[Congressional Record Volume 156, Number 104 (Wednesday, July 14, 2010)]
[Senate]
[Pages S5825-S5826]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      FINANCIAL REGULATORY REFORM

  Mr. ISAKSON. Mr. President, I will be brief. I come to the floor this 
afternoon in anticipation of the vote tomorrow on the financial 
regulatory bill and to express the concerns I expressed before its 
passage on the floor originally, and my continuing concern today about 
its final form--and I understand it will pass with 60 votes.
  Nobody has been more concerned about the economy and the financial 
markets and financial institutions of our country than I. In part, 
because of my lifetime in the residential real estate business, I have 
seen firsthand the sufferings in our mortgage industry, the 
foreclosures that have taken place, and what the subprime lending 
industry did in the U.S. economy.
  Before we rush to a reregulation of financial institutions, I think 
we have to stop and reflect on some of the things we have already noted 
as Members of the Senate.
  Senator Conrad, a Democrat from North Dakota, and myself introduced 
legislation over a year ago called the Financial Markets Crisis 
Commission. We introduced it because we believed everything that had 
happened in late 2008 through March of 2009 that collapsed our markets 
on Wall Street, collapsed our securities, collapsed our mortgage-backed 
securities lending, and hurt our banks both community and national need 
to be investigated. We need to get to the root problem. We need to try 
to correct it.
  This Senate passed the Conrad-Isakson amendment unanimously. The 
House passed it virtually unanimously. The Senate and the House funded 
it to the tune of $8 million. That commission is appointed and working 
today. It

[[Page S5826]]

has subpoena powers that it can issue, and it is issuing subpoenas. It 
is directed by statute to report back to us by December 31 of this 
year.
  Here we find ourselves in the position of getting ready to pass a 
financial reregulation bill on the floor of the Senate tomorrow, in the 
middle of the year in July, knowing that we are not going to have until 
December of this year the forensic audit of our financial system done 
by the Financial Markets Crisis Commission which we unanimously funded 
and demanded. It is like a doctor doing surgery before he does a 
diagnosis. It does not make a lot of sense.
  In particular, there is one part of the bill I want to focus on for a 
second that I think is rife for continuing problems without any 
regulatory oversight, and that is Freddie Mac and Fannie Mae.
  I think everyone realizes that the purchase of mortgage-backed 
subprime securities by Freddie and Fannie created the depository 
whereby Wall Street went to raise the money to make subprime loans, 
knowing they could sell them to Freddie and Fannie. Once you create 
liquidity for those securities, you create a market, and those 
securities are going to be created to be funded or purchased by those 
entities.
  That is exactly what happened over the 5 or 6 years preceding the 
beginning of the collapse in late 2007. Freddie and Fannie went from 
zero holdings in subprime loans to as much as 13 percent of their 
portfolio. This was not just because they decided to buy them, but it 
was in part because of a congressional directive for Freddie and Fannie 
to have a portion of their portfolio in what is known as affordable 
loans.
  These affordable loans became subprime loans. They were securitized 
on Wall Street. The securities sold around the world, with the 
legitimacy of those securities based in part on the fact that U.S. 
Government-sponsored entities, Freddie Mac and Fannie Mae, were buying 
them, but also because Moody's and Standard & Poor's rated them AAA. 
Then all of a sudden we had a tremendous collapse of subprime 
securities that had devastating consequences not just for the United 
States but for the world.
  Briefly, I want to tell a story to make that point. In August of 
2008, I was in Kazakhstan with Leader Reid and other Members of the 
Senate on a trip that later took us to Afghanistan and finally to 
Germany. When we arrived in Kazakhstan and landed at the airport, we 
went into the city in an ambassador's vehicle. As we went by, I saw 
this beautiful city in Asia, beautiful countryside, large buildings 
being built, beautiful flowers, obviously a country of great wealth. 
They do have most of the oil in the old Soviet Union, now the Russian 
Federation.
  As we came into town, I kept noticing vacant, half-finished 20- and 
30-story buildings with a chain-link fences around them and razor wire 
on the fences and a padlock on the doors.
  We went to the Embassy and went to a briefing. When it was over, we 
were asked if there were any questions. I said: I have one. Is today a 
holiday?
  The Ambassador's officer said: No, it is not a holiday. Why do you 
ask?
  I said: We passed 15, 20 buildings half finished, cranes up, 20 to 30 
stories, padlocks on the gates, razor wire on the fences, nobody 
working. What happened?
  He said: U.S. mortgage-backed subprime securities.
  I said: I beg your pardon.
  He said: U.S. mortgage-backed subprime securities. He said: Just 3 
weeks ago, Merrill Lynch in America wrote down their portfolio by 78 
cents on the dollar. Therefore, the Bank of Kazakhstan, which had 
bought a number of these securities, wrote down their portfolio as 
well. They stopped funding construction loans. They stopped making 
mortgages.
  Kazakhstan is 11\1/2\ time zones away from Washington, DC. The 
reverberations of the subprime security collapse affected not just the 
United States but the world. Today what is happening in Europe and 
other areas is, in part in our recession, was a consequence of what 
began by a mandate by Congress for Freddie Mac and Fannie Mae to 
purchase affordable mortgage-backed securities which became the 
subprime securities that collapsed the marketplace.
  I tell that story and I make that statement to make my single 
important point on why this rush to judgment on the financial 
regulatory bill is wrong. It is wrong because it excludes Freddie Mac 
and Fannie Mae from any scrutiny or increased regulation. Let me repeat 
that. The two entities that created the market that bought the 
securities that fueled the funds for Wall Street to put them together 
and sell them--the two entities, Freddie Mac and Fannie Mae--are exempt 
from this financial reregulation bill in terms of scrutiny.
  That just, to me, does not make any sense. I think when the Financial 
Markets Crisis Commission reports back to us at the end of this year, 
it will make it clear that it is a mistake to rush to judgment.
  It is critical that we have all the players under scrutiny and all 
the players under regulation, not just trying to create a feel-good 
system where we reregulate those who are already regulated, saying we 
are doing something about the conditions in the market when, in fact, 
we are raising the cost of doing business, lowering the ability for 
banks and lending institutions to extend capital and, in fact, in some 
ways contributing to a contraction of the recession we experience today 
in America.
  When I cast my ``no'' vote tomorrow on financial reregulation, it 
will not be because I don't think we need to do some things in the 
marketplace, but it will be because I think it is time we listen to the 
people we have charged to come back to us with a forensic audit and 
tell us what we should have done rather than take a rush to judgment in 
a precarious and difficult time in the current recession in the United 
States.
  I am grateful for the time given to me. My vote tomorrow on the 
financial reregulation bill will be no. It is my hope that when the 
Financial Markets Crisis Commission comes back in December, we will 
find the right answers from that forensic audit to then make the right 
decisions for the financial markets of the United States of America.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Rhode Island.

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