe
     Isakson
     Johanns
     Kyl
     LeMieux
     Lugar
     McCain
     McConnell
     Murkowski
     Risch
     Roberts
     Sessions
     Shelby
     Thune
     Vitter
     Voinovich
     Wicker

                             NOT VOTING--1

       
     Specter
       
  The PRESIDING OFFICER. On this vote, the yeas are 60, the nays are 
39. Three-fifths of the Senators duly chosen and sworn having voted in 
the affirmative, the motion is agreed to.
  Mrs. MURRAY. Mr. President, I move to reconsider the vote.
  Mr. DODD. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. Under the previous order, all postcloture time 
is yielded back. All pending amendments are withdrawn, and the 
substitute amendment, as amended, is agreed to.
  The amendment (No. 3739), as amended, was agreed to.
  The PRESIDING OFFICER. The question is on the engrossment and third 
reading of the bill.
  The bill, as amended, was ordered to be engrossed for a third reading 
and was read the third time.
  The PRESIDING OFFICER. Under the previous order, H.R. 4173 is 
discharged and the Senate will proceed to consideration of the bill, 
which the clerk will report.
  The legislative clerk read as follows:

       A bill (H.R. 4173) to provide for financial regulatory 
     reform, to protect consumers and investors, to enhance 
     Federal understanding of insurance issues, to regulate the 
     over-the-counter derivatives markets, and for other purposes.

  The PRESIDING OFFICER. Under the previous order, the text of the 
Senate bill, as amended, is inserted in lieu of the text of H.R. 4173.
  The question is on the engrossment of the amendment and third reading 
of the bill.
  The amendment was ordered to be engrossed and the bill to be read a 
third time.

[[Page S4078]]

  The bill was read the third time.
  The PRESIDING OFFICER. The bill having been read the third time, the 
question is on passage of H.R. 4173, as amended.
  Mr. DURBIN. I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There appears to be a sufficient second.
  The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. DURBIN. I announce that the Senator from West Virginia (Mr. 
Byrd), and the Senator from Pennsylvania (Mr. Specter) are necessarily 
absent.
  The PRESIDING OFFICER (Mr. Udall of New Mexico). Are there any other 
Senators in the Chamber desiring to vote?
  The result was announced--yeas 59, nays 39, as follows:

                      [Rollcall Vote No. 162 Leg.]

                                YEAS--59

     Akaka
     Baucus
     Bayh
     Begich
     Bennet
     Bingaman
     Boxer
     Brown (MA)
     Brown (OH)
     Burris
     Cardin
     Carper
     Casey
     Collins
     Conrad
     Dodd
     Dorgan
     Durbin
     Feinstein
     Franken
     Gillibrand
     Grassley
     Hagan
     Harkin
     Inouye
     Johnson
     Kaufman
     Kerry
     Klobuchar
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     McCaskill
     Menendez
     Merkley
     Mikulski
     Murray
     Nelson (NE)
     Nelson (FL)
     Pryor
     Reed
     Reid
     Rockefeller
     Sanders
     Schumer
     Shaheen
     Snowe
     Stabenow
     Tester
     Udall (CO)
     Udall (NM)
     Warner
     Webb
     Whitehouse
     Wyden

                                NAYS--39

     Alexander
     Barrasso
     Bennett
     Bond
     Brownback
     Bunning
     Burr
     Cantwell
     Chambliss
     Coburn
     Cochran
     Corker
     Cornyn
     Crapo
     DeMint
     Ensign
     Enzi
     Feingold
     Graham
     Gregg
     Hatch
     Hutchison
     Inhofe
     Isakson
     Johanns
     Kyl
     LeMieux
     Lugar
     McCain
     McConnell
     Murkowski
     Risch
     Roberts
     Sessions
     Shelby
     Thune
     Vitter
     Voinovich
     Wicker

                             NOT VOTING--2

     Byrd
     Specter
       
  The bill (H.R. 4173), as amended, was passed.
  Mr. DODD. Mr. President, I move to reconsider the vote, and I move to 
lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. Under the previous order, the title amendment 
which is at the desk, is agreed to.
  The amendment (No. 4172) is as follows:
       Amend the title so as to read:
       ``A bill 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.''

  The bill (H.R. 4173), as amended, will be printed in a future edition 
of the Record.
  The PRESIDING OFFICER. The Senate insists on its amendments and 
requests a conference with the House of Representatives on the 
disagreeing votes of the two Houses.
  Mr. DODD. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. DODD. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________