[Congressional Record (Bound Edition), Volume 154 (2008), Part 14]
[Senate]
[Pages 19359-19361]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              THE ECONOMY

  Mr. DURBIN. Mr. President, yesterday evening, in room 219 just off 
the Senate Chamber, there was a historic meeting where Mr. Bernanke, 
Chairman of the Federal Reserve Board, and Mr. Paulson, Secretary of 
the Treasury, gathered at a large conference table with the leaders of 
both the House and the Senate, of both political parties. The 
information he gave us was serious, and we listened carefully as Mr. 
Bernanke explained that the Federal Reserve was about to loan $85 
billion to the largest insurance company in America--AIG.
  Mr. Bernanke spelled out what would happen if AIG failed, which he 
believed was imminent, absent intervention by the Government; that this 
insurance company had 180 subsidiaries, a $1 trillion operation, and 
the impact of its demise would be felt across America and around the 
world. He explained it

[[Page 19360]]

is more than just an insurance company, it is a company that has 
insured many contracts, and if that insurance failed, it would call 
into question contractual obligations involving financial institutions 
and individuals across America.
  It was very clear by the end of his explanation that we had few 
alternatives, few options other than to step in. Although I understand 
this to be unprecedented, it appears to be one of the few things we can 
do to stop AIG from collapsing and bringing down a large part of the 
American economy with it.
  This, of course, comes on the heels of announcements earlier in the 
week that Lehman Brothers was going to fold. I understand a substantial 
portion of it may be taken over by Barclays, and I think that is a good 
thing, particularly for the 10,000 employees whose jobs may be 
preserved. We also heard that Merrill Lynch, one of the traditional 
giants on Wall Street, had to close down business and accept purchase 
by the Bank of America. That was a week after Fannie Mae and Freddie 
Mac, the two giants of the housing industry in America, reached a point 
where the Federal Government had to take over the responsibility for 
their future so that the housing market could be stabilized. And it was 
just a few weeks after that same administration stepped in to take over 
Bear Stearns.
  This sequence of events has caused concern across America and around 
the world. I believe the response by the administration, at least 
through the Federal Reserve, is the best of the bad alternatives that 
were available to it. But it raises some extraordinary questions we 
have to face, and Congress has to accept the challenge these events 
present to us. The challenge was expressed by Mr. Bernanke last night 
when I asked him: What can we do now to avoid further collapses of 
giant companies and institutions? He said: We have to step back and 
look at the whole system of regulation.
  I think that was a very candid analysis because we know what has 
happened. The traditional basis for our financial dealings in America 
has been banks and other credit institutions, which are regulated by 
the Government. But in recent times, an additional credit world has 
emerged. It is a dark and shadowy world without the disclosure of these 
traditional institutions and with little or no regulation. It is that 
world which is coming down. It turns out that if these institutions are 
not carefully monitored, if there is not appropriate oversight and 
accountability, greed overtakes common sense, and that is what has 
happened. So many of these institutions are failing, and with their 
failure comes added responsibilities for taxpayers.
  It is curious to me that when we reach these disastrous situations, 
it is the taxpayers--the average family in America--who need to ride to 
the rescue. It is their tax dollars that are going to keep these 
institutions afloat for some period of time. They didn't reap the 
profits of these institutions in their glory days, but now their tax 
dollars are sustaining the skeletons that are left so that there will 
at least be some continuity.
  I think we need to step back and take an honest look at this and 
realize we have gone too far when it comes to this notion that we have 
to ``get Government off our back.'' It turns out there are moments in 
history and there are situations where individuals, families, and even 
businesses alone cannot manage this economy. We need to have the 
American family--we need to have our Government that we have elected 
and chosen in a position of oversight to stop the excesses. We need to 
make sure we have agencies with the appropriate statutory authority to 
ask the right questions, to disclose the right information, and to stop 
wrongdoing. That has not happened, and that failure has led to the 
situation we see at this moment.
  Senator McCain and his inspiration, former Senator Phil Gramm of 
Texas, are part of the deregulation school--get Government out of the 
business of regulation. In fact, Senator McCain prides himself on being 
a leader when it comes to deregulation. Well, it is that concept of 
deregulation that has brought us to this moment. We have to have 
appropriate regulation. I don't want the Government to go too far, but 
clearly, when the Government steps aside and says: Let 10,000 flowers 
bloom, let this economy emerge, let's see the miracle of capitalism, 
sadly, those miracles turn into tragedies, as they did over the last 
several weeks. We need to make sure we have agencies of Government 
doing the right thing.
  In the darkest economic moment in American history--the Great 
Depression of the 1920s--it took a new President and a new way of 
thinking to turn America around and to get the economy back on its 
feet. That President, Franklin Roosevelt, came in and established 
Federal agencies that would demand accountability, and in return he 
said that we will stand behind the banks of America. It is a promise we 
have kept now for over 75 years.
  Of course, there is regulation of financial institutions and there is 
also a guarantee that your deposits at your bank are going to be 
protected by the Government--the Federal Deposit Insurance Corporation. 
That is a good tradeoff. We will provide rescue if we can regulate. But 
currently we are coming to the rescue of unregulated entities for 
activities that the Government has had nothing to do with, and that has 
to change. We have to have accountability across the board in our 
economy. That is a critical element when it comes to the future. This 
Congress is not going to do it. The President is ending his term with 
only a few months left. He is not in a position to suggest major reform 
legislation in these closing months, and Congress is not in a position 
to pass it. But we have a responsibility in the new Congress to accept 
that challenge and to put in appropriate regulation.
  The era of Phil Gramm deregulation is an era that has not only 
declined but fell over the last several weeks. That may have inspired 
John McCain years ago, but that cannot lead our country in the future. 
We have to have a much more honest appraisal that if the taxpayer 
dollars are going to be on the line to rescue these corporations, the 
Federal Government should have some oversight and demand accountability 
in the operation of these institutions before it reaches that point.
  There is one other element that I think is important which we brought 
up in the meeting last night. Despite all this conversation about all 
the turmoil on Wall Street and all of the turmoil in our economy, there 
seems to be a hands-off attitude when it comes to the Americans facing 
mortgage foreclosure. What started this economic tumble was the 
subprime mortgage mess, where financial institutions were derelict in 
their responsibility, enticing people into mortgage debt way beyond 
their means, giving them these exotic financing packages which exploded 
when the ARMs reset, and now many of them are facing foreclosure.
  This last August, we hit another record high in foreclosures--304,000 
homes in some stage of default and 91,000 families losing their homes, 
according to RealtyTrac, an online marketer of foreclosed properties. I 
think this is the rot at the base of the economy, and when I have 
appealed to my colleagues in the Senate on the Republican side, the 
Secretary of the Treasury, and even the Chairman of the Federal 
Reserve, that we need to look at these mortgage foreclosures in a 
specific way to see how many of these families, if given a reasonable 
opportunity, could stay in their homes, they have said: No, we don't 
want to put our hands on that; we have to let the market work its will. 
Well, we didn't let the market work its will with Bear Stearns. We came 
to their rescue. We didn't let the market work its will with Fannie Mae 
and Freddie Mac. We rescued them. We certainly didn't let the market 
work its will with AIG. We decided that for the good of our economy we 
had to step in. I believe those were reasonable efforts to stabilize 
our economy, but helping the families facing foreclosure is also 
reasonable. Now that our Government is taking over Fannie Mae and 
Freddie Mac, I think it ought to step in with a new policy when it 
comes to renegotiating the mortgages of people who are facing 
foreclosure.

[[Page 19361]]

  I have had a proposal before the Senate, which was rejected on a 
largely partisan basis, which basically said that if you go into 
bankruptcy in foreclosure, the court will have a chance to rewrite the 
terms of your mortgage to keep you in your home. It is done now for 
investment property, vacation property, farms and ranches. But it does 
not apply to your primary residence, and that makes no sense 
whatsoever. I think the court ought to step back and say this family 
can make the payments they have made for the last 5 years and ought to 
be allowed to stay in their home as a result of it rather than 
foreclose the property. If the property is foreclosed, there are losers 
in every direction. First, the families are on the street; second, the 
financial institution; and then the neighborhoods and the community 
around them will see their property values go down because of the 
foreclosure.
  If we want to staunch the bleeding going on at the base of our 
economy, it should start with those who are facing foreclosure. If we 
are coming to the rescue of major institutions, why do we turn our 
backs on the families facing foreclosure?
  One of our colleagues in the meeting yesterday said we have to let 
the market find the bottom when it comes to foreclosure. We didn't let 
that happen with respect to giants. We shouldn't let it happen to 
families who deserve a second chance.
  I yield the floor.
  Mr. CORNYN. Mr. President, I ask unanimous consent that 20 minutes 
out of the allotted 30 minutes on this side be allotted to me and the 
remaining 10 minutes allotted to the Senator from Louisiana, Mr. 
Vitter.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.

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