[Congressional Record Volume 156, Number 99 (Tuesday, June 29, 2010)]
[House]
[Pages H4953-H4954]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         FINANCIAL REFORM BILL

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 6, 2009, the gentlewoman from Ohio (Ms. Kaptur) is recognized 
for 60 minutes as the designee of the majority leader.
  Ms. KAPTUR. Madam Speaker, tonight I want to devote extra time to 
talking about the proposed financial reform bill and the conference 
committee report that is being worked on this moment that is likely to 
come before the House later this week. And I wanted to put the 
discussion tonight into a broader context in hopes that my colleagues 
will listen and consider the bill to be brought before us.
  Let me begin with this statement: bankers hold a very privileged 
position in our society because in fact they hold the awesome power to 
create money. Their use of that power can advance our society, or their 
use of that power can harm us greatly. We are living through a period 
of great harm. And so we have to ask, When bankers are given power, how 
much power do we give them and what do we give them power to do?
  As we are discussing this this evening, the Financial Services 
Committee is meeting to take out a proposal that had been a part of the 
bill that would tax the banks that have done so much harm to us as a 
society. It is another example of too much power to too few, especially 
the few institutions that have hurt our entire Nation. So I rise 
tonight to offer comments on the so-called regulatory reform conference 
report, and I want to outline some principles that I hope Members and 
the American people will consider as this bill is debated later in the 
week.
  One of the key principles that we should seek in trying to correct 
what is wrong is the type of power that we give to these institutions 
to create money. Will in fact the power to create money be more broadly 
distributed across our society, or will the bill concentrate power in 
the hands of those few banks that have too much power? Will in fact the 
power to create money and credit accumulation be redistributed to Main 
Street--to where all of us live--or remain closely held by about six 
Wall Street and Charlotte-based megabanks? And here are their names: 
CitiGroup, Goldman Sachs, HSBC, Wells Fargo, Bank of America, Morgan 
Stanley.
  They have a whole lot more power than the people in my community in 
the financial realm. And why is that? Because chances are, if you talk 
to your relatives and neighbors, you will find that over half of the 
money that they are spending to pay for their mortgage or pay for their 
car loan doesn't go to a local financial institution in the town in 
which you live. It goes to a distant institution somewhere else that 
sucks money, sucks wealth, sucks power away from your community and 
places it somewhere else.

                              {time}  1710

  So this is a really threshold question. What does the bill do with 
the power to create money? It's shocking, but today, two-thirds of the 
financial assets of this country are held by those six institutions. 
Before the financial crisis of 2008, they only held a third of the 
power. Now they have two-thirds of the power. I say that's way too 
much. That's not a competitive financial system. That's what economists 
would call an oligopoly, very few having very much and taking it away 
from the rest of us. So this issue of banking power is critical, and 
Members, as they read this very long conference report, ought to say, 
To whom does this devolve power?
  Another threshold question is whether the proposed bill will 
encourage prudent lending or will it allow greater moral hazard by the 
bill itself pretending to be reform but actually offering the easy 
money creation of a recent history led by the big banks. What do I mean 
by that? It used to be when America had a strong middle class, we had a 
financial system that allowed credit, the creation of money, to be 
broadly distributed across our country. Probably, to the people in the 
gallery and people listening on their televisions, you actually knew 
bankers in

[[Page H4954]]

your community that started banks, and you'd have several--dozens of 
banks locally and there was real credit competition. We've seen all 
that change as the banks became eaten up by bigger banks and bigger 
banks yet, and States lost money center banks, and power gravitated to 
Wall Street and Charlotte, North Carolina, banks.
  But in the days when we had really competitive credit in this 
country, there was a law of our land that said to banks, When you get 
$1 in deposit, you can't lend more than $10. You can't blow money up 
more than 10 times because, you know what? That's imprudent, and you 
might make a mistake and, therefore, you have to have very careful 
underwriting and very careful servicing of those loans. That's all 
changed.
  One of the reasons we're in this financial mess is the Wall Street 
institutions took a dollar and they blew it up into $100 where there 
was no underlying value, there was no way that loan could perform. It 
would not rise in value if it was a home. Or if it were a commercial 
loan, it could never produce 100 times more than it was worth at the 
beginning. So this issue of prudent lending versus moral hazard is an 
important question in the bill that will be before us.
  Thirdly, we have to ask about conflicts of interest in the bill 
between the credit rating agencies, like Moody's and Standard & Poor's 
and the banks that employ them to rate them. Will there be a tight 
fence line that's laid between them or will it simply be finessed? So 
this issue of ``Is conflict of interest really addressed in the bill 
and shuts the door tight between the rating agencies and the banks, is 
it sufficient?'' Members have to weigh whether it is or not.
  Next I would like to turn to derivatives. This is where Wall Street 
really created money where there's no underlying value. And you can 
check this in your own community, because now a majority of mortgage 
loans in this country are actually--the home is not worth as much as 
the loan is valued at. They call that underwater. They sell overvalued 
real estate through the derivative instrument and through the way that 
the loan was leveraged through the bonding of the security. We're all 
paying the price for this now as home values start to go down, and this 
year, another 2.4 million Americans appear to be on the verge of losing 
their homes.
  So the question becomes: What kind of margin calls will there be in 
the bill--capital margin requirements will there be in the bill on 
derivatives, and how will those derivatives be traded? Will all of them 
be on exchanges? Will they all be transparent and electronic? What will 
be exempted? And who will own the exchanges?
  From what I hear, it is the same big banks. They're not going to put 
an exchange in Toledo, Ohio, the largest city that I represent. And 
this is a big concern because, in fact, if what I've heard, that the 
capital margins in the bill are 15 to 1, that's a 150 percent increase 
over what we formally had as the prudent lending rules that existed in 
banks when we had a solid middle class and a banking system that was 
functioning for all the people. When it was $1, you could get $1 in 
your bank and you could loan $10. Now we're seeing the capital margins 
on derivatives are 1 to 15. Very interesting.

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