[Congressional Record (Bound Edition), Volume 154 (2008), Part 14]
[Senate]
[Pages 19680-19683]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              THE ECONOMY

  Mr. SCHUMER. Today I rise to discuss the recent turmoil in our 
financial markets. Over the past few days the upheaval in New York has 
been extreme, as we have witnessed the bankruptcy of Lehman Brothers, 
one of the oldest and most well-respected financial institutions in the 
world, the purchase of Merrill Lynch by Bank of America, and the 
Government takeover of AIG, America's largest insurance company.
  Those stunning developments followed closely on the heels of the 
Government takeover of Fannie and Freddie a mere 10 days ago. And I 
watched with great sadness those lining up at some of these companies 
to take their belongings away after years and years of work and heard 
the tales of woe from my constituents.
  Our job here is to cushion the blow for those who are innocent of any 
wrongdoing and have lost their jobs. I am trying to do all I can to 
minimize job loss in New York. But it is also to prevent this from 
happening again. That is why I rise to speak today, to lay out an 
outline of principles, and a broad-brush plan that might help us deal 
with this crisis.
  These unprecedented events have made it clear to the country what 
many of us have been saying for some time. We are in the midst of the 
greatest financial crisis since the Great Depression. After 8 years of 
deregulatory zeal by the Bush administration, an attitude of ``the 
market can do no wrong'' has led it down a short path to economic 
recession.
  From the unregulated mortgage brokers to the opaque credit default 
swaps market to aggressive short sellers who are driving down prices of 
even healthy financial institutions based on innuendo, this 
administration has failed to take the steps necessary to protect both 
Main Street and Wall Street.
  There may not be a silver bullet to fix what is currently dragging 
down the economy, but we can take steps to mitigate the costs and 
ensure that the impact of this crisis will be short term. We need to 
offer a smart, targeted, and timely solution that will help our economy 
weather this storm and keep as many families from losing their homes in 
the process as we can.
  Every minute matters, and the future competitiveness of the U.S. 
economy depends on the administration's response. The series of ad hoc 
interventions in the market over the past 10 days were important to 
avoid a systemic disaster, but we cannot continue to act in such an 
uncoordinated and ad hoc fashion.
  Furthermore, the Federal Reserve is being asked to do things that go 
far beyond its mission. I represent 19 million New Yorkers, many of who 
live on Main Street and work on Wall Street. So I know better than most 
that our response has to be aimed at both areas. It must protect the 
downstate economy, and the upstate economy. And the two--whatever one 
feels or wants to say--are intrinsically linked. Make no mistake about 
it. The reckless lending practices and irresponsible risk taking 
conducted by many of our financial institutions during this era of 
deregulation have proven costly for the U.S. economy and its taxpayers.
  The Federal Government cannot and should not write a blank check to 
the institutions that have exacerbated this crisis. The U.S. taxpayers 
have already extended $300 billion worth of capital to troubled banks 
and financial institutions, asking for nothing in return.
  So starting today we need to condition the Federal Government's 
financial lifeline on the institutions' firm commitment to take actions 
to get us out of our immediate economic crisis. If the Federal 
Government is going to continue to support the economy, its new formal 
lending program with financial institutions must address both the need 
for restoring stability and confidence in the U.S. financial market, 
and the need to set a floor in our plummeting housing market.
  Some people focus on one, some people focus on the other. The fact is 
we need both. We are not going to get out

[[Page 19681]]

of this great mess unless we deal with the mortgage crisis and the 
homeowner, and we deal with the cycles in our financial system which 
not only affect Wall Street and its jobs, of course, and my 
constituency, but affect all of America, because lending is the 
lifeline of the economy.
  Someone from Chrysler told me that right now you need a FICO score of 
720--that is a credit rating that is very high--to get an auto loan. If 
that continues, we would only sell 10 million cars in America next year 
as opposed to the 15 or 16 million we sell now. That shows you the 
interrelationship right there. The auto worker is related to the 
financial institutions. We must fix both in a practical, nonideological 
solution aimed at getting our economy back on its feet.
  The rapid deterioration of the financial sector is fueled by the 
steep rise in delinquencies and the foreclosure of risky mortgages that 
have been sliced and diced and sold in complex instruments that are 
becoming rapidly toxic waste on the balance sheet of our largest 
financial institutions.
  The best way to stop the bleeding is to turn these mortgages into 
viable assets on a large scale. But the combination of an economic 
downturn, tumbling home prices, complex mortgage security, and 
irresponsible underwriting by unregulated mortgage brokers has made 
this a daunting and so far insurmountable challenge.
  Over the past few years we have heard many discussions of a so-called 
RTC, Resolution Trust Corporation, and RTC-like proposals modeled after 
the Government-owned asset management company charged with liquidating 
assets after the 1980s S&L crisis.
  Today, Senator McCain made a similar proposal. And before I address 
that, let me speak for a minute on Senator McCain. He has been a 
leading advocate for deregulation for a very long time. All of a 
sudden, he sounds almost like a populist. He seems to reverse course 
day in and day out.
  Two days ago he said: AIG should not be aided by the Government and 
should go bankrupt. And today he is calling for large Government 
intervention in the financial markets. It is no wonder that Senator 
McCain said he does not understand economics. His erratic behavior in 
the last 2 days is inconsistent--saying one thing on Tuesday and 
another thing almost directly opposite on Thursday--makes you 
understand why people would not trust him with the economy.
  Today he called for the firing of Chris Cox of the SEC. Well, I have 
a lot of differences with Chris Cox and with the SEC. They have been 
far too deregulatory to me. But where does Senator McCain differ in 
policies with Chris Cox? Does he have a different view on short 
selling? Does he have a different view on holding company regulations? 
Who knows? Maybe he will replace Chris Cox with Phil Gramm who 
considers someone who lost his job a whiner, and considers all of us 
hurting in this economy a ``nation of whiners.''
  It is hard to take the proposals by Senator McCain very seriously 
unless he backs them up, not only with detail, but with consistency and 
a philosophy.
  But getting back to his proposal today, something of an RTC-like 
company, the central challenge with that approach, and anyone who is 
advocating the RTC--and my colleague Senator Dodd has outlined this 
very well recently--is that the Federal Government would take on all of 
the risk of the bank's troubled assets without addressing the root of 
the problem, the housing market.
  Proposals such as Senator McCain's may help Wall Street but they will 
do nothing for Main Street. Two major problems exist. First, troubled 
mortgages have been sold into complex mortgage-backed securities which 
have themselves been split into pieces and sold to thousands of 
investors around the world.
  In order for an RTC to be able to modify the mortgages, it would have 
to gather up all of the pieces of every security and put the proverbial 
puzzle back together. This would be incredibly difficult and virtually 
impossible. That is why the proposals by Secretary Paulson, as well 
intentioned as they are, have done very little in the foreclosure area. 
Because if one investor of the hundreds who hold a piece of a mortgage 
says ``no,'' there can be no refinancing, no reformulation. It is a 
huge problem.
  Second, even if it were possible for borrowers to have piggyback 
loans on second mortgages, which is an estimated 50 or 60 percent of 
the troubled mortgages, the RTC would have to go back and buy the 
second lines as well in order to work out the loan.
  In other words, even with the first mortgage, if you could get all of 
those hundreds of pieces together, there is a second mortgage in 50 to 
60 percent of these troubled mortgages and the second mortgagors or 
mortgagees are not going to stand for--the first mortgagors are not 
going to stand for reducing their mortgage while the second mortgage is 
as large as ever.
  In short, the complex structure of the most troubled mortgages 
underwritten over the past several years would prevent an RTC from 
being able to help most homeowners. Furthermore, it seems like the RTC 
is Rashoman these days.
  Some propose the name ``RTC'', like the Wall Street Journal financial 
page, to buy financial instruments; some propose it to deal with the 
mortgage situation, which is difficult, as I mentioned. And I think 
when we look at the specifics, the RTC model is not the best way to go. 
In fact, it might not work at all.
  Therefore, I am proposing that we examine a two-part approach that 
will help suffering homeowners across the country keep their home and 
restore stability to Wall Street.
  First, we must get banks and other financial institutions to drop 
their fierce opposition to judicial loan modification in exchange for 
any additional assistance from the Federal Government.
  This year my colleague, Senator Durbin, led legislation in the Senate 
that many of us cosponsored that would make a simple change to current 
law to allow judges the authority to modify harmful mortgages on 
primary residences. The industry adamantly lobbied against this 
legislation, arguing it would harm the secondary mortgage market. 
Simply put, this is wrong. Between 1978 and 1993, when such 
modifications were allowed, the evidence is clear. It had no impact on 
the secondary mortgage market whatsoever. What is even more absurd, a 
judge can already modify a mortgage on a second home. So if you own two 
homes--or seven homes--the bankruptcy court can help. But if you are 
like Joe and Eileen Bailey and most of us and you only have one home, 
which is, by the way, also your largest and most important asset, and 
you find yourself in trouble, there is nothing a bankruptcy judge can 
do.
  This critical solution is achieved by simply removing the bankruptcy 
law's language that denies relief to homeowners for their primary 
residence. Court-supervised loan modification is the simplest, fairest, 
and least expensive way to get all the parties of a mortgage together 
and modify the loan down to the fair market value of the home with no 
cost to the U.S. Treasury. This provision also guarantees the lenders 
at least the value they would obtain through foreclosure, since a 
foreclosure sale can only recover the market value of the home. In 
addition, it saves lenders the high cost and significant delays of 
foreclosure. Because bankruptcy is enshrined in the Constitution and 
because the bankruptcy judge has the power, unlike the mortgage 
processor, to require all the parties to come together, this can work 
and, again, at no cost to the Federal Government.
  Second, to restore confidence in financial markets and institutions, 
rather than continuing to intervene on an ad hoc basis as additional 
companies face problems, we should look at options to formalize ways 
for the Federal Government to provide capital injections and secured 
loans for banks that are struggling. This will give financial 
institutions the capability to de-lever their balance sheets and write 
down their bad assets over time. The rapid failure of a large number of 
financial institutions would have a disastrous long-term effect on the 
American economy, a situation we must avoid at all

[[Page 19682]]

cost. The Government could establish a new agency similar to the 
Reconstruction Finance Corporation or RFC-like model employed during 
the Depression. The RFC is far preferable to RTC. But we must condition 
the development of this formal structure on the agreement of banks to 
abandon their opposition to judicial loan modifications, and not only 
banks but others who hold pieces of mortgages as well. An RFC-like 
agency would receive equity and possibly secured debt from the banks in 
return for providing capital or liquidity. The equity received by the 
Government would allow the Government to share in any upside 
appreciation of the banks and minimize taxpayer costs in the process. 
The RFC would also get some degree of oversight lending activities of 
banks it has invested in, and the Government would come first. The 
Government would get repaid before others in the financial chain.
  I represent the State of New York where many of my constituents live 
on Main Street and many work on Wall Street. Both are in dire trouble. 
We have the largest city in the country, and we are the financial 
capital of the world. We have upstate New York which would be the 
seventh or eighth largest State in the country. In addition, we have 
the third largest rural population. Right now all are in trouble 
because in this complicated economy all are interrelated. We have a 
responsibility to address the problems faced by both homeowners and 
financial markets. Attempts to solve only one side of the equation will 
not get us out of this crisis. Without a comprehensive solution that 
helps keep people in their homes, no amount of money advanced by Uncle 
Sam will restore the fundamental strengths of the American economy.
  Chairman Bernanke has said it over and over again: Until we solve the 
mortgage problem, we are not going to solve our economic or even our 
financial problem. But unless we also solve our financial problem, the 
economy will not recover, and the housing problem will get worse. So we 
need to do both. Those who say just do one or the other, for 
ideological or policy reasons, will not come up with a solution. The 
solution I have proposed does both, and it links the two. To those who 
say the Government can't get involved in these institutions for no 
cost, we are making sure there actually is a cost, not only in the 
repayment plan but in the fact that they will have to treat mortgages 
differently and help beleaguered homeowners. By doing that, they will 
help the economy.
  To those who propose a plan of just helping the homeowner, worthy as 
that is and as much as I have worked hard and believe in it, if our 
financial institutions and our financial lifeblood continues to be 
brittle, frozen, and sparse, it will be far more difficult to solve the 
homeowner problem because the economy will get worse, housing prices 
will go down, and the cost and ability to keep mortgagors in their home 
will be less.
  This solution represents the best way to get us out of our financial 
crisis in a comprehensive way. It should have appeal to those on both 
sides of the aisle. Most importantly, it is a solution that deals with 
the entirety of the problem in a comprehensive way.
  Given our economy hurtling southward, given the horrible stories we 
read in the newspapers every day about those who work on both Main and 
Wall Streets hurting, we cannot afford not to act.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from New Jersey is recognized.
  Mr. MENENDEZ. I understand we are in morning business.
  The PRESIDING OFFICER. The Senator is correct.
  Mr. MENENDEZ. Madam President, because of the hard work of Chairman 
Baucus of the Finance Committee, Senator Cantwell and several others, 
we may--I say ``may'' and I will talk about that in a moment--have 
finally secured a deal to extend the renewable energy tax credits and 
to temporarily fix the alternative minimum tax. If we can do this, it 
is a huge accomplishment that will generate hundreds of thousands of 
new, green-collar jobs, stimulate the economy, improve our energy 
independence, and lower energy costs for all Americans. And it cannot 
come too quickly, as we heard from our distinguished colleague from New 
York.
  Unfortunately, in order for the Democrats to secure a deal to do 
this, we had to agree to a bill that, in my opinion, is not as strong 
as previous versions of the bill. On eight separate occasions, our 
Republican colleagues had the opportunity to keep the rapidly 
developing wind and solar industries growing at an astonishing pace. 
But, instead, they decided to play politics. Time after time, 
Republicans filibustered and then voted to block consideration of 
proposals to extend critical tax credits for wind, solar, biomass, and 
geothermal energy. So Democrats had to sit down with our colleagues 
from the other side of the aisle and work out a deal.
  I have heard a lot recently about how Washington is broken and how 
there needs to be a greater spirit of bipartisanship. I agree. But I 
want the American people to understand that comes at a price. What is 
often overlooked is there is a price to be paid for that compromise. In 
this instance, the price being paid is $8 billion over the next 5 years 
to big oil. In essence, at a time when financial markets are in 
turmoil, banks are failing, Americans are struggling to make ends meet, 
Republicans have required a big oil bailout, a bailout for the most 
profitable industry in history, at a time when they are beating their 
own record profits.
  I also have concerns about some of the oil shale and tar sands 
provisions of the bill in an environmental context. But on balance, 
based upon the circumstances of where we are and what is possible, this 
bill will do a lot more good than harm.
  Renewable energy is essential for our environment and our economy. 
But renewable energy is, most importantly, the opportunity to produce 
massive amounts of domestic, clean, cheap energy and generate hundreds 
of thousands of new jobs in doing so. Simply put, renewable energy is a 
core solution to our energy woes and a massive business opportunity. 
Don't take my word for it. Just ask landowners in Texas or Minnesota or 
Iowa or Wyoming who are receiving $3,000 to $5,000 per month for 
allowing a windmill to be sited on their property. Or ask oilman T. 
Boone Pickens who is plowing billions of dollars of his own money into 
wind energy, even though he made his money on oil and has a plan to use 
renewables to end our addiction to oil.
  Last year the United States installed enough wind turbines to power 
over 1.5 million homes, and the solar power industry is growing at over 
40 percent a year. In fact, over one-third of all additional electric 
power capacity that was added to the grid last year was from renewable 
sources. So despite claims by the Republican Presidential nominee, 
these technologies work. They work now, and they are producing an 
enormous amount of energy.
  They have done so in large part because of the leadership and 
investment by the Federal Government in incentivizing those renewable 
energy industries. By extending the wind and solar tax credits so these 
industries can continue their rapid growth, we could easily add 150 
gigawatts of installed capacity within 10 years.
  What does that mean? That is enough electricity to power over 37 
million homes. By 2030, even if we do not pass additional policies to 
create a national grid or further incentivize distributed energy, we 
could get well over 25 percent of our Nation's electricity from wind 
and solar power.
  This tax package also has a very important provision to help us 
transition from oil to renewable fuels. The bill contains a large tax 
credit for the purchase of plug-in hybrid vehicles, cars such as the 
Chevy Volt which will be able to run solely on electricity only for the 
first 40 miles after being plugged in.
  If projections by some experts hold true and half the cars on the 
road in the year 2030 are plug-in hybrids, we could easily cut our use 
of oil by one-third or more. By this time we would be producing enough 
renewable energy to power all of these cars and still have

[[Page 19683]]

electricity to spare. If we want cheap gasoline, to be free from 
imported oil, create hundreds of thousands of new jobs, then we need to 
pass this tax credit extension. It is that simple.
  I am relieved in one sense that my colleagues on the other side of 
the aisle have finally come to the table to let us vote on something 
that will actually produce energy, but I am concerned that there are 
still those objecting to us proceeding. This fall, voters, however, are 
not going to forget that the price the Republican Party has forced on 
the American people in order to get to these renewable energy sources 
is to continue $8 billion in subsidies for big oil. When the American 
voters see that, they are going to have a much different view of what 
they do in these elections, and we will see a very different Federal 
Government come January.
  I also want to address another essential piece of the tax extenders 
program, and that is the temporary fix of the alternative minimum tax. 
New Jersey's hard-working families deserve real tax relief. More than 
70 percent of the President's tax cuts have gone to people making over 
$200,000, while families who earn anywhere between $50,000 and $75,000 
have received less than 5 percent of those cuts. Yet the President has 
done nothing to make the AMT exemption permanent, a tax which, in the 
next 4 years, would affect nearly every family of four earning between 
$75,000 and $100,000 if nothing is done.
  The President has directed all his efforts, priorities, and the 
Nation's bank account to tax breaks for the wealthiest, leaving little 
room, let alone money, for the reforms that will affect nearly 24 
million middle-class families.
  When Americans wonder why there has been little attention on what 
most tax analysts refer to as the ``single most important tax issue'' 
facing the Nation, they should know that it is because tax cuts for the 
middle class have clearly not been a priority of this administration.
  I am glad we are moving in this Democratic majority in a different 
way. The fact is that, without this bill, middle-class families will be 
faced with a harsh reality at the end of the year. In my State of New 
Jersey, where roughly 270,000 families were subjected to the 
alternative minimum tax in 2006, the number of middle-class taxpayers 
subject to this tax would explode if no fix is enacted. Average 
families, who are far from wealthy, could face significantly higher 
taxes this year if we do not act on the crisis at hand. This fix makes 
very clear that our priority should be to protect middle-class families 
from an unintentional tax hike, and that millions of taxpayers should 
not wake up next tax season to realize they owe more in taxes even 
though their income has not changed.
  Let's remember, this was a tax intended to ensure that those making 
over $200,000 a year were not able to game the system and avoid paying 
any taxes toward the common good at all. It was never intended to raise 
the taxes of average Americans.
  So let's send a clear message that the values we embrace are the 
values of helping American families. Let's embrace fairness and equal 
treatment for those who are working hard. We can do that in this bill.
  Finally, let me thank again Chairman Baucus and others for their hard 
work in crafting this legislation to extend the renewable energy tax 
credits and to temporarily fix the alternative minimum tax.
  But I do urge my colleagues who are objecting to bringing up this 
legislation to drop their objections. You cannot expect more for oil 
than even what you have gotten in this bill. These are obstacles the 
American people clearly cannot afford at this time, that this country 
cannot afford at this time in one of the worst financial times.
  This will be one part of a solution to move us in a direction that 
creates jobs, that can stimulate our economy, that can break our 
dependency on oil, that can do something about our environment and, at 
the same time--and, at the same time--ensure that we give relief to 
middle-class families through that relief in the alternative minimum 
tax.
  I hope if, in fact, we can get through our colleagues' objections--
the majority leader has tried to bring up this bill already--if we are 
able to do so, we can send a message as this week comes to a close that 
the Senate is finally on the way to giving relief to American families 
in a real, meaningful way, and as people are losing their jobs in this 
economy, we can be at the threshold of creating a new generation of 
jobs in which people will be able to prosper and the Nation will be 
able to meet its energy needs for the future.
  Madam President, with that, I yield the floor and suggest the absence 
of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. WYDEN. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. WYDEN. Madam President, I ask unanimous consent to speak as in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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