[Congressional Record (Bound Edition), Volume 154 (2008), Part 11]
[House]
[Pages 15095-15103]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      MORTGAGE FORECLOSURE CRISIS

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 18, 2007, the gentlewoman from Ohio (Ms. Kaptur) is recognized 
for 60 minutes as the designee of the majority leader.
  Ms. KAPTUR. Mr. Speaker, I wonder if the American taxpayers know that 
they are now the insurance company for Wall Street and for Wall 
Street's high-risk investors.
  I am very pleased to begin this evening joined by our dear and 
respected colleague from the great City of Cleveland, Congressman 
Dennis Kucinich, and would yield the first portion of the hour and such 
time as he may consume on the very important subject of the mortgage 
foreclosure crisis and the financial crisis facing our Nation.
  Mr. KUCINICH. I want to thank the gentlelady from Ohio, my long-time 
friend and colleague, Representative Marcy Kaptur, for organizing this 
special order and for her continued commitment to addressing the 
foreclosure crisis, which is ravaging communities like Toledo and 
Cleveland and cities across this country.
  I would also like to thank Chairwoman Maxine Waters for her 
persistence in addressing the foreclosure crisis and the subprime 
crisis. It has been an honor for me to work with Congresswoman Kaptur 
and Congresswoman Waters on this very important matter.
  My subcommittee, the Subcommittee on Domestic Policy of the Committee 
on Oversight and Government Reform, a subcommittee of which I am chair, 
has held five hearings over the past 2 years regarding the foreclosure 
crisis, predatory lending, lasting effects.
  What we have found is that neighborhoods are totally blameless 
victims of the foreclosure crisis. When homes are lost to foreclosure, 
property values of the surrounding homes plummet, and owners lose 
equity in their homes.
  When you go into a neighborhood like Slavic Village in Cleveland 
where I am from, and you look how certain people built a community 
there, an older ethnic community, where people would take pride in 
their property, in keeping it immaculate, and then you see foreclosures 
in the community. Suddenly, someone who has had a property that they 
have kept up for 40 or 50 years, sees their property values decline 
because of the foreclosures around them and sees their property 
actually at risk, the fire hazards and safety hazards because of the 
foreclosures around them.
  We are seeing people who, for their family, their home is their 
biggest investment in their life. That's the way it is for most 
Americans, seeing their investments threatened because of the sharp 
practices in subprime lending, and in the foreclosure scandal that has 
hit this country that Congresswoman Kaptur has been one of the primary 
spokespersons on in terms of exposing.
  We see these demands for services, municipal services. They increase 
as the foreclosures run wild, more police and firemen needed where 
there are a lot of foreclosed homes, increased social services and code 
enforcement. When you think of a foreclosed home, the cost of the 
foreclosed house goes far beyond the cost of the house itself.
  Unfortunately, the State of Ohio and the City of Cleveland have been 
at the center of this crisis for some time now. According to 
RealtyTrac, which is an independent group that gathers information on 
foreclosure, four Ohio cities are in the top 20 metropolitan areas 
affected by foreclosures. Moreover, the Cleveland metropolitan area 
ranks sixth in the Nation for percentage of houses in foreclosure, 
which is a staggering statistic, considering our city's modest property 
values and the cost of living, which in Cleveland is relatively 
inexpensive.
  Ms. KAPTUR. If the gentleman would yield just for a moment.
  Mr. KUCINICH. I would certainly yield to my friend.
  Ms. KAPTUR. Perhaps I could point out on the map, of course, 
Cleveland the most affected region of Ohio, Cuyahoga County, if we look 
back to 1997, here, and you just look at the colors alone, you have a 
sense of how many people are actually losing their homes in that region 
versus Columbus, Ohio; Cincinnati, Ohio; my own region, the greater 
Toledo area. The change between 2007 and 1997 in the last decade, it's 
just, it's profound.
  Mr. KUCINICH. If I may, what the gentlelady points out, you can look 
at the research that uses foreclosure and lending data. In Cleveland, 
the parts of the city where the depository banks made very few prime 
loans, they also saw the highest percentage of subprime loans and 
subsequently, or consequently, the highest number of foreclosures.
  So it should not be the least bit surprising to anyone, then, that 
the pattern of foreclosures mirrors almost exactly the established 
patterns of low-prime loans and high numbers of subprime loans.
  Ms. KAPTUR. Absolutely, and each red dot on this map of Ohio 
represents 10 foreclosures. If we look at the same period of time and 
how many new filings are fueling this foreclosure growth, we can go 
back to 1997 and look at 21,000 filings every single year. The number 
increases to where last year there were over 83,230 filings. Many of 
those, the gentleman states, so-called subprime, concentrated in 
communities that were working class and poor. There was a targeting 
going on around this country.
  Mr. KUCINICH. No question about it, to my good friend Marcy Kaptur.
  If we dug a little bit deeper, and we saw some patterns that 
reflected exactly what you have said, the patterns coincide with some 
cases with African-American neighborhoods because look what happened, 
for years, people in African-American neighborhoods couldn't get any 
loans at all. Then what happened, the Community Reinvestment Act 
passed, and we were supposed to have access to, finally, to credit.
  But banks found a way to go around that. Instead of offering prime 
loans to people of color, they came up with these subprime packages, no 
document, low-document loans, didn't tell people exactly what was going 
on. As a result, people got in over their heads, and they ended up 
losing their homes.
  Now, some people will say well, they should have known. But let me 
tell you something. One of the most significant challenges in this 
country is a issue of financial literacy. It's not a color issue, 
because the fact of the matter is that working-class people are and 
people who are poor people, often have a problem with the issues of the 
financial literacy. It's called reading the fine print, looking at the 
bottom line.
  So you rely, and you trust people, you think that the banks are going 
to be fair to you. You think they are going to tell you the whole 
story. You think that you are going to be given an opportunity to have 
an even break. Not so, you look at the filings.
  Ms. KAPTUR. If the gentleman, my dear friend Congressman Kucinich 
would agree with this, in many of those neighborhoods there literally 
were no regular banks. In other words, they red lined the community 
providing no decent financial institutions, leaving them with those 
payday cash checking or check cashing operations in those communities.
  Then all of the money that would flow into those communities, whether 
it was Social Security for senior citizens who had worked, veterans 
disability benefits for people who had served our country, where would 
they take that check to cash it?

                              {time}  2000

  There was no place. It was redlined. So those dollars were 
systematically removed. That's what redlining was about--their money 
systematically removed from those communities and put somewhere else--
and then the very people in those communities couldn't get mortgage 
insurance for their homes, so they were sucked dry. That's why we had 
the Home Mortgage Disclosure Act. It was to say, hey, people in these 
neighborhoods have savings; they have income; they shouldn't have to 
pay all this money to cash a check. Then when we made them abide by the 
law and treat every citizen with the respect they're due, they came up 
with the subprime gimmick.
  Mr. KUCINICH. Exactly.

[[Page 15096]]

  So what they did is they started in African American neighborhoods, 
but when the subprime financial machine started to churn and Wall 
Street looked at it as a tremendous opportunity for growth and the 
hedge funds looked at it as an even greater opportunity for the 
unregulated massing of capital, then what you had is the reach from the 
African American communities, which are primarily located in cities, 
into the suburbs. So you have this foreclosure pattern spreading.
  We're also seeing increases in high-cost loans and vacant properties 
in the outer suburbs and, guess what, in the outlying counties where 
the more recent data is analyzed further. Where previously the 
phenomenon was in the African American census tracts in eastern 
Cuyahoga County, we see the problem spreading west of the census tracts 
where there are larger Hispanic and Arab populations as well as our 
seeing the problem spreading into every direction it can spread in 
Cleveland--east, south and now west.
  Ms. KAPTUR. You know, it used to be that most people in this country, 
when they would get home loans, would go to financial institutions in 
their communities or in their neighborhoods if there were a financial 
institution. You had a person who would make a judgment about you. What 
was your character? What was the ability of that institution to collect 
the loan? What was your collateral? Character. Collateral. 
Collectibility.
  Then back in the 1980s, we had this big savings and loan crisis, and 
the cost of keeping our financial system whole was dumped on the 
taxpayers of the United States. We have now paid a quarter of $1 
trillion, $250 billion, going back to the 1980s.
  What has happened in this crisis after the savings and loans were 
demolished--really, gotten rid of--is that in the 1990s, I can remember 
their saying, well, you know, we won't have that problem anymore 
because now we're going to create something new. It's called a 
mortgage-backed security, and Wall Street will solve our problem. We 
will never have a banking crisis again in the United States of America. 
We're going to create this cute, little paper instrument, and we're 
going to let Wall Street break up your mortgage into parts, and all 
these mortgage banks will have it, and then there won't be any one bank 
that will get in trouble, right?
  So, during the 1990s, there was complete financial deregulation. We 
got rid of something called the Glass-Steagall Act, that goes back to 
President Roosevelt, where we separated banking from commerce, and they 
got rid of the appraisal standards of HUD in 1993 and 1994, and Freddie 
Mac, Fannie Mae and the Office of Thrift Supervision at the Treasury 
Department didn't do their jobs.
  What happened was these new securities moved from the local 
communities. Our local thrifts were gotten rid of--the agencies that 
created the mortgage instrument and helped people have savings accounts 
with real passbooks that earned interest. Then we started working with 
Wall Street, and your loan would go from your local communities--this 
is Countrywide right here. If we look at Angelo Mozilo, he didn't live 
in Cleveland or in Toledo. He made over $2.8 million.
  Mr. KUCINICH. That's in a year.
  Ms. KAPTUR. You know, the bankers who worked in our communities years 
ago, they didn't make that kind of money, and that doesn't count all of 
his stocks and everything else. Countrywide is one of the worst 
abusers, the worst abuser, in this scandal.
  So, during the 1990s, the mortgage process became hooked to Wall 
Street. Then for the first time in American history, those mortgages, 
rather than being held by your local banks where you had to go in where 
they knew you and where they knew whether your father had a job or 
whatever else, were traded up to these anonymous institutions, to 
people who didn't even live in your community. Then they did something 
they'd never done before in American history. They sold them into the 
international market.
  One of the real problems in places like Toledo and, I'm sure, in 
Cleveland, Congressman Kucinich, is that the workouts are very 
difficult to do because you're not sure who is the ultimate holder of 
your loan. How many of the millions of people being hurt by this go to 
the telephone and try to work out a deal with one of these companies? 
As for IndyMac, the company that just went belly-up last week, their 
CEO made a salary of $1 million, a bonus of $1 million, whatever. Now 
that institution from California is in trouble. Try to work out your 
loan. Who holds your paper? How do you get that person on the phone?
  It's a totally anonymous, faceless system for millions of Americans, 
and it was meant to happen, and now the American people are being asked 
to become the insurance company for Wall Street--for investment banks 
and for Freddie Mac and Fannie Mae, which are not insured institutions 
of the Government of the United States of America--to the tune of who 
knows how much--$1 trillion? $2 trillion? $3 trillion?
  Mr. KUCINICH. Would the gentlelady yield.
  Ms. KAPTUR. I would be pleased to yield to the gentleman.
  Mr. KUCINICH. There has been no accountability here. The Federal 
Reserve was supposed to be monitoring the practices of the banks. They 
didn't do that. The Securities and Exchange Commission was supposed to 
be watching the movement on Wall Street as this juggernaut of subprime 
loans moved along, and it was supposed to be providing a measure of 
discipline or regulation. They didn't do that.
  The Justice Department was supposed to be watching these mergers that 
were occurring that were really driven by the desire of not just 
capital formation but by the desire to get their hands on these newly 
packaged instruments that were beyond the reach of regulators, and the 
Justice Department didn't do anything.
  When the hedge funds began to accelerate with the help of the 
subprime loan packages, no one was thinking that there was a bubble 
that was growing. All the danger signs were there. The regulators 
looked the other way.
  Now, what does this mean? What it means is that somewhere in America 
there is a family who had a dream for a home, and that dream was the 
most important dream in their lives, just to have a place they could 
call their own, and they weren't able to get credit up front for a 
while.
  Finally, they went to an institution that said, ``Okay, We'll give 
you a subprime loan. Here are the terms.'' They accepted those terms. 
Then they found themselves unable to meet the terms and found they 
really didn't understand what they were getting into. Then, suddenly, 
people who had worked their whole lives to have just a little bit of 
the American dream found it gone in a flash.
  This is not right. This cannot be what America is about. America 
can't be a place where it's all about the government's being an engine 
for accelerating the wealth of America upwards, because that's what it 
has been about. It has been about that in the financial markets to the 
detriment of the small investors. It has been about that in the banking 
industry as we've seen a lot of the smaller banks just destroyed. In 
the insurance industry, the wealth accelerates to the top and in the 
utilities industry.
  You can take every single industry in this country, and the wealth 
has been accelerated to the top. Essentially, you take what you have 
without the regulation, and you have the destruction of the American 
dream.
  I want to thank my colleague Marcy Kaptur for giving me this brief 
moment to have this colloquy with her.
  We're very fortunate to be joined by a woman who has equally been a 
champion for the people from Los Angeles. Before I leave, I want to 
once again acknowledge what an honor it has been to work with my dear 
friend Maxine Waters, who, with Congresswoman Kaptur, came to 
Cleveland, Ohio, and you heard the testimony of the people from 
Cleveland.
  I come from one of America's great cities, and it is getting overrun, 
not only by the subprime lenders, but by the secondary market that has 
come

[[Page 15097]]

up as continuing the predatory conduct. It is going after people who 
have lost their properties, and it is seeking to drive the properties 
down further, selling homes for a few hundred dollars even or for under 
$10,000 if you can imagine that in this day and age.
  So thank you, Marcy Kaptur. Thank you, Maxine Waters. Let's stay on 
this because we need to make sure there is justice on behalf of those 
who aspire to own homes, and we need to help fulfill the American dream 
for people who work hard and who pay their bills to have the chance to 
be able to have a piece of that dream without getting cheated by these 
so-called lending institutions that are all about grabbing whatever 
money they can, whether they have any scruples or not.
  So thank you, Marcy Kaptur and Maxine Waters.
  Ms. KAPTUR. Thank you also, Congressman Kucinich, for being a 
champion for Democratic capitalism. As to your point about the whole 
financial system's becoming unreachable and so concentrated, whatever 
happens here, the ordinary American family and the ordinary American 
community will benefit by whatever Congress does.
  As I listen to what is being talked about in this Chamber and over in 
the Senate, one of my biggest worries is that very big institutions on 
Wall Street are going to be bailed out or are going to be propped up by 
the American taxpayer.
  My question is: What does the American taxpayer get for that? Our 
Federal Housing Administration is literally going to become the 
insurance company for Wall Street. When these big Wall Street firms get 
all of these homes, how does the average American get in on this 
equation?
  I'm putting in the Record tonight an article that was in The 
Observer. It talks about an effort to allow homeowners who are losing 
their homes at the local level to work with their local governments and 
local housing authorities to transfer those homes, perhaps, to them. 
Then in a lease-back provision, they would be able to pay that locality 
back for that home.

                   [From the Observer, July 13, 2008]

    Credit crunch: Emergency Scheme To Help Cash-Strapped Homeowners

                  (By Gaby Hinsliff and Jamie Elliott)

       Homeowners struggling to meet their mortgage payments would 
     be able to sell their homes to the local authority and rent 
     them back as tenants under radical proposals being considered 
     by the government to prevent the misery of repossession.
       Emergency measures to allow families to keep a roof over 
     their heads are being drawn up as the scale of repossessions 
     proceedings becomes increasingly apparent. In Newcastle upon 
     Tyne alone, the newly nationalised Northern Rock is 
     monopolising at least one day a week in the county court to 
     pursue defaulting borrowers.
       The latest rescue package reflects growing fears about the 
     seriousness of the crisis, with some analysts predicting that 
     house prices could fall by 35 per cent. Ministers are worried 
     about the 13 per cent of fixed-rate borrowers whose cheap 
     deals expire this year, some of whom may by then be in 
     negative equity and therefore unable to switch to a new fixed 
     rate with another lender.
       Caroline Flint, the Housing Minister, told The Observer 
     yesterday: `I am looking at what more we can do with our 
     colleagues in local authorities--what they can do as well as 
     actually building [homes], and what support they could give 
     to people who might be feeling under pressure on mortgages.'
       Asked to confirm that she was considering rent-back 
     schemes, enabling homeowners to become council tenants in 
     their original houses rather than be repossessed, she said: 
     `We are looking at that. I have to be certain that the 
     choices I make do actually help to limit the damage; and, 
     importantly, is it a short-term fix or a long-term impact?'
       The scheme be expensive. Councils would need central 
     government funds to buy the houses. But it could save on the 
     long-term costs of rehousing homeless families and allow 
     councils to increase their housing stock at relatively low 
     prices.
       Flint also suggested the Bank of England could increase the 
     size of its 50bn fund designed to stimulate 
     mortgage lending, admitting she was `disappointed' that the 
     cash that has been pumped in so far had not led to cheaper 
     home loans. `No doubt our colleagues in the Bank and the 
     Monetary Policy Committee will also be looking at the issue 
     in terms of whether any extra has to be provided,' she added.
       She has suggested that country landowners could be freed to 
     build cheap houses for their workers on their own land, in a 
     return to the system of `tied cottages'.
       `It's recognising that sense of community and how everybody 
     has a part to play,' she said.
       Debt advice experts warned yesterday that, despite the 
     Chancellor's calls for leniency from lenders, Northern Rock 
     was now aggressively pursuing defaulting borrowers as part of 
     its efforts to repay the 25bn rescue package it 
     received from the government. Chris Jary, director of Action 
     for Debt in Durham, said: `There used to be a small group of 
     sub-prime lenders who you knew would always go straight to 
     court. But recently it's Northern Rock who have become more 
     aggressive, taking legal action as soon as they can.'
       House repossessions at Northern Rock are running at twice 
     the rate they were before the bank was nationalised in 
     February.

  Rather than Wall Street's making all the money in their bond houses, 
why don't we use the bonding power of our cities and of our housing 
authorities to help move some of that money back down rather than move 
the money out, back up again to Wall Street?
  Mr. KUCINICH. Would the gentlelady yield.
  Ms. KAPTUR. Yes, I would be happy to yield to the gentleman.
  Mr. KUCINICH. Before I leave here, I just want to make one other 
point, and this could be the basis of further discussion. Congresswoman 
Kaptur earlier today mentioned it in a meeting among the Democrats in 
our meeting.
  We are looking at a debt-based financial system, at a debt-based 
monetary system where money equals debt, and we are at the beginning of 
the end of a democracy when we see this system causing the wealth to go 
upwards.
  So I want to thank you for mentioning that. I just wanted to mention 
that because we really need to look at how money is created. How does 
it end up that we have so many people in debt and that we have a few 
who are rolling in dough?
  This debt-based financial system is something that needs to be 
explored more thoroughly. The fractional reserve needs to be explored 
more thoroughly, and the role of the Federal Reserve in facilitating 
these heists has to be made known.
  So I thank you, and I appreciate the opportunity to spend some time 
with you.
  Ms. KAPTUR. I thank the gentleman for raising these points and also 
to say that, when you have a system of debt, certain people get very, 
very wealthy. These are some of the people who got very, very wealthy.
  Whether it was Mr. Mozilo of Countrywide or, of course, Michael Perry 
from IndyMac, which went broke, or Richard Carrion from Popular, these 
men were making millions and millions of dollars. This doesn't even 
include the big bond houses on Wall Street. Bear Stearns was the first 
one to go belly up.
  Now we're asking our government to prop up the risky investment 
practices of Wall Street and to reward the very bondsmen who have 
placed the American people in the position of servant hood. They make 
out in terms of selling their bonds and by indebting the people of the 
United States. They get their fees.
  What is amazing to me is that, if you look at the list of the bonding 
houses that got us in this fix--if you look at Countrywide--would you 
believe, even though our government knew what it was doing, it kept 
them on the list of primary securities dealers at the U.S. Treasury 
Department? HSBC, one of the primary violators, is on the list of 
primary dealers of the Federal Reserve.
  You start looking down that list and start saying to yourself, hey, 
wait a minute. What is this, a circle? They all just circle the wagons. 
They are the same people who cause the trouble. Then they come to the 
American taxpayer to bail them out.
  Congressman Kucinich talked about the Roosevelt administration and 
the creation of the Reconstruction Finance Corporation. The 
Reconstruction Finance Corporation was not just about bailing out Wall 
Street. What was interesting about what President Roosevelt did was 
that he created a special jobs program. If you look at what that 
Reconstruction Finance Corporation really did, people around America 
got work. There was a homeowners' loan association for cities and then 
a farm credit administration for homeownership in the countryside.

[[Page 15098]]

  The Works Progress Administration, the WPA, built infrastructure 
across this country--zoos and libraries and highways. Yes, they did 
prop up Wall Street, but they created new types of savings 
institutions, not to create debt but to create equity, to say to the 
American family, ``Look, you can own a home. Here is a passbook.'' 
These are savings and loan institutions. You would get a passbook. You 
could put money in there. You would actually get an interest rate worth 
something--4 or 5 percent a year. People learned a savings habit.

                              {time}  2015

  Tell me the last time you got a letter from a financial institution 
in this country asking you to save. All you get are credit cards. ``Get 
this loan, zero percent down.'' I keep a stack. I've got it in my 
office. It's about this high. If I signed up for all of those credit 
cards, I couldn't even manage to keep in touch with all of them. The 
debt posture that these institutions have pushed have helped push 
America to the precipice. And every American who's listening knows what 
I'm talking about.
  It is not an accident that we are in this situation. The entire 
financial system was turned inside-out during the 1990s. We got rid of 
something called the Glassed Eagle Act which had been in existence from 
the time of Roosevelt that said you can't mix banking with commerce. 
You can't mix banking and commerce with real estate. They have to be 
separate because there are too many bad things that can happen because 
you know what? Some people are very greedy. They are very, very greedy. 
And some people don't have information to make informed financial 
decisions.
  So we are now inheriting a situation here which is very, very 
serious. And today in the Financial Times--and I will place this in the 
Record this evening as well, and then my colleague would like to assume 
her role here; when she is comfortable, we will move to that--but the 
Financial Times had an article called ``Goodbye capitalism'' by Joshua 
Rosner. And what he said is, ``We have nationalized the losses from 
Bear Stearns,'' which is an investment bank, not a regular savings 
bank, ``through a transfer of risk onto the Federal Government's 
balance sheet and have now nationalized the losses generated by 
Fannie's and Freddie's poor management and functionally taken $5 
million in obligations on to the government's balance sheet.''
  That means not just us, our children and grandchildren are going to 
pay for generations. And that makes the bond houses on Wall Street so 
happy because they make money while the American people suffer.
  The article says, ``we will see the continued nationalization of bad 
assets, placing the burden on the shoulders of the already overburdened 
American taxpayer.
  ``We have done this without forcing the disgorgement of undeserved 
gains by the management and without replacing managements who are now 
controlling government-owned businesses. Instead of protecting those 
who made bad bets, we should use our rule of law to address the 
situation.'' We need a special investigatory panel with subpoena 
authority to look at every single person back through the 1990s who 
helped place America and her families in this situation.
  The article says, ``Rather than making the taxpayer liable for debts 
and debts of the government-sponsored enterprises, it would be more 
sensible to effect a smooth, prepackaged reorganization plan.'' But you 
know what? That's not in the bill that is likely to be considered here 
soon. They just want the money, but they don't want to reorganize the 
system in order to prevent further damage in the future.
  We're being pushed by the Bush administration: Do this now because 
the markets are really nervous, but we won't get the reform that we 
need in order to avoid these crises in the future. We're merely going 
to reward bad behavior and put the American people at risk.
  ``As part of a prepackaged reorganization,'' the article goes on to 
say, ``the government could explicitly assure investors they will 
receive all of their guaranteed interest payments. Instead of giving 
ineffective management a line of credit,'' which is what the bill 
proposes to do, ``Treasury could provide the GSE's regulator with a 
line of credit used to assure timely payments for these obligations. 
This is the tool that Treasury provides the Federal Deposit Insurance 
Corporation with to sort out failed banks.'' That's what Roosevelt 
used.
  ``Over time that line will be repaid by the running-off of the 
portfolios, active servicing of mortgages and through payment of claims 
by private mortgage insurers who guaranteed first losses on GSE 
mortgages.
  ``The next step would create $150 billion in new equity capital and 
enable the GSEs, without governmental support, to achieve more fully 
their chartered mission. Over the past decade'' Fannie Mae, Freddie Mac 
``have increasingly used their portfolios to speculate,'' and this is 
the first time I have read this, ``in aircraft leasing, manufactured 
housing, interest-only mortgages, and other securities they are 
specifically prohibited from buying as part of their financial mission.
  ``In recent years, through these portfolios they funded nearly 50 
percent of the riskier private label alternate Alt-A mortgage market, 
invested in aircraft, lease securities, manufactured housing and other 
assets that leveraged them into trouble. To achieve the speculative, 
hedge fund-like growth they issued almost $1.500 billion of senior 
corporate debt. By their investments, debt buyers supported speculation 
in non-mission-related activities and did so with a clear understanding 
they with funding non-mission-related activities.
  ``They also knew GSE debt was explicitly not an obligation of the 
U.S. taxpayer and that was repeated constantly by the government and 
the companies.
  ``In exchange for their current debt, these holders should receive 90 
cents on the dollar of new, long-dated senior debt in the companies and 
10 cents of new subordinated debt.''
  ``This approach would send a very strong signal, from the government, 
that investors fully consider the risks of bad asset allocation.'' And 
``though it would cause pain for equity and subordinated debt 
investors, those investors received the majority of returns over the 
past several years and, in our great system, they are supposed to be 
subordinated.''
  I want to put this article in the Record. I think it is very, very 
well written.
  And I go back to my initial question for this evening. I wonder if 
the American taxpayer knows they are now the insurance company for Wall 
Street and Wall Street's high-risk investors. We have to figure out a 
way, as we work our way out of this serious situation, for some of the 
dollars that are being directed to Wall Street, rewarding them, in a 
sense, for their behavior, go the other way back to community and that 
mayors and that local housing authorities be provided with the kind of 
wherewithal it's going to take to rescue our local housing markets and 
to create the kind of mortgage activity at the local level that will 
help lift our real estate industry, that will help prevent further 
foreclosures of our families and that will help people, face-to-face at 
the local level again, assure that that housing market is more secure 
than we have had with this very indirect, anonymous kind of 
relationship that has resulted from this mortgage-backed security 
industry that we moved into in the 1990s.
  I would like to ask the extraordinarily qualified and engaged 
chairwoman of the Housing and Community Development Subcommittee of 
Financial Institutions who's worked so hard on this issue, 
Congresswoman Maxine Waters of California, to assume her time this 
evening and perhaps to give us further insight on what the committee is 
about and what we, as a Congress and the American people, might do to 
help us help ourselves as a country right the ship of our economic 
state.
  Congresswoman Waters, thank you so much for joining us this evening.

[[Page 15099]]

Thank you for your extraordinary efforts as a Chairwoman and for 
bringing your committee to Ohio to witness what we are dealing with 
there is emblematic of what is happening across this country. Thank you 
for joining.

               [From the Financial Times, July 15, 2008]

                           Goodbye Capitalism

                           (By Joshua Rosner)

       In a capitalist economy, losers are expected to take losses 
     and winners to gain. Private enterprise is best able to 
     allocate capital efficiently and, where it fails to do so, 
     markets make adjustments and capital is reallocated to 
     efficient users. This basic tenet supports good and 
     productive assets moving from the hands of weak players to 
     stronger. Where this is not possible, the U.S. system gives 
     the government a hand in fostering that move through an 
     efficient process called bankruptcy or reorganisation. This 
     rule of markets and of law has always been the basis of our 
     national supremacy in innovation and the reason ours was the 
     world's clear choice of a reserve currency. That was the 
     world we lived in previously.
       Our elected officials have repeatedly demonstrated that 
     even equity holders, who are supposed to have the most 
     subordinated claims on assets, cannot be allowed to take 
     losses and instead believe we should all communally share in 
     losses that result from poor allocation and risk management 
     decisions. We have nationalised the losses from Bear Stearns 
     through a transfer of risk on to the federal government's 
     balance sheet and have now nationalised the losses generated 
     by Fannie's and Freddie's poor management and functionally 
     taken $5 trillion in obligations on to the government's 
     balance sheet. This has been done even though every equity or 
     debt offering of Fannie and Freddie explicitly states that 
     these ``are not guaranteed by the U.S. and do not constitute 
     an obligation of the U.S. or any agency or instrumentality 
     thereof other than'' of Fannie or Freddie.
       By the time we are finished with this tragic period in U.S. 
     economic history, the government is likely to have to choose 
     whether to do the same for at least one more large bank, 
     investment bank, bond insurer, mortgage insurer, multiple 
     large regional bank, airline or car manufacturer. Given the 
     choices we have seen from officials, who obviously have 
     little faith in the ability of capital markets or our system 
     of law, we will see the continued nationalisation of bad 
     assets, placing the burden on the shoulders of the already 
     overburdened American taxpayer.
       This commitment by misguided officials to print more money, 
     to stoke the embers of inflation and to debase further our 
     already hobbled currency invites foreign investors to pick 
     through our assets and buy our remaining strong businesses 
     (Anheuser Busch) on the cheap. As the strength of our 
     remaining industries is further weakened, along with 
     taxpayers' buying power, it will become increasingly 
     necessary, as a matter of survival, for American workers to 
     demand increases in their wages.
       While some might applaud the government's policy action, it 
     will prevent the rational and orderly repricing of over 
     inflated assets, ensure they remain overvalued, uneconomic 
     and unaffordable to a populous that will see an increasing 
     percentage of their wages allocated for the support of our 
     national debt. We have done this without forcing the 
     disgorgement of undeserved gains by managements and without 
     replacing managements who are now controlling government 
     ``owned'' businesses.
       The same economists who have repeatedly argued efficient 
     market theory have chosen this path. Instead of protecting 
     those who made bad bets, we should use our rule of law to 
     address the situation. That would mean we allow weak players 
     either to fail or to reorganise through an orderly transfer 
     of good assets from weak hands to strong hands. This would 
     protect the once-mighty U.S. dollar and affect the necessary 
     and repricing of assets to sustainable equilibrium. Doing so 
     would also decrease moral hazard and send a strong message of 
     faith in our great system as the model for global financial 
     advancement.
       There is another option in relation to Freddie Mac and 
     Fannie Mae. Rather than making the taxpayer liable for debts 
     the debts of the government-sponsored enterprises, it would 
     be more sensible to effect a smooth, prepackaged 
     reorganisation plan. This could be done quite simply and 
     would strengthen the GSEs' ability to meet their 
     congressionally mandated purpose of supporting liquidity in 
     the secondary mortgage market.
       The core of the GSEs' mission is to purchase mortgages from 
     mortgage originators, charge a guarantee fee to issuers to 
     protect their ability to stand behind these loans, and 
     securitise these mortgage-backed securities with assurances 
     to MBS holders they would receive 100 per cent of their 
     anticipated returns. To this end the GSEs have guaranteed 
     $3.5 trillion in mortgage-backed securities. These securities 
     are backed by real housing assets and there is little 
     question that, assuming they are well serviced, there will be 
     relatively little loss over a longer period.
       As part of a prepackaged reorganisation the government 
     could explicitly assure MBS investors they will receive all 
     of their guaranteed interest payments. Instead of giving 
     ineffective management a line of credit, Treasury could 
     provide the GSEs, regulator with a line of credit used to 
     assure timely payments on these obligations. This is the tool 
     that Treasury provides the Federal Deposit Insurance 
     Corporation with to sort out failed banks. Over time that 
     line will be repaid by the running-off of the portfolios, 
     active servicing of mortgages and through payment of claims 
     by private mortgage insurers who guaranteed first losses on 
     GSE mortgages. Because these debts are core to the GSEs' 
     social mission and real assets back these debts, this would 
     be an appropriate resolution.
       The next step would create approximately $150bn in new 
     equity capital and enable to GSEs, without governmental 
     support, to achieve more fully their chartered mission.
       Over the past decade the GSEs have increasingly used their 
     portfolios to speculate in aircraft leasing, manufactured 
     housing, interest-only mortgages and other securities they 
     are specifically prohibited from buying as part of their 
     mission. In recent years, through these portfolios they 
     funded nearly 50 per cent of the riskier private label Alt-A 
     mortgage market, invested in aircraft lease securities, 
     manufactured housing and other assets that leveraged them 
     into trouble. To achieve this speculative, hedge fund-like 
     growth they issued almost $1,500bn of senior corporate debt. 
     By their investments, debt buyers supported speculation in 
     non-mission-related activities and did so with a clear 
     understanding they were funding non-mission-related 
     activities. They also knew GSE debt was explicitly not an 
     obligation of the U.S. taxpayer and that was repeated 
     constantly by the government and the companies.
       In exchange for their current debt, these holders should 
     receive 90 cents on the dollar of new, long-dated, senior 
     debt in the companies and 10 cents of new subordinated debt. 
     The companies would then have enough capital to support their 
     core, chartered mission and could increase the social returns 
     and financial returns of investors in their core mission. 
     This approach would send a very strong signal, from the 
     government, that investors fully consider the risks of bad 
     asset allocation. It would almost certainly strengthen the 
     dollar. Though it would cause pain for equity and 
     subordinated debt investors, those investors received the 
     majority of returns over the past several years and, in our 
     great system, they are supposed to be subordinated.

  Ms. WATERS. You're certainly welcome, and I thank you for taking this 
time out this evening, Congresswoman Kaptur, to talk about what is 
happening in this country with this foreclosure mess that we're in, 
this sub prime meltdown that we are experiencing.
  I really came to the floor to commend you and congratulate you for 
all of the time that you have put in on this issue unraveling some of 
the history of what has taken place with the banking community with 
what is going on in our economy today and trying to identify how we got 
into this situation and what we could do to get out of it.
  Many of our Members--two are distressed about what is happening in 
their districts and in their communities, but they don't know nearly 
the information that you have discovered about this entire unfortunate 
situation that we are in.
  Let me just say that I did come to Ohio at your invitation and your 
delegation's invitation, and I know that you were the leader in helping 
to pull that delegation together and getting me there to talk about 
what is going on in Ohio. I was joined, and we were joined, by several 
members of the Ohio Congressional Delegation each trying to bring 
attention to the foreclosure devastation that's spread across that 
State.
  Again, you have been a persistent voice in our Democratic Caucus for 
taking bold action on the foreclosure crisis, generally.
  Let me mention that Representative Tubbs Jones, Representative 
Kucinich, who was here on the floor, Representative Sutton, 
Representative Wilson was in attendance, and I think we all learned an 
awful lot that day. We had great witnesses who came and talked about 
what is going on in the State, and we discovered since 2005, Cuyahoga 
County has had the highest number of foreclosures in the State, with 
Montgomery, Summit, Lucas, and Preble counties rounding out the top 
five. The 10 largest counties in Ohio accounted for 64 percent of the 
foreclosure filings in Ohio last year.
  And according to data from the Mortgage Banking Association, in the 
fourth quarter of 2007, 7.67 percent of

[[Page 15100]]

Ohio home loans were past due with 2.01 percent 90 days or more 
overdue. And during the same period last year, 7.25 percent of Ohio 
loans were past due with 1.74 percent 90 or more days overdue.
  Because of the challenges it has faced economically over the past few 
years with the loss of manufacturing jobs and population from certain 
parts of the State, Ohio was truly the ``canary in the coal mine'' of 
the foreclosure crisis--vulnerable to sub prime lending and its 
aftereffects much earlier than the rest of the Nation.
  And the foreclosures have taken a toll on Ohio's neighborhoods and 
communities. Data that was provided by HUD showed that there is a 
direct correlation between the number of high-risk loans in a 
neighborhood and increase in the neighborhood's vacancy rates. 
Cleveland has been especially hit hard. There are an estimated 10,000 
vacant homes in the City of Cleveland. On one of Cleveland streets, 37 
out of 123 homes are in the same stage of the foreclosure process, so 
they are in some stage of the foreclosure process.
  The testimony we heard in Ohio only made me more certain in my belief 
that State, cities, and counties need help from the Federal Government 
to deal with the problems caused by abandoning foreclosed properties. 
And I could go on and on and on, but I was extremely moved; and on my 
way out there were some people there from east Cleveland who said that 
40 percent of all of the homes in east Cleveland were in foreclosure.
  And then I heard the story of Campbell where people owned their homes 
free and clear. They were not expensive homes, but they had been handed 
down. They were in the family. They were paid for, $40,000 homes, and 
the guys came in there, the best suede-shoed boys I call them, and 
increased the appraisals on those homes, ran those appraisals up to 
$150,000 or more and lent money. And people found themselves in a 
situation where they couldn't pay it back. People who thought, well, I 
could refinance this house, I can put on another room, I can put on a 
new roof. I can do these things. And they were told, ``Just sign on the 
dotted line. Don't worry about it. We can get you into this refinance. 
Even if it resets, we can take care of that.''
  But Marcy Kaptur,  let me just say, people all over America are 
wondering what happened. Families have lost their homes, communities 
are being devastated, cities are using their precious general fund 
money and CDBG money trying to maintain these boarded-up and foreclosed 
properties. They have problems with the vacant properties being 
occupied sometimes by the homeless or gang members in some communities.

                              {time}  2030

  They have the thieves that are going in stripping out the copper. 
Weeds are growing up. There are dogs on the property, and so the 
neighborhoods are being driven down by the foreclosed properties, and 
the people who remain in the neighborhoods, who keep their properties 
up, are losing value, and that value is fast being lost on homes. And 
people are finding that their mortgages that they are paying far 
outweigh the real cost of that home now that the values have been 
driven down.
  And so here we are in the Congress of the United States; what do we 
do? As you know, a number of ideas have come to the surface. Barney 
Frank, who is the Chair of the Financial Services Committee, came up 
with another comprehensive bill, and in that bill they worked out an 
arrangement where the lenders, the bankers, would write down the 
property to 85 percent of value.
  We've been working for months to strengthen the FHA, who found itself 
toothless when all these banks came into our cities with these fancy 
products that they had. They had what we call exotic products, the 
products with the teaser loan that says you need nothing or a little 
bit down, sign on the dotted line, 6 months from now, a year from now, 
it will reset, but don't worry, we'll refinance it. And people only 
find that they cannot refinance it and they're losing the homes.
  And so we were supposed to come up with these bills and legislation 
to deal with it, and we find that the Senate side worked on this for 
quite some time. They agreed on some things. One of the things they 
agreed on was that they would indeed work with the lenders to write 
down the properties and have them refinanced by FHA which would now be 
strengthened, and this would keep people in their homes.
  We don't know how all of that is going to work. We do know that if 
people get refinancing and they're able to stay in their homes, we hope 
that they're able to keep up on those payments because, if they don't, 
that debt will fall back on to the American taxpayer. And unless the 
FHA by way of its collection of certain kinds of rates are able to 
offset that, then that's another burden that we're going to have to be 
faced with. But it is a way by which we can begin to look at how we can 
perhaps give some help to the homeowner.
  You know, I had a piece of legislation that was quite controversial 
because there was some people who did want to bail out the big boys, 
but they did not want to do anything for the little people and for the 
cities that are suffering. And my bill, as you know, is designed so 
that we have money that would go straight into those cities, working 
with nonprofits and others to grab those properties, rehabilitate those 
properties, put them back on the market for low- and moderate-income 
people to be able to afford.
  Well, it got stuck for a while. I had $15 billion for the cities and 
the counties in that bill. It was scored at half that amount because 
7.5 of that $15 billion was going to be in loans and 7.5 was going to 
be in grants.
  Ms. KAPTUR. I congratulate you for that proposal. It is the only one 
I know that would stick to the wall locally. I know how hard Chairwoman 
Waters has fought to even get this embedded in this legislation, and I 
have to say to the people here tonight, when you think about $1 
trillion or more, a $15 billion proposal is very, very modest. Our 
community development dollars for the whole country I think total about 
$8 billion a year. It's very, very modest.
  Frankly, I wish you well and hope that you can expand that 
significantly because Wall Street will be rewarded with a $1 trillion 
bailout, and yet we're going to give our mayors and local housing 
authorities pennies to deal with the level of foreclosure that is being 
experienced across this country. I would think they would roll out the 
red carpet for you in that committee and do everything they could to 
help you make this bill not just efficient but equitable, particularly 
to the American taxpayers who are going to bear the brunt of this cost.
  Ms. WATERS. Well, you're absolutely correct, and certainly, we had 
our supporters. But I want to thank the Ohio delegation for weighing in 
on this bill and giving support to it. We had all of our community 
groups and organizations all over the country working hard, making 
calls, talking to Senators, talking to Members, putting stuff in the 
newspapers about this bill because they see this bill, too, as hope for 
the neighborhoods and the communities. And it would stop the cities 
from having to spend their precious general fund moneys and CDBG moneys 
to try and maintain and keep up of these properties for God knows how 
long.
  And so you are right. This will bring some measure of help, and we've 
got to keep working at this to find out how we can do more.
  One of the things that we know, the regulators dropped the ball. The 
regulators should have seen these exotic products. They should have 
known about these ARMs. They should have known about these no-
documentation loans. They should have known about these loans resetting 
with margins of 2 to 3 and 4 percent above the interest rate once the 
reset takes place.
  Someone gets into a loan for 5, 6 percent, when it resets now they're 
10, 11 percent, and people who are paying mortgages of $950, maybe even 
$1,000 a month, now they're told their mortgage is $3,000, $3,500. It 
is unconscionable.
  And I see you have a picture up there of some of the giants of the 
banking industry. You know, Countrywide is a real poster child for what 
went wrong

[[Page 15101]]

in this mortgage market. Mr. Mozilo really does have to take credit for 
having done extraordinary business with these mortgages. Mr. Mozilo is 
one of those bankers and one of those companies where he got the 
license as the broker, and then he hired people who didn't have a 
license, who didn't have any training, and put them out on the street, 
and they were all over the place.
  Everywhere you look, every town hall you go into, where people are 
coming, begging us for help, and we ask them about where they got their 
loans, invariably Countrywide is going to show up all over this 
country. And so, you know, we have criticized him, and we have said how 
is it Mr. Mozilo can create this kind of devastation, walk away with 
millions of dollars that he's taken out of this company, and how is it 
that Bank of America could end up buying this company for pennies on 
the dollar and not be afraid that with somehow all of this portfolio of 
bad debt that they are going to make it?
  Well, I think that they know more than we know. I think that they 
know more than we know, and we've got to get smarter. We've got to have 
regulators who are prepared to do the job that they are supposed to do 
in protecting the American consumer from these rip-off artists and from 
these people who would steal their futures and steal the futures of 
their children with these rip-off products and the way that they design 
for everybody to make money along the way and leave that American 
homeowner not only holding the bag but with nothing at the end of this 
terrible situation.
  So I want to thank you. We've got to put a lot of time in on this. 
We're going to get some legislation out. Of course, we're going to get 
some legislation, and as you know, with the GSEs now in trouble, Fannie 
and Freddie, and the move to help them and to bail them out, to keep 
the whole economy from crashing on us, you better believe that we get a 
chance to get our little $4 billion in because it was put in on the 
Senate side.
  But that's a drop in the bucket from what we're asking for and for 
what we need, but we must take this as a time when we never allow the 
American economy to be placed at risk because of a sub-prime crisis in 
the way that we are witnessing it now because we're going to be 
smarter. We're going to not only know what our regulators are supposed 
to be doing, we're going to provide the oversight for those regulators. 
We're going to unveil not only the schemes and the fancy products, but 
we want to know more about servicers, who they are and what they do.
  Did you know that we have these banks with loss mitigation 
departments? Supposedly, if you're in trouble, you can call the bank 
and say I can't make my mortgage payment, I had a terrible illness and 
I had to pay out too much health money, and they're supposed to do kind 
of a workout with you to make sure they keep you in that home. Did you 
know that the people that they're talking to are offshore in India, in 
other countries, who are supposed to be responsible for loss mitigation 
activities for the banks? They have exported the loss mitigation 
departments offshore to foreigners who are talking to Americans about 
whether or not they can find a way for them to stay in their home.
  Ms. KAPTUR. Frankly, thank you, Chairwoman Waters, for coming to 
Ohio. You were an oasis in a desert. You gave us hope by coming there 
and listening to us and allowing our people to put their stories of our 
communities, of what's going on in this mortgage market on the record.
  And what is really disheartening about all of this is it seems that 
the financial system is getting so far away from community, from 
neighborhood, from our people, our people feel powerless to make a 
difference, and now you say these services are even over in India. 
Frankly, I had trouble with all this stuff moving to Wall Street and 
not being able to get a phone call returned when we're trying to do a 
workout at the local level.
  We need to turn this financial system upside down, and I'm hoping 
that the chairman of the full committee is listening in this House and 
that whatever we do to bail out Fannie Mae, Freddie Mac, these 
investment banks on Wall Street--and I have some problems with doing 
that. I'm not a happy traveler in this party here--that power devolves 
back to the local level, that however this financial system is 
rearranged, that we go back to character, collateral, and 
collectibility, the old principles when we had a system that functioned 
well at the local level, and re-empower communities to handle their 
housing systems.
  This system we have now has given us a multi-trillion dollar 
disaster. How can anybody say when you move away from home, so far 
away, how can that be good, when our people feel powerless to make a 
difference? Our mayors feel powerless. Our communities, our credit 
unions, the Realtors, how can this system be good when it so 
disempowers?
  Ms. WATERS. If the gentlelady will yield for just a moment, wouldn't 
it be great to have community bankers in the community that you can 
talk to, people who hold your mortgage, that you can go and talk about 
what is happening, if you get in trouble, and they can work with you, 
but no, you know, they package all of these loans and securitize them. 
Wall Street invested in them, and the people can't get in touch with 
anybody. Now it's with a dispassionate servicer who has the ability to 
foreclose on your house, who could do a workout, but they make money. 
They make money by servicing and collecting the fees, the fees, the 
fees and more fees that's placed on top of these mortgages.
  So I, too, yearn for the community banker.
  Ms. KAPTUR. I would say to the chairwoman, you mentioned about what 
happened to regulation, and one of the first institutions to embark on 
sub-prime lending was Superior Bank of Hinsdale, Illinois, ultimately 
bought by Charter Bank from Ohio. And Superior was created by the 
Resolution Trust Corporation when the savings and loans collapsed in 
the 1980s, but by the late 1990s, Superior's return on assets--now, 
think about this--was 7\1/2\ times the industry average and held a very 
risky portfolio. It had a CAMEL rating of two, and yet its executives 
were financially rewarded for presiding over ruin.
  How could America let that happen? No Federal regulator stepped in to 
properly examine the industry institution. What happened to the Office 
of Thrift Supervision over at Treasury and its Chicago office?
  Ms. WATERS. They turned a blind eye.
  Ms. KAPTUR. They closed their eyes, and it wasn't until 2001, because 
this was one of the leading institutions to invent the sub-prime 
instrument when they collapsed, and they couldn't meet the calls of 
people coming in for their money, that FDIC started investigating and 
placed the largest fine in American history, $450 million, a half a 
billion dollars, on one institution. Where is the investigation now?

                              {time}  2045

  You read a little bit about what the FBI is doing; you read a little 
bit about what FDIC is doing. We need a massive investigation of which 
institutions led us into this subprime crisis that the country is 
facing. Who was the first one? I've asked everybody, who was the first 
one? Give me the first three or four. And through which institutions 
did they broker those loans and how did they get to Wall Street? Nobody 
knows. Nobody knows; or else they're not saying.
  Where was the Office of Thrift Supervision? What happened to HUD's 
appraisal and underwriting standards? Assuming many of these loans were 
moved to market through Freddie Mac and Fannie Mae, why did their 
regulatory standards and HUD's oversight fall short? Why did HUD change 
its appraisal and underwriting practices in 1993 and 1994?
  How were the boards and executives in these entities compensated 
during those years when the risky practices proliferated? Because it 
isn't just these fellows, it's the people in the regulatory agencies 
and the government secondary market enterprises that were involved. 
Which board members

[[Page 15102]]

at which financial institutions and brokerages, regulators and 
secondary market bodies voted to allow these risky and predatory 
policies that escalated this equity drawdown? Do we have evidence that 
any of those board members personally benefited from their board 
decisions?
  Through which domestic and international institutions were the 
original securitizations first moved? Which persons did it? Which 
regulatory agencies sanctioned the process? What role did the U.S. 
Secretary of the Treasury and the Office of Thrift Supervision play--
the Securities and Exchange Commission, how about the Federal Reserve--
in allowing these practices to flourish?
  I say to the chairwoman, I know the great work that you have done. 
There should be many committees in this institution involved in 
unraveling what has happened before we're asked to do a trillion dollar 
bailout here in the Congress of the United States.
  You know, it's sort of interesting to me that even the New York Times 
editorialized that we've got to do this right now; you Congress, you 
pass a trillion dollars more--or who knows how much--because these 
institutions are too big to fail. And therefore, we can't do due 
diligence; we can't make good decisions for the American people. I 
can't even tell my constituents today--I hope I can find out by 
Thursday or Friday or Saturday this week--what exactly is in the bill 
that is being written somewhere here so that I can see exactly how much 
money has to be appropriated and how big the drawdown will be from the 
Federal Reserve. Right now we don't know. There isn't a final bill that 
is available to the Members. I know it's being worked on somewhere in 
this place. I hope that there is a regular markup session by the 
respective committees that have to be involved here and an open rules 
process.
  Ms. WATERS. Will the gentlelady yield for a moment?
  Ms. KAPTUR. I would be pleased to yield to the chairwoman.
  Ms. WATERS. We have not seen the final version of the bill, but 
today, in a discussion, one of the things that did interest me that I'm 
looking forward to seeing is that we are strengthening the oversight on 
the GSEs with OFHEO, the regulatory agency that has now been designed 
just to take care of these government enterprises.
  But also what has been represented to us is that the investors will 
not be able to make any money off of this bailout; that GSEs, as you 
know, get input, they get money from investors and they go out to the 
market to get money. And so if we are going to allow them to go to the 
discount wonder at the Fed and to be invested in by Treasury 
Department, that we will be number one in line for the repayment. And 
the CEOs cannot get the big salaries that they have gotten in the past, 
that there will be a limit to what they will be able to do.
  And so I'm looking to see the language in the bill that's going to 
make sure that we're first in line to get paid back, that the investors 
don't get paid dividends off of our money that we're putting in there, 
and that the CEOs and the top management of the GSEs don't get the 
fancy bonuses and the high salaries that they've been getting.
  Ms. KAPTUR. Well, Madam Chair, that is really good news. And I know 
that you have been the strongest voice in the committee to try to 
strengthen the bill. We from Ohio are doing everything possible to even 
make it stronger, and to make sure that the communities that have been 
ravaged by this subprime crisis--and I include my own among them--that 
somehow that those who are in the lead in these various committees in 
the House here think about democratic capitalism, and not just 
empowering Wall Street, but thinking of ways to move the billions, 
hundreds of billions of dollars of insurance that will benefit the bond 
houses that helped get us in this mess in the first place, think about 
the bonding power of cities, think about the bonding power of our 
housing authorities at the local level, think about how to move some of 
that money to re-empower communities across this country, not just a 
pittance, but at least have a scale of justice. If you're going to 
reward Wall Street, the wrongdoers who helped get us in this mess, what 
are you going to do for Main Street that's paying the bill? Are you 
going to give them a pittance?
  I come from a tradition in a party with Franklin Roosevelt who 
believed you empower at the grass roots level and that you build wealth 
from the bottom up, not reward the top. And I would hope that there 
would be balance in the bill that is brought before us as we move into 
this debate. And I would hope there would be a chance at least to offer 
amendments, at least to be welcomed into the committee. We don't want 
to delay the process, but that if we have ideas, we have the respect 
that should be given to Members who come from affected communities and 
States.
  And I want to thank Chairwoman Waters for her gracious acceptance of 
the invitation of the bipartisan delegation from Ohio. We feel, as so 
many people do, very frustrated by how slow the wheels of government 
sometimes turn and what is happening out there in community after 
community, where people are not able to do their workouts. I would hope 
that the chairman of the full committee here in the House, Mr. Frank, 
who has been meeting with some of the Members and been very involved in 
the committee, I hope that he would share his draft bill ahead of time 
because I think it would be disastrous--and I speak only for myself 
when I say this--if a bill is rushed to the floor and we don't have a 
chance to review it. This is too important.
  When we're talking $100 million, that's a lot of money. A billion 
dollars is a lot of money. When you get into the trillions, it's 
overwhelming. And we are here to do due diligence for our people, so 
please afford us the respect and the consideration that you would want 
for yourself, and that we actually have a responsibility for that due 
diligence for the American people, the people that sent us here.
  Madam Chairman, I want to submit for the Record a story from the Wall 
Street Journal about the influence of outside giving from Wall Street 
to Federal elections and the important role, unfortunately, that it 
plays sometimes in influencing opinion. I think it's very important 
that it be placed on the Record as well. And I thank the gentlewoman 
from California for joining us this evening.
  Ms. WATERS. Thank you.

             [From the Wall Street Journal, Jan. 23, 2008]

                     Wallets Open Up on Wall Street

                           (By Brody Mullins)

       Despite Wall Street's recent woes, people who work in the 
     financial industry continue to dig deep for political 
     donations to Republican and Democratic candidates for 
     president.
       Employees of Wall Street firms are the single largest 
     source of campaign cash, accounting for a total of $50.4 
     million in financial contributions to the candidates so far 
     this election cycle. That is more than any other industry 
     sector, according to a Wall Street Journal analysis of 
     campaign-finance data compiled by the nonpartisan Center for 
     Responsive Politics.
       As candidates load up for advertising blitzes before 
     ``Super Tuesday'' primaries on Feb. 5, candidates from both 
     parties are again coming to New York seeking campaign 
     donations. Sen. John McCain, the Arizona Republican, had a 
     fund-raiser at the St. Regis Hotel last night that was hosted 
     by Merrill Lynch & Co. Chief Executive John Thain, private-
     equity giant Henry Kravis of Kohlberg Kravis Roberts & Co. 
     and former Goldman Sachs Group Inc. Chairman John Whitehead.
       Mr. McCain recently spent $1 million on advertising ahead 
     of the Florida primary next Tuesday. Voters in more than 20 
     states, including California and New York, go to the polls 
     Feb. 5.
       New York Sen. Hillary Clinton heads to her home state 
     tomorrow for two fund-raisers. The Clinton campaign hopes to 
     raise $15 million through these and other means to fund her 
     campaign through Feb. 5.
       Contributions from Wall Street have favored Republicans, 
     who have collected 54% of donations from financial companies. 
     Wall Street is the No. 1 source of donations to every major 
     presidential candidate in both parties, except former North 
     Carolina Democratic Sen. John Edwards, who is favored by the 
     legal industry, according to the data.
       Lawyers and lobbyists are the second-largest source of 
     contributions to the candidates, with $34.8 million in 
     donations. Together, the finance and legal industries are 
     responsible for nearly a quarter of the $354 million donated 
     to the presidential candidates as of

[[Page 15103]]

     Sept. 30. The next round of campaign-finance information, 
     covering the three-month period ending Dec. 31, will be 
     released at the end of the month.
       Employees of financial firms, lawyers and lobbyists make up 
     46% of all large donations--contributions of $200 or more--to 
     the presidential candidates. Each of the other industry 
     sectors is responsible for just a fraction of the donations 
     to the candidates.
       According to the data, people who work in Hollywood, 
     communications or electronics rank a distant third with $13.3 
     million in donations to the candidates. Other top sources of 
     donations were employees of the health-care industry with 
     $9.5 million, construction with $6.1 million and energy with 
     $3.1 million. People who work in the defense industry gave 
     $502,000, according to the data.
       Not surprisingly, the two candidates from New York are 
     winning the race for donations on Wall Street. Mrs. Clinton 
     and former New York City Republican Mayor Rudy Giuliani lead 
     with $12.3 million and $10.6 million, respectively, in 
     campaign donations from employees of Wall Street firms.
       Employees of Goldman Sachs, Lehman Brothers Holdings Inc. 
     and Morgan Stanley rank as the top individual sources of 
     donations to the presidential candidates, according to the 
     data.
       Goldman employees were the largest contributor to Mr. 
     Obama, the second-largest giver to Mrs. Clinton and the 
     fifth-largest to Mr. Edwards. Goldman employees donated 
     $369,000 to Mr. Obama and $350,000 to Mrs. Clinton.
       Other top Wall Street givers to Mr. Obama include employees 
     of Lehman Brothers ($229,000), J.P. Morgan Chase & Co. 
     ($217,000) and Citigroup Inc. ($181,000).
       The top seven companies that have produced the most money 
     for Mr. Giuliani are all financial firms, including Ernst & 
     Young LLP, hedge fund Elliott Management and Credit Suisse 
     Group.
       Former Massachusetts Gov. Mitt Romney also has fared well 
     on Wall Street. A founder of Bain Capital, Mr. Romney has 
     scored with employees of Goldman Sachs, Merrill Lynch and 
     Morgan Stanley. Employees of his former company have donated 
     $112,000 to his campaign, according to the data.
       Unlike Wall Street, lawyers heavily favor Democrats with 
     their political donations. Lawyers have donated $9.6 million 
     to Mrs. Clinton, $8.2 million to Mr. Edwards and $7.9 million 
     to Mr. Obama.
       Mr. Giuliani, a former prosecutor and partner with 
     Bracewell & Giuliani LLP, raised $3.2 million from others in 
     his profession. That was more than any other Republican but 
     less than half as much as the leading Democratic candidates.
       Pennsylvania-based law firm Blank Rome LLP was the top 
     source of donations to Mr. McCain, who collected $141,000 
     from employees of the firm. Mr. McCain fared well with 
     employees of Greenberg Traurig LLP, a Miami firm that ranks 
     as his third-largest contributor. As the chairman of the 
     Senate Indian Affairs Committee, Mr. McCain took the lead in 
     investigating convicted lobbyist Jack Abramoff, who was a 
     lobbyist with Greenberg Traurig.
       Mr. McCain and Mrs. Clinton led all others with donations 
     from lobbyists. Mrs. Clinton collected $568,000 from 
     lobbyists, while Mr. McCain has $340,000.

     

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