[Congressional Record Volume 156, Number 105 (Thursday, July 15, 2010)]
[Senate]
[Pages S5943-S5946]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      FINANCIAL REGULATORY REFORM

  Mr. LeMIEUX. Mr. President, I am here today to talk about the bill 
the Senate just voted on and passed, the financial regulation overhaul 
bill. It is, in my mind, a missed opportunity. We had the opportunity 
to truly address the causes of the financial meltdown and put into 
place measures that would stop the meltdown from happening the next 
time. But, unfortunately--as I have seen in about the year's time I 
have had the privilege to serve in the Senate--it seems it is the 
predilection of this Congress to take a crisis and then come forward 
not with a narrowly focused and tailored solution but, instead, a 
large-ranging, comprehensive bill that creates more government, that 
creates more bureaucracy, that puts more debt on our system of 
government, and still fails to address the very problem we should be 
trying to focus upon.
  We were supposed to rein in the wild and risky speculative tools and 
empower our regulators to prevent another crisis. But we did not. I 
heard Senator Dodd, who I have enormous respect for--and I think he put 
a tremendous amount of time into this bill, but I heard him on the 
floor the other day, in giving his sort of summation as to why this 
bill should be passed, saying this will not stop any future recessions. 
He is right. He is right because we did not do what we needed to do in 
order to truly fix the problems that happened back in the 2007-2008 era 
when we had this tremendous financial meltdown--this meltdown which has 
depleted trillions of dollars of the net worth of Americans; this 
meltdown that has led to one of the greatest, if not the greatest, 
recession since the Great Depression.
  In my home State of Florida, people are suffering mightily. We have 
nearly 12 percent unemployment. We are either No. 1 or No. 2--depending 
upon the month--in mortgage foreclosures, and our people are behind on 
their mortgage payments more than any other State in the Union.
  We are a State that has been based, perhaps too much, on growth. So 
when folks are not coming to build a new home, the contractor does not 
have a job. When folks are not coming to visit our beaches or our 
tourist attractions, the restaurateur, the hotelier--they lose their 
work. So things are very difficult in Florida.
  This financial crisis stemmed in part from some of the problems we 
saw in lending, in real estate, and there was no place that was any 
worse than what happened in Florida. What this bill fails to address: 
the underwriting standards that should have been in place to stop these 
so-called ninja loans--``no income, no job.'' They called them ninja 
loans. Anybody could get one, and people were put into homes they could 
not afford.
  Why was that able to happen? It was because there were no 
underwriting standards. There was no skin in the game for those getting 
the mortgage. There was no skin in the game for the mortgage broker, 
who was able to sell off this mortgage to Wall Street, where there was 
this vast and great demand to bundle these products into mortgage-
backed securities, and, for the first time ever, tie our real estate 
market, our homes--our most important investments--with the financial 
markets.
  As soon as that was done, the speculation and the speculators ran 
wild. This bill does not do enough to prevent that in the future, to 
provide the real skin in the game that should be needed to trade those 
mortgage-backed securities. We failed to address those two factors. 
Perhaps even worse, we failed to address Fannie and Freddie, the 
government-sponsored entities that stood as silent guarantors to all 
these mortgages, that let the market have faith and confidence that the 
government was the backstop to these mortgages that should have never 
been let. This bill fails to address that. Two of the leading causes of 
the financial debacle we failed to addressed.
  Finally, a point we needed to address, and we did: My colleague and 
friend, who presides over the Senate this afternoon, was the person who 
was the leading proponent on trying to do something about the rating 
agencies, and we did do something. I was pleased to work with Senator 
Cantwell, and I was appreciative of the efforts of Senator Franken, to 
try to do something about these rating agencies. And we did.
  That is one good thing about this bill. They are written out of law. 
These rating agencies compounded the problem because when these 
mortgages, packed together--mortgages that were not any good, that were 
not going to get paid, that then got turned into a trading vehicle--
when they went up to Wall Street, these rating agencies that are paid 
for by the investment banks stamped them with AAA ratings, gave them 
the ``good housing seal of approval'' and let the world believe they 
were sound investments. They failed. And lo and behold, we find that 
the government has given a sanction in law to these rating agencies to 
be the determiners of creditworthiness--a monopoly, if you will.
  Well, one good thing this bill does is to strip that out. No longer 
will they be given that state-sponsored monopoly. Now the marketplace 
will have to work. Now we will not be so relying upon people who are 
paid by the investment banks that did not do their homework and in part 
caused this crisis.
  If we would have tackled the GSEs, Fannie and Freddie, and if we 
would have tackled underwriting standards, I would be here giving a 
speech today talking about why I voted for the bill. But we only did 
one of the four things and, unfortunately, now, we have a bill that 
Wall Street loves. Citigroup loves it. Goldman Sachs loves it. But Main 
Street is very concerned about it. We are going to make sure that 
orthodontists are regulated because they, every once in a while, extend 
credit to their patients. But the folks on Wall Street, who caused 
these problems, and the underlying cause of the debacle, the mortgage 
problem, the underwriting problem, and the Fannie and Freddie problem 
do not get addressed.
  According to the study by the U.S. Chamber of Commerce, this bill 
will create a huge new governmental bureaucracy: 70 new Federal 
regulations through the Bureau of Consumer Financial Protection, 54 new 
Federal regulations through the U.S. Commodity Futures Trading 
Commission, 11 new Federal regulations through the Federal Deposit 
Insurance Corporation, 30 through the Federal Reserve, 205 through the 
SEC.
  You may say: Well, that sounds good. We need more regulations, right? 
There was a problem. But if the regulation does not go after the 
problem that caused the debacle, what do the regulations do? We are in 
a situation right now where business in this country is frozen. It is 
frozen solid because of the actions of the Congress and this 
administration who are doing so much to this economy that big business 
and small business alike do not believe they can hire new workers.

[[Page S5944]]

  There is so much uncertainty in the marketplace. I hear this from 
small businesspeople in Florida where we have 1.9 million small 
businesses, to workforce centers which are trying to get people back to 
work, to incubators which are trying to grow new jobs, to presidents of 
chambers of commerce, and other folks I talk to regularly. They tell me 
business is frozen. Washington is doing so much to the economy they do 
not know where to turn next. Because they do not know what the future 
looks like, and because this government is pulling these huge levers on 
the economy, they believe they cannot make any moves.
  Because of the health care bill, businesses in Florida, small 
businesses are telling me they are not going to hire new people because 
they cannot afford the new regulation. In fact, some of these 
businesses are not only going to not hire new people, they are going to 
let people go.
  This financial regulatory reform bill--a business in Florida has told 
me its trading desk is going to the Bahamas. Those folks are now going 
to move and no longer add to our tax base and the wealth and diversity 
of our community because this regulation is going to put them in a 
situation where business says it is more beneficial to move them out of 
the State, out of the country. There are always unintended 
consequences. When we pull these huge levers on the economy, we create 
tremendous uncertainty, and business does what business needs to do to 
keep its people working and to make profits. That is what business is 
focused on. Those are the jobs that allow all of us to work, to provide 
for our families. Right now, those jobs are under siege. In a State 
such as mine where we have nearly 12 percent unemployment, where times 
are especially difficult, the last thing in the world we need is for 
the Federal Government to be monkeying with the economy to the extent 
that businesses can't feel as though they can hire new workers.

  This financial regulatory reform bill does more of what the health 
care bill did, and it seems to be the penchant of this Congress. We 
should be focused on jobs. We should be here day and night trying to 
find ways to make sure business has the incentives it needs to create 
new jobs and retain jobs, because we need to get people back to work.
  This financial regulatory reform bill was a bill we should have had 
80 or 90 votes on. It should have been narrowly focused and tailored on 
the problems that caused the financial debacle of 2008 that we still 
suffer through. This Chamber needs to get in the business of focusing 
on what should be done to address the problem and not using every 
crisis as an excuse to grow government. This new consumer agency we 
created will cost billions of dollars and will empower a new Federal 
Government executive, who reports to no board, to be able to make broad 
and wide-ranging policy decisions across this country and in the 
boardrooms of the businesses of America's companies. That is how 
Washington solves a problem these days. We don't fix the SEC which is 
the agency that is supposed to be doing the job. We don't go in and 
fire all the people at the Securities and Exchange Commission who 
should have been on top of this. We create a whole new governmental 
level of bureaucracy. We layer governmental agency on top of 
governmental agency, create more power, create bigger government, spend 
more of your money, and run this country into further debt.
  We need a change. We need to do things differently. I wish I could 
have voted for this. I wish it would have focused on the issues it 
needed to, but, unfortunately, I can't because it does more harm than 
good. I am appreciative of my colleagues for supporting the amendment I 
did with Senator Cantwell on the rating agencies, but only in that 
regard and in a few other regards did we do something that actually 
helped. Most of what we did didn't fix the problem and it caused more 
harm than good.
  With that, I yield the floor.
  The PRESIDING OFFICER (Mrs. Shaheen). The Senator from Kentucky.
  Mr. BUNNING. Madam President, I have come to the floor to speak about 
the conference report on the financial regulation bill the Senate has 
just passed. I think it was a huge mistake. I voted against the bill, 
and now I wish to take some time to explain why.
  The short explanation is the bill does not address the causes of the 
financial crisis and instead it sows the seed of the next financial 
crisis while adding unnecessary strains on our already struggling 
economy. I am going to spend the next little while giving the longer 
explanation.
  As I have said many times in the Banking Committee and on the floor 
of the Senate, I want to pass a strong financial reform bill that reins 
in the excesses of our large financial companies and the Federal 
Reserve. No one has been a stronger voice against the financial 
industry enablers at the Fed than I have. I have fought every bailout 
brought to the Congress as well as the bailouts that the Federal 
Reserve and both the Bush and Obama administration put in place without 
the approval of Congress. I very much wanted to pass a bill that ends 
bailouts and reins in the reckless activities of our financial system. 
Unfortunately, like the bill passed by the Senate earlier this year, 
the conference report before the Senate today did not end bailouts. In 
fact, it does the opposite and makes them permanent.
  This bill will also lead to future financial disasters because it 
ignores the root causes of the crisis. It fails to put the necessary 
handcuffs on the key parts of the financial system and will result in 
even greater concentration of the financial system in a very few large 
firms.
  The largest single contributing factor in the current financial 
crisis and most other financial crises in the past is flawed Federal 
Reserve monetary policy. Starting in the late 1990s, former Fed 
Chairman Alan Greenspan used easy money to prop up the financial firms, 
manipulate the stock market, and micromanage the economy. That easy 
money inflated the tech stocks and the dot.com bubble. After that 
bubble burst, as well as following the September 11 terrorist attacks, 
he again loosened monetary policy which began to inflate the largest 
asset bubble in history. While the bubble was the most visible in 
housing, it was a debt bubble that spread across all households, 
corporate, and government borrowing.
  In about 2004, the housing bubble started to become unstable, but 
lending standards were relaxed and the rise of subprime and other 
nontraditional mortgages enabled the bubble to keep growing for another 
couple of years. Eventually, the housing bubble became unsustainable 
and popped. The corporate debt bubble largely did the same, and we are 
now seeing government debt become unsustainable around the world, 
including here in the United States of America.
  Despite the Fed's history of causing financial crises and its clear 
role in the current crisis, this bill does nothing to rein in the Fed. 
Chairman Dodd's original draft bill presented to the Banking Committee 
last year took some positive steps to get the Fed back on track by 
removing the Fed as a regulator. But unfortunately, that did not make 
it into the final bill. Nothing in this bill will stop the next bubble 
or collapse if the Fed continues with its easy money policies. Cheap 
money will always distort prices and lead to dangerous behavior. No 
amount of regulation can contain it.
  In addition to its flawed monetary policy, the Federal Reserve failed 
as a regulator leading up to the crisis. The Fed was responsible for 
regulating most of the large financial holding companies, but instead 
of regulating them, it was a cheerleader for them. The Fed, along with 
other regulators, allowed those firms to grow even larger and take 
unwise risks. And in what may be the Fed's greatest regulatory failure, 
Chairman Greenspan refused to do the job Congress gave him and the Fed 
in 1994--1994--the job to regulate mortgages. Instead of taking action 
that could have prevented at least part of the housing bubble inflated 
by subprime and nontraditional mortgages, Chairman Greenspan encouraged 
homebuyers to get those kinds of mortgages. He and Chairman Bernanke, 
along with many others at the Fed, sang the praises of those mortgages 
as financial innovation that reduced risk.
  How well did the Fed approach to regulation work, I ask my 
colleagues? Well, in 2008, most, if not all, of the largest firms 
regulated by the Fed would have failed had they not been bailed out 
through TARP or by the Fed on its own. That seems like a pretty

[[Page S5945]]

open-and-shut case for me for removing all regulatory responsibility 
from the Fed and giving it to someone who will use it. But that is not 
what this bill does. Instead of real regulatory reform, the bill 
concentrates regulation of the largest financial firms at the Federal 
Reserve, despite the Fed's long history of failed regulation.
  As I mentioned earlier, the original draft of this bill removed bank 
and consumer protection regulations from the Fed and all the other 
regulators and created a single new banking regulator. That is a better 
approach. But it was dropped before the bill ever got out of the 
Banking Committee, and now the Fed gets more power for both jobs. 
Except for possibly Chairman Dodd, no one has criticized the Fed more 
than me for its failure to use its consumer protection powers to 
regulate mortgages. Chairman Greenspan did nothing for 12 years after 
Congress gave him the power. Chairman Bernanke took another 2 years to 
act after he replaced Chairman Greenspan. Clearly, the Fed did not take 
consumer protection seriously and it deserves to lose that job.
  I support strengthening consumer protection in the financial system, 
but I cannot understand keeping that job inside the same Fed that 
ignored it for decades. Next to reining in the Fed, the most important 
goal of this bill should be to end bailouts and the idea of too big to 
fail. Instead, the bill makes too big to fail a permanent feature of 
our financial system and will increase the size of the largest 
financial firms. As I said earlier, the bill concentrates regulation of 
the largest financial institutions at the Federal Reserve. The Fed 
failed as a regulator leading up to the crisis and should not be the 
regulator of any banks. But now Fed regulation will be a sign that a 
firm is too big to fail.
  On top of the new Fed's seal of approval for the largest banks, this 
bill creates a new stability council that will designate other nonbank 
firms for Federal regulation and, thus, too big to fail. Fed regulation 
of the largest banks is not the only way this bill makes too big to 
fail and bailouts permanent. The largest bank holding companies and 
other financial firms will now be subject to a new resolution process. 
Any resolution process is by definition a bailout because the whole 
point is to allow some creditors to get paid more than they would in a 
bankruptcy court. The regulator will have the power to pick winners and 
losers by paying some creditors off on better terms than other 
creditors.
  Even if the financial company is closed down at the end of the 
process, the fact that the creditors are protected against the losses 
they would normally take will undermine market discipline and encourage 
more risky behavior. That will lead to more Bear Stearns, Lehmans, and 
AIGs, not less.
  The resolution process is not the only way this bill keeps bailouts 
alive. The bill does not shut off the Federal Reserve's bailout powers. 
While some limits are placed on the Fed, the bill still lets it create 
bailout programs to buy up assets and pump money into struggling firms 
through ``broad-based'' programs. That will put taxpayers directly at 
risk and make Fed bailouts a permanent part of the financial system.
  Instead of putting all these bailout powers into law, we should be 
putting failing companies into bankruptcy. Bankruptcy provides 
certainty and fairness, and protects taxpayers. Under bankruptcy, 
similar creditors are treated the same, which prevents the government 
from picking winners and losers in bailouts. Shareholders and creditors 
also know up front what losses they are facing and will exercise 
caution when dealing with financial companies. Some of us tried to 
replace the bailout provisions with a revised bankruptcy section for 
financial companies, but, unfortunately, we were not successful.
  Since the bill does not take away government protection for financial 
companies and send those that fail through bankruptcy, it should at 
least make them small enough to fail. Decades of combination have 
allowed a handful of banks to dominate the financial landscape. The 
four largest financial companies have assets totaling over 50 percent 
of our annual gross domestic product, and the six largest have assets 
of more than 60 percent. The four largest banks control approximately 
one-third of all deposits in the country. This concentration has come 
about because creditors would rather deal with firms seen as too big to 
fail, knowing that the government will protect them from losses. I 
would rather take away the taxpayer protection for creditors of large 
firms and let the market determine their size. But if that is not going 
to happen we should place hard limits on the size of financial 
companies and limit the activities of banks with insured deposits. Any 
financial companies that are over those size limits must be forced to 
shrink. This will lead to a more competitive banking sector, reduce the 
influence of the largest firms, and prevent a handful of them from 
holding our economy and government hostage ever again. Like most of the 
other real reform ideas that were proposed while previous versions of 
this bill were in the Banking Committee or on the Senate floor, 
meaningful limits on the size of banks were left out.

  Along with not solving too big to fail, this bill does not address 
the housing finance problems that were at the center of the crisis--and 
still with us today. First, there is nothing in this bill that will 
stop unsafe mortgage underwriting practices such as zero downpayment 
and interest-only mortgages. There is a lot of talk of making financial 
companies have skin in the game, but when it comes to mortgages, the 
skin in the game that matters is the borrower's. Second, the bill 
ignores the role of government housing policy and Fannie Mae and 
Freddie Mac, which have received more bailout money than anyone else. 
The bill does not put an end to the government-sponsored enterprises' 
taxpayer guarantees and subsidies or stop the taxpayers from having to 
foot the bill for their irresponsible actions over the past decade. 
Over 96 percent of all mortgages written in the first quarter were 
backed by some type of government guarantee. Until we resolve the 
future of the these entities, the private mortgage market will not 
return and the risk to the taxpayers will continue to increase.
  As I mentioned at the beginning of my statement, this bill is going 
to have real consequences for the economy at a time when the recovery 
is looking more like a second dip of the recession. Combined with the 
tax increases that will take effect at the end of this year, I am 
afraid we may not see real recovery until 2012 or later. One way this 
bill is going to affect the economy is by the increased consumer 
protection regulation that will reduce the availability of credit from 
banks and other firms that had nothing to do with the financial crisis.
  Another way was highlighted in a front-page article in the Wall 
Street Journal yesterday on the impact of the derivatives regulation in 
the bill on farmers. I have been as critical as anyone of the lack of 
regulation of derivatives--which was again largely thanks to Alan 
Greenspan--and I think we need more transparency and oversight in that 
market, especially for credit default swaps and related products. But 
the bill goes too far in its impact on ordinary end users who are using 
derivatives to hedge commodity costs or interest rate and currency 
risks. The Wall Street casino needs to be shut down, but the bill 
should not prevent legitimate derivative customers from buying 
responsible protection.
  I have many other concerns about this bill that I have discussed in 
the past on the floor and in the Banking Committee. The bill returned 
by the conference committee will not solve the problems in our 
financial system. It is regulation without reform. I had hoped we could 
work together in a bipartisan way to craft a bill that ends too big to 
fail forever, but this is a highly partisan bill that will accomplish 
little. And one of the chief authors of the bill, Chairman Dodd, admits 
that even he does not know how the bill will work and won't until after 
it is in place.
  In the end, the bill gives so much discretion to the Fed that the 
best description of the new regulations is they are whatever the Fed 
says they are. Or to borrow the title of David Wessel's recent book, it 
can be described as ``in Fed we trust''. We saw how well that worked 
out the last time. I cannot understand why anyone expects it will work 
out better this time.
  I yield the floor and suggest the absence of a quorum.

[[Page S5946]]

  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant bill clerk proceeded to call the roll.
  Mr. CHAMBLISS. 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. CHAMBLISS. Madam President, I ask unanimous consent that Senator 
Isakson and I be allowed to speak as in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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