[Congressional Record (Bound Edition), Volume 154 (2008), Part 15]
[House]
[Pages 20324-20327]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       NO BAILOUT FOR EXECUTIVES

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
  Ms. KAPTUR. Mr. Speaker, Congress is being pushed to pass a Bush 
administration plan to write a blank check to white collar criminals of 
the highest order. Instead of prosecuting those who stole from us, 
Secretary Paulson wants us to reward his former colleagues for their 
bad decisions, abusive and unlawful practices.
  While my constituents are struggling to pay their gas bills, we 
should recall fondly the record annual bonuses Secretary Paulson's alma 
mater, Goldman Sachs, gave less than 2 years ago. In 2006, that 
investment house alone paid $16.5 billion in compensation to its 
employees averaging more than $600,000 per employee. In fact, Goldman 
CEO Lloyd Blankfein got $53.4 million that year. And Bear Stearns chief 
executive officer, the company that the Fed just bailed out with our 
money, James E. Cayne, got a stock bonus that year worth $14.8 million. 
Merrill Lynch chief executive officer Stanley O'Neal, he got $35.4 
million. Think about this America.
  Now 2 years later, those houses are demanding that our taxpayers bail 
out their companies, despite the fact that the real median household 
income of a middle class family in our country is about $50,000 a year. 
That doesn't matter to the people drafting this bailout.
  In 2006, Forbes Magazine estimated Secretary Paulson earned $16.4 
million as CEO of Goldman Sachs, not counting all his other perks. His 
net worth is estimated somewhere over half a billion dollars. Indeed, 
that tidy amount alone would make a real dent in what is owed to the 
American people in this proposed bailout.
  So why would our middle class taxpayers be asked to bail out 
billionaires? Some of them should be doing time for insider trading and 
fraudulent accounting rather than lobbying down here in Washington for 
us to bail them out.
  American taxpayers were forced to lay out $30 billion to help Bear 
Stearns.

                              {time}  2245

  And then we were asked to shell out the first $200 billion, and that 
could rise to $2.44 trillion, for Fannie Mae and Freddie Mac. And now, 
$85 billion to rescue AIG Insurance Company.
  Who ever heard of the Federal Government rescuing an insurance 
company that was already paying, get this, civil fines in New York for 
its wrongdoing of over $1.6 billion on proven charges of serious 
accounting fraud and misconduct.
  Why send our hardened paychecks to the very people who caused these 
problems?
  Americans don't need to write checks. We need investigations, and we 
don't need just investigations, we need

[[Page 20325]]

prosecutions. White collar crimes of this magnitude cannot go 
unpunished, nor can they get rewarded.
  First, investigation. We need the American people's voices to be 
heard, not just the voices of those who perpetrated these crimes 
against us, the taxpayers. We need real congressional investigation and 
oversight in each of the committees of jurisdiction which seem 
strangely silent here, using their subpoena power, the Judiciary 
Committee, the Ways and Means Committee, the Energy and Commerce 
Committee, the Budget Committee, the Financial Services Committee, 
which is having a perfunctory hearing tomorrow, I guess, and Government 
Oversight. The silence is deadening.
  The crimes of Wall Street will make Watergate look like penny-ante 
thieves.
  Second, campaign reform. Get the Wall Street money out of 
congressional and presidential races. Wall Street is now the Number 1 
top source of Federal campaign money to Congress and in those 
presidential races. And guess who's the Number 1 Wall Street giver? 
Goldman Sachs. And guess where our last two Treasury Secretaries have 
come from? Goldman Sachs.
  Whether it's a Democratic administration or a Republican, not one 
lawmaker or candidate should be accepting Wall Street money. Wall 
Street is so broke as to beg for our help, but somehow they have 
millions of dollars to drop into political coffers.
  I think the American people are beginning to get the picture. In 
fact, I'm putting in the Record tonight an article from the Wall Street 
Journal called Wall Street Top Source of Campaign Money, and also a 
list of the biggest donors on Wall Street.
  Mr. Speaker, I will continue tomorrow evening to talk about justice 
and empowering the Department of Justice to institute a major 
investigation.
  And let me also, in closing say, I'm going to be placing in the 
Record tonight some remarks from Americans who have ideas about what 
should be done.
  I want to compliment the American people. You're doing a lot of 
thinking on your own. We need to hear from you.
  This Congress shouldn't be closing down and going home. We should be 
taking care of America's business, not going home to campaign.

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

               Wall Street Is Top Source of Campaign Cash


                     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 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.
                                  ____


             [From the Wall Street Journal, Sept. 15, 2008]

                   The Biggest Donors on Wall Street


Crunched by Credit Crisis Financial Firms Still Find Cash for Campaign 
                               Donations

                           (By Brody Mullins)

 
----------------------------------------------------------------------------------------------------------------
                                                           Total Given to
             2008 Donor                  Overall Rank     Both Candidates     Total to Obama    Total to McCain
----------------------------------------------------------------------------------------------------------------
AT&T................................                 20           $309,391           $135,834           $173,557
Bank of America.....................                 17           $336,377           $206,902           $129,475
Citadel Investment Group............                N/A                N/A                N/A                N/A
Citigroup Inc.......................                  2           $671,450           $406,549           $264,901
Columbia University.................                N/A                N/A                N/A                N/A
Credit Suisse Group.................                 16           $338,100           $188,075           $150,025
Exelon Corp.........................                 25           $285,461           $239,561            $45,900
General Electric....................                 22           $300,149           $231,318            $68,831
Goldman Sachs.......................                  1           $853,575           $648,480           $205,095
Google Inc..........................                 11           $421,991           $404,191            $17,800

[[Page 20326]]

 
Greenberg Traurig LLP...............                 23           $295,932           $145,545           $150,387
Harvard University..................                  9           $440,615           $407,219            $33,396
IBM Corp............................                N/A                N/A                N/A                N/A
Jones Day...........................                 15           $344,380           $272,755            $71,625
JPMorgan Chase & Co.................                  4           $585,035           $412,960           $172,075
Keating, Muething & Klekamp.........                N/A                N/A                N/A                N/A
Latham & Watkins....................                 14           $359,846           $270,595            $89,251
Lehman Brothers.....................                  8           $478,982           $361,482           $117,500
Merrill Lynch.......................                  7           $487,435           $190,522           $296,913
Microsoft Corp......................                 13           $376,952           $326,847            $50,105
Morgan Stanley......................                  5           $541,493           $307,221           $234,272
National Amusements Inc.............                 19           $312,050           $301,000            $11,050
PricewaterhouseCoopers..............                N/A                N/A                N/A                N/A
Sidley Austin LLP...................                 10           $425,976           $329,776            $96,200
Skadden, Arps et al.................                 12           $388,700           $320,550            $68,150
Stanford University.................                N/A                N/A                N/A                N/A
The Villages........................                N/A                N/A                N/A                N/A
Time Warner.........................                 24           $290,138           $269,213            $20,925
UBS AG..............................                  6           $512,509           $382,494           $130,015
University of California............                  3           $608,999           $576,839            $32,160
US Army.............................                N/A                N/A                N/A                N/A
US Dept of Justice..................                N/A                N/A                N/A                N/A
US Government.......................                 18           $335,014           $197,897           $137,117
WilmerHale..........................                 21           $303,572           $275,132            $28,540
Zurich Financial Services...........                N/A                N/A                N/A               N/A
----------------------------------------------------------------------------------------------------------------
Source: Center for Responsive Politics.


                                  ____
     Re: Key ideas for improving the Paulson Plan
       To: Key Policymakers in Congress
       From: Dr. Brent Blackwelder, and James S. Henry, Esq.
       Date: September 23, 2008
       Based on our our conversations this morning with several 
     thoughtful observers here are some additional specific ideas 
     for improving the Paulson Plan.
       The overall perspective is that Congress should concentrate 
     now on a short list of crucial improvements to the Plan that 
     are most important to the public. In our view, these are the 
     following:
       1. Equity ``Upside'' and Voting Power. In return for the 
     undeniable new risks that US taxpayers are taking on, and the 
     poor management track record of leading Wall Street 
     institutions, it is reasonable to insist that they receive an 
     ``upside'' on the value of participating financial 
     institutions (FIs) themselves as well as on the potential 
     increased value of acquired mortgage-backed assets. This 
     proposal commands widespread support in this panel.
       Technically, this could be accomplished by demanding 
     preferred shares (with anti-dilution provisions) from any 
     financial institutions (FIs) that receive assistance, as was 
     routinely done by Bank of Japan in exchange for financial 
     assistance during the Japanese bank restructuring of the 
     1990s, and by the Chilean government during the February 1983 
     bank nationalization.
       Warrants might also be used, as was done in the case of the 
     1979 $1.2 billion Treasury loan guarantee to Chrysler. 
     (According to Sen. Bradley, the Federal Government eventually 
     made money on those warrants.) We believe that while warrants 
     are easier to implement, it is vital to insist on actual 
     equity (including voting power). This will provide the 
     Treasury with much more direct influence over management 
     behavior, will be easier to value, and will also be easier to 
     explain to the public than warrants.
       2. Clawback Provisions for Executive Severance Pay. The 
     basic principle here is that for senior FI executives, there 
     should be accountability for some time period even after they 
     leave office--at a minimum, any future compensation or 
     severance that they receive should be subject to stiff taxes 
     or repossession in bankruptcy court. Insisting on compliance 
     with this standard should be a condition for participation in 
     the bailout.
       3. Share the Pain.
       A. Emergency Taxes. Since this very costly bailout package 
     may severely limit the ability of the Federal Government to 
     afford vital programs like health insurance reform and 
     alternative energy, it is important that we deal now with the 
     substantial ``tax justice'' implications of the bailout.
       One way to do this would be to start treating this as the 
     national emergency that it really is, and help ordinary 
     taxpayers pay for it by: (1) eliminating the carried-interest 
     benefits for hedge fund managers; (2) cracking down on 
     offshore havens--no FIs should be permitted to establish subs 
     or place SPVs in them; (3) imposing at least a temporary 
     increased income tax rate on all people with incomes above $1 
     million and on all estates above $10 million.
       B. Compulsory Write-Down/Debt Reduction of Residential 
     Mortgages. Given the failure of this summer's relief packages 
     for ordinary mortgage holders to have much impact, and the 
     fact that foreclosures are still increasing (to a record 
     100,000+ per month, and that housing prices are still falling 
     in a majority of key markets, this is an another essential 
     measure. The debt restructuring should be implemented 
     quickly, affect large numbers of people, and be inversely 
     proportional to mortgage size. It might also be means-tested.
       4. Financial Products Safety Commission. This would review 
     and certify the quality of all financial products offered to 
     the general public. Products like zero-down payment mortgages 
     would require special labeling, and might not qualify for 
     government incentives like interest deductibility, access to 
     the government insurance window, and so forth.
       5. Treasury-Created Market for MBS Insurance. As discussed 
     in the draft article below, a very novel idea is that the US 
     Treasury might be able to use current authority to offer ABX-
     like insurance at a fixed price per tranche to institutions 
     that hold MBSs. According to Professors Kotlikoff and Merlin, 
     if such a government-backed insurance market were in place, 
     backed by a significant reserve against losses, it might even 
     obviate the need for the entire $700 billion, while creating 
     a market-based workout alternative.
       As Mr. Henry has suggested, this could be combined with #1, 
     if FIs were allowed to pay for the insurance with equity or 
     warrants. This would also have the benefit of helping to 
     recapitalize troubled FIs.
       6. New ``Pecora Commission'' (ala 1932): a congressional 
     committee with subpoena power to investigate the root causes 
     of this crisis and recommend further steps.
                                  ____


                        The Right Financial Fix

                                                September 21, 2008
       Fortunately, the Treasury and Fed are looking for a 
     ``comprehensive approach to address the illiquid assets on 
     bank balance sheets.'' Their idea is to swap up to $700 
     billion in Treasuries for the ``toxic'' assets, putting a 
     floor on bank losses and leaving the government to hold the 
     risky assets until conditions improve. The big question is 
     the swap rate; i.e., how to price these thousands upon 
     thousands of illiquid securities so that both taxpayers and 
     bank shareowners are fairly treated.
       Treasury Secretary Paulson wants to run auctions to 
     determine prices, but this will take time to set up and may 
     be impractical given the highly complex nature of many of the 
     securities involved. Furthermore, those holding the worst 
     securities will be the most eager to sell.
       Our answer is to rely on the same pricing mechanism, but 
     not the same prices, used before things hit the fan. In the 
     good old days, mortgage derivatives were priced by reference 
     to the cost of buying default insurance on five tranches of a 
     bundle of 20 standard subprime mortgages. The top tranche 
     (AAA) provided the highest probability of full repayment. The 
     lowest tranche (BBB) had the lowest probability. In between 
     were another 3 tranches. The market for these insurance 
     contacts is called the ABX.
       Avant le deluge, you could use ABX prices to figure out 
     what a given tranche of a standard mortgage-backed security 
     was worth. It would simply be the cost of buying a safe 
     bond--a Treasury--with the same coupon plus paying the ABX-
     determined price for default insurance for that tranche. The 
     reason is that once you had purchased the insurance, you are 
     guaranteed a safe income stream; i.e., you were guaranteed 
     the equivalent of a Treasury bond. More exotic mortgage-
     backed securities, with now scary initials, like CDOs, could 
     also be priced using the ABX.
       So here's our specific idea. Rather than ask Hank Paulson 
     to determine the price of each and every toxic asset, let's 
     have him simply set prices for the ABX insurance policies (or 
     credit default swaps, as they are called). Right now these 
     insurance policies are selling for crazy prices because 
     nobody can insure against systemic risk. Nobody,

[[Page 20327]]

     that is, except the government. The government is in a unique 
     position to insure against system-wide risk because its own 
     decisions determine, to a very large degree, the extent of 
     this risk.
       Were the government to start selling the ABX insurance 
     policies at reasonable prices, our Cinderella mortgage-
     derivatives market would suddenly wake up and start pricing 
     every mortgage-related security in sight based on these ABX 
     prices. If Hank does this, the market will do essentially all 
     the pricing; Hank will have only a handful of prices to set, 
     not thousands.
       But how does Hank set those prices? What's fair? What's 
     fair are insurance policy prices that assumes no system 
     collapse, a modest additional decline in house prices, a mild 
     recession, and modest additional increases in default rates. 
     Yes, these are optimistic assumptions, but that's the 
     economic outcome the government is arranging and it needs to 
     signal its resolve.
       Once the five prices are set, Hank can keep the $700 
     billion in his pocket. The Treasury will be receiving premium 
     payments as it sells the ABX policies--premiums that it will 
     need to keep in reserve.
       What will happen to the banks? With reasonable ABX 
     insurance prices, their toxic assets will take on reasonable 
     values. This will restore their balance sheets and allow them 
     to keep operating. Yes, this will help bank shareholders, but 
     they will still end up far worse off than at the beginning of 
     this crisis. Taxpayers will keep their $700 billion pistol 
     dry for another day.
       Playing the ABX market-maker is step one for the 
     government. Step two is reorganizing banks whose capital is 
     still too low even when its ``toxic'' assets are revalued. 
     This means helping such troubled banks finding a marriage 
     partner. Step three is reregulating the entire financial 
     sector. This includes establishing a Federal Financial 
     Authority that stamps a seal of approval on consumer 
     financial products that it deems to be safe, that rates 
     individual securities, and that audits the books and rates 
     the performance of each and every one of our nation's major 
     companies.
       The final step, and the most important, is to require 
     financiaI institutions to report on line and in fine detail 
     everything they know about the assets they hold. The 
     principle here is simple enough even for Wall Street 
     ``geniuses'' to understand. If you want to sell the public a 
     product, including your stock, you need to explain what it 
     is.

     

                          ____________________