[Congressional Record (Bound Edition), Volume 154 (2008), Part 14]
[Senate]
[Pages 19357-19359]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              THE ECONOMY

  Mr. DORGAN. Mr. President, it is now Wednesday of a week that began 
with a 504-point collapse in the stock market on Monday. The American 
economy, I think most people would understand, is in serious trouble. 
These are not ordinary times for our country. We have been the economic 
engine of the world. We have built an economic engine that is 
unparalleled. It has been an unbelievable economy, and created great 
jobs. Yet we now run into some very significant problems.
  The financial wreckage that has occurred in recent months in this 
country is almost staggering. Very large investment banks that have 
been around for a long while are gone. Bear Stearns, Lehman Brothers, 
Merrill Lynch, venerable old investment firms. Bear Stearns, a 158-year 
firm, survived the Civil War, the Great Depression, but it could not 
survive today.
  What has happened? What is causing all this? We understand in the 
months of this year up to $1 trillion of taxpayers' money has been 
offered in support--loan guarantees and various things--to try to 
contain the growing financial difficulty in this country.
  I am not going to second-guess those who are working day and night 
trying to figure out how we stem the damage. I don't know the figures. 
I am not in the engine room to know all of the dials, gauges, and knobs 
that they are working on to try to figure out how we stem the damage. 
So I am not going to be critical today of guarantees and takeovers and 
so on.
  I am going to say to the American people that they should not worry 
about their bank account in an insured bank. I don't think anybody 
should be concerned or run down and try to take their deposits out of 
their local banks where their deposits are insured by the FDIC. Those 
are sound, and those deposits are not in jeopardy.
  Even in the middle of a financial storm of the type we are 
experiencing, I think it is reasonable for the American people, when 
midnight meetings are proposing tens of billions, $30 billion or $85 
billion of taxpayers' money to try to shore up institutions and deal 
with this spreading problem, to ask the question: How on Earth did this 
happen, and why did it happen?
  There are two reasons, and it is important to talk about them even in 
the

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middle of the storm. One is greed, unbelievable greed; and the second 
is, in my judgment, deliberate neglect. I will talk about each.
  The reason I want to talk about them is because we have to make sure 
we understand what has caused this problem in order to fix it and to 
make sure it doesn't happen again. It is not as if this country hasn't 
seen banks collapse. We saw banks collapse in the 1930s in the Great 
Depression. Franklin Delano Roosevelt put together the New Deal and put 
together very specific, very stringent provisions dealing with banking 
and the safety and soundness of banks. Not just the safety and 
soundness in numbers but the safety and soundness with respect to 
perception of that safety and soundness.
  They said we learned a lesson in the 1920s, and that lesson is we 
ought not merge and fuse together inherently risky items such as 
securities, real estate, insurance, and other things with banking, 
whose entire existence depends on the perception of safety and 
soundness.
  Glass-Steagall and other legislative provisions were created that 
separated traditional banking from the more risky enterprises. That 
existed for many decades until about 9 years ago when the Financial 
Modernization Act, as it was inappropriately named and led by Senator 
Gramm from Texas, was passed by the Congress. I was one of eight 
Senators to vote against it because it repealed the elements of the 
Glass-Steagall Act and created the opportunities for large financial 
holding companies to once again fuse and merge together banking with 
inherently risky enterprises of securities, real estate, and others.
  I know they said: No, no, we are building firewalls. The firewalls, 
it turns out, are not very thick. We learned a lesson and forgot it.
  Let me describe what happened. Once all of this happened, at the root 
in this country that deals with greed, we had investment banks, 
mortgage brokers, hedge funds, and mortgage banks, all of them up to 
their neck in cash, barrels full of cash they were making. Let me 
describe how they were doing it, and most people will understand this 
wreckage is not a surprise at all.
  Here is what they were doing in this country: As the housing bubble 
was building, caused in part by easy money advertised to people who had 
bad credit, we saw bad loans put out there in what was called then--the 
new lexicon--subprime lending. Here is what Countrywide, the largest 
mortgage banker said:

       Do you have less than perfect credit? Do you have late 
     mortgage payments? Have you been denied by other lenders? 
     Call us . . .

  Isn't that unbelievable? Countrywide doesn't exist anymore because it 
was bought by another firm before it went belly up.
  It wasn't just Countrywide. Here is an ad I pulled off the Internet. 
It was running on television and radio. Millennia Mortgage:

       12 months, no mortgage payment. That's right. We will give 
     you the money to make your first 12 months' payments if you 
     call in the next 7 days. We pay it for you. Our loan program 
     may reduce your current monthly payments by 50 percent and 
     allow you no payments for the first 12 months.

  Isn't that unbelievable? That is nothing compared to these kinds of 
advertisements, and most of us have heard them.
  Zoom Credit, here is what it said:

       Credit approval is just seconds away. Get on the fast track 
     at Zoom Credit. At the speed of light, Zoom Credit will 
     preapprove you for a car loan, a home loan, or a credit card. 
     Even if your credit's in the tank. Zoom Credit's like money 
     in the bank. Zoom Credit specializes in credit repair and 
     debt consolidation, too. Bankruptcy, slow credit, no credit--
     who cares?

  Is this business? No, this is insanity. This is not business. Zoom 
Credit: Your credit is in the tank, there is money in the bank for you.
  On top of that, in addition to putting mortgages out to people who 
had bad credit, here is what they advertised: You want to get a loan 
with no documentation so you don't even have to document your income, 
that is no problem. We will give you a no-doc loan. You don't have to 
document your loan. We will give you low-doc loan so you do minimum 
documentation of your income. By the way, you don't have to make any 
payments the first 12 months, or you can make payments the first 12 
months and pay no principal or you can pay no principal and only 
partial interest. Unbelievable. All of these companies, shame on them. 
Unbelievable, unfettered greed making money by the barrel, leaving the 
rest of us with the financial wreckage that occurred.
  Here is what happened. They put out all these bad mortgages, called 
subprime mortgages. They mixed them with good mortgages and securitized 
them because these days they securitize everything. They discovered 
these new exotic financial instruments and put them all together like 
sawdust and sausage, as they used to do, and put bad loans in with good 
loans. With all these loans, they put in prepayment penalties saying: 
We are going to stick you with a reset with a much higher interest rate 
despite the fact we did a teaser rate at the front end. And when the 
higher interest rate happens 3 months from now, you may not be able to 
pay it, but it doesn't matter. You can flip your property because you 
will make money. Home prices are going up.
  So they put in prepayment penalties, and the prepayment penalties 
made these little securities seem like this was a sure thing and big 
money. The broker got the mortgage, got a big bonus, went to the 
mortgage companies--Countrywide and others. They securitized them and 
set them up in a hedge fund and moved them around the world.
  Now they sit with these pieces of security, and they don't have the 
foggiest idea what is in them. All of a sudden, they go belly up. Mr. 
President, $1 billion, $10 billion, $100 billion, $1 trillion, and the 
carnage spreads across this country's economy.
  Greed, unbelievable greed. This is all about making big money in a 
manner that defies good business sense, and even more, deliberate 
neglect by regulators in this town. This is no time for politics, but 
let me say this. At the start of this administration, regulators came 
to this town and served notice: It's a business-friendly place. Don't 
worry, be happy. We don't intend to regulate. One regulator in one 
agency said: It's a new day here, a new sheriff in town. This is a 
business-friendly place.
  When the regulators decide they are not going to regulate, it is like 
taking the cop off the beat. Regulators represent the referee or the 
cop. I have used the referee analogy--a striped shirt and whistle, and 
they call the fouls. There have been no fouls here. When you have a 
mortgage company that says: You have bad credit, you have been 
bankrupt. You can't pay your bills? Come to us. The regulator should 
say: What are you doing? They say: We want to give you a mortgage that 
has an unbelievably low rate, 1\1/4\ percent and resets at 10 percent 
and you don't have to document your loan. We will make the first 12 
payments for you. Unbelievable, in my judgment.
  Regulators sat by and watched, and it has cost this country $1 
trillion as a result of the unfettered greed that moved across this 
country.
  The fact is, Senator McCain recently said the economy is 
fundamentally sound. It is not. What has happened here is the erosion 
of economic strength as a result of unbelievable greed with the 
subprime mortgage that has spread all over the country.
  By the way, I mentioned that what took away Financial Modernization 
Act Glass-Steagall and the protections we put in place was Financial 
Modernization Act, also known as the Gramm-Leach-Bliley Act. That is 
Senator Phil Gramm who led the fight here to do that. I didn't vote 
with him. He is out still advising Senator McCain on the economy.
  Again, this is not about politics, but it is about what happened, how 
it happened, why it happened, and what we ought to do to make sure it 
doesn't happen again. We need effective regulators who decide they are 
going to do, in the interest of the American taxpayers, what they 
should do. We ought to go back and plug the loophole that was opened by 
Senator Gramm and

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others who said: You know what. Let's forget the lessons of the past. 
Let's let big holding companies gather up big financial enterprises and 
put them into one big sack, and they will run just fine.
  They are not running just fine. They are undermining this country's 
economic strength.
  Mr. President, how much time have I consumed?
  The ACTING PRESIDENT pro tempore. The Senator has used 13 minutes.
  Mr. DORGAN. Mr. President, I will say again, as I said when I 
started, this is no ordinary time. Our economy is in peril. We will 
recover. I hope the kinds of things that are being done by good people 
who are working 24 hours a day to try to deal with this wreckage will 
help our economy recover. We are a very strong country, and we have had 
some people who have undermined this country's economic strength, but I 
believe we will overcome it. But we won't overcome it unless we 
understand what happened, how it happened, and why it happened.
  I say again, as I said yesterday on the floor of the Senate, this is 
not some mysterious illness for which we don't have a cure. It is 
pretty obvious what happened, and it is pretty obvious what we have to 
do to fix it.
  I have been on the floor of the Senate talking for some years about 
this issue, about the unbelievable amount of leverage and the exotic 
financial instruments. Does anybody out there know that we have some 
$40 trillion in notional derivative values of credit default swaps? 
Most people who have them don't even know what they are. Most people 
didn't understand what kind of infection existed deep in these 
securitized issues that were being sold back and forth and everybody 
making money. They had no idea what was in them that was going to blow 
up at some point. And it has blown up with a significant force at this 
point that, so far, has cost the American people, by my calculation, up 
to $1 trillion.
  This ought to be an indelible lesson learned for this institution and 
for the American people. Greed must be constrained.
  The market system is a wonderful system, but you must have a traffic 
cop on the beat. You must have regulators who regulate. When you begin 
to take apart things that were protecting this country, such as the 
Glass-Steagall Act, and promising all kinds of nirvana for tomorrow, 
when it comes apart, you need to go back and do it over again and do it 
right.
  Mr. President, as I said, these are difficult days, and I want to end 
as I started. I don't want people who listen to this discussion to 
believe they should run to the bank and take their deposits out. 
Insured deposits in American banks are sound, and the American people 
should understand and not worry about that. That is very important. 
What we should worry about are the political calculations that led us 
to take apart the protections, such as Glass-Steagall and others, and 
second, the unfettered greed that was going on under the noses of 
regulators who came to this town in 2001 and who decided they didn't 
have any interest in regulating anything. Those are lessons we need to 
learn and learn well.
  Mr. President, I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Montana.

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