[Congressional Record (Bound Edition), Volume 154 (2008), Part 15]
[Senate]
[Pages 20728-20732]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              THE ECONOMY

  Mr. DORGAN. Mr. President, I have often described on the floor the 
lyrics of Bob Will's and the Texas Playboys' song from the 1930s:

       The little bee sucks the blossom and the big bee gets the 
     honey; the little guy picks the cotton and the big guy gets 
     the money.

  Never is that more true than what we see today with the prospect of 
unbelievable financial bailouts and the mechanics of what is happening 
on Wall Street and the wreckage of the financial system. I wish to show 
my colleagues this about the bailouts by the administration. Everybody 
is talking about a $700 billion proposed bailout by the Federal Reserve 
and Treasury Secretary Paulson. In fact, the Federal Reserve previously 
committed $29 billion so J.P. Morgan could buy Bear Stearns, the 
investment bank that was failing. In addition, the Fed opened its 
discount window for direct loans to non-regulated banks for the first 
time since the Great Depression. We understand that this program and 
two other Fed loan programs total some $300 billion. There is another 
$300 billion for the Federal Housing Administration, and about $200 
billion for Fannie and Freddie; JPMorgan Chase for Lehman financing, 
$87 billion; AIG insurance, $85 billion; $50 billion for money market 
funds that was offered as a guarantee; and now the prospect of $700 
billion is pending. That isn't just $700 billion; that totals $1.7 
trillion. Even if the Congress decides not to provide the $700 billion 
bailout that is being requested, there already exists $1 trillion that 
have been offered to try to stabilize the financial system.
  Now, the question is, How did we get into this mess? What caused this 
wreckage? What do we think we should do about it? I wish to talk for a 
bit about what caused this. I take no pride

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in being right 9 years ago as one of eight Senators who voted against 
the Financial Modernization Act. That act was a bunch of folks who sold 
to the Congress the proposition that what we put in place for 
protection in the 1930s, during the Great Depression, to separate 
banking from more speculative enterprises, such as real estate and 
securities--the decision was that that is old-fashioned, don't keep 
doing that; let's allow these companies to merge, to create massive 
financial holding companies--a kind of financial cafeteria under one 
roof. Let's bring them together, and you can build firewalls inside the 
organization. So the Financial Modernization Act was passed.
  I said on the floor of the Senate then that within 10 years I believe 
we will see massive bailouts that will be paid for by the American 
taxpayer. I regret that I was right. It should not have happened, 
however. I wish to talk about what has happened as a result of taking 
down the basic protections. Let me go back to the start of two things--
one I mentioned--the Financial Modernization Act, which took apart the 
protections. Second, a group of people came to this town boasting that 
they weren't interested in regulating. People were put into positions 
where they were supposed to regulate and decided not to regulate. Those 
two pieces together, taking apart the protections in law and putting in 
place people who wanted to be willfully blind in deciding not to 
regulate, steered us right toward the cliff. Here is what began to 
happen across the country. Most Americans saw this because you could 
not miss it. You wake in the morning and perhaps you brush your teeth 
or you shave in front of a mirror and you might have a small television 
set that you are watching, seeing what is going on, and the 
advertisements come on--and they are always louder than the programs. 
The advertisements say: Hey, if you have been bankrupt or if you have 
bad credit, you can get a loan from us. Do you think you are paying too 
much for your home loan? Are your house payments too high? Get a loan 
from us.
  This was the biggest mortgage bank in the country, Countrywide. They 
advertised this:

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

  America's biggest mortgage bank was saying: Have you got bad credit? 
Call us. Want a loan? Call us.
  Millennia Mortgage said this in their advertisements:

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

  So Millennia Mortgage was saying: Get a mortgage from us. We will pay 
the first 12 months. They didn't say, of course, that that money you 
are not paying is going to go on the back end of the loan, with 
interest, and will substantially increase the cost of your loan.
  Zoom Credit, in their advertisement, said this:

       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 is in the tank, Zoom Credit is like money 
     in the bank.

  Again, they say that even if your credit is in the tank, Zoom Credit 
is like money in the bank.

       Zoom credit specializes in credit repair and debt 
     consolidation, too. Bankruptcy, slow credit, no credit--who 
     cares?

  That is what they advertise. I don't know who the president of Zoom 
Credit was or who the president of Millennia was. I know who the 
president of Countrywide was. I know he is out of that company. That 
company is now collapsed and sold. He ended up with somewhere north of 
$140 million in unbelievable outer-space compensation. I don't know who 
these company presidents were, but I assume the brokers and CEOs of 
these companies were wallowing in money. They were all wallowing in 
money like hogs in a corn crib, grunting and snorting, making out like 
bandits--billions of dollars. In fact, in the 9 years that have led up 
to this period, the bonuses on Wall Street were $200 billion. I am not 
talking about salaries. I am talking about bonuses. In 9 years, it was 
$200 billion. It was $33 billion last year alone. So everybody is 
making money. They are advertising to people: got bad credit, bankrupt, 
slow pay, no pay? Doesn't matter. Come to us and get a mortgage.
  So they were writing mortgages in the dim light of these rooms, with 
brokers who are breathless to get their bonuses and mortgage banks 
interested in putting the mortgages out there. They are advertising we 
can give you teaser rates. Want to pay a 1 percent rate? We can do 
that. Two percent? We can do that. Then they would create a mortgage at 
a teaser rate, with a reset in 3 years maybe to 9 or 10 percent, which 
is locked in with a prepayment penalty so you cannot prepay it. It is a 
reset that the borrower cannot possibly pay. But they say: Don't worry 
about that; the housing prices are going up, up, up, and all you have 
to do is get this mortgage from us, and when it resets, it is true that 
you will not be able to pay it, but you can flip the property in 2 
years. That is not a problem. You will make money.
  So they put these bad mortgages out there--bad mortgages all around--
and they would combine them with a few good mortgages and put them into 
a security and splice and dice them and cut them up, like they used to 
package sawdust in sausage years ago. Then they would sell them 
upstream, from the mortgage bank to the hedge funds and investment 
bank. They are all fat and happy because they all know the return 
embedded in these securities is a very substantial return. The mortgage 
holder is locked into it because they have prepayment penalties. None 
of them were smart enough, even as they were collecting massive 
incomes, to understand that the people who were going to have to make 
the payments could not possibly make the mortgage payments once they 
were reset.
  So at some point, mortgages began to reset. It is estimated that 2 
million American families will sometime over the next year come home 
and sit around the supper table and discuss the fact that this is their 
last night in their home because they are losing the home because they 
cannot pay their mortgage. I am not talking about 2,000 or 20,000 or 
200,000 families; I am talking about 2 million American families.
  It has caused a precipitous drop in property values around the 
country. It broke the bubble of the escalating price of housing and 
then began to collapse it. It has had a profound impact on most 
American families. The most significant form of equity for most 
American families was their home equity. Similar to the tent pole being 
pulled out of a big tent, it collapsed. We have people sitting back and 
thumbing their suspenders, wondering how this could have happened. It 
doesn't take a genius to figure it out. Where were the people who were 
supposed to regulate in this town when they saw this practice of 
advertising mortgage conditions that you knew the borrowers could not 
meet? Where were the regulators? They were sitting by with grins on 
their faces because they were engaged in other things; they weren't 
regulating. So now we have this unbelievable financial wreckage.
  We see major investment firms that have been around since the Civil 
War going bankrupt. We see runs on some of the funds in the investment 
banks. On Monday, we saw the most significant drop in the value of the 
dollar in a single day, and the most significant increase in the price 
of a barrel of oil in a single day, even as the stock market dropped 
500-plus points on the same day.
  So the question is: What do you do about this financial wreckage? How 
do you put this back together? Even as the Treasury Secretary and the 
Chairman of the Federal Reserve Board are now over before a committee 
of the House today, describing their plan to put this back together. As 
I indicated earlier, their plan is to provide $700 billion to take the 
toxic mortgage-backed securities off the hands of those who invested in 
them, which, by the way, then adds up to about $1.7 trillion having 
been committed of American taxpayers' money--even as they are doing

[[Page 20730]]

that, nobody is talking about how you fix the underlying problem. You 
can pour something in the top, but if you have not put a stopper in the 
drain, you are going to pour it right out the bottom.
  Let me describe what I discovered today. I went to the Internet 
today. While the Treasury Secretary and Fed Chairman are over 
testifying about how you deal with the financial wreckage, and how much 
you ask the American taxpayer to pay for this malfeasance, I found 
this. I was just curious how many places on the Internet I could still 
find the same business practices of advertising to come and get a loan 
if you have been bankrupt or if you have bad credit. Well, I found 325 
cases on the Internet where they would provide you a home loan and 
promise they would not check your credit. Again, they would not check 
your credit. Isn't that interesting? Talk about bad business practices. 
There are 325 companies advertising get a loan from us and we will not 
check your credit. Most people don't believe it when I say these 
mortgage companies, who put out these toxic mortgages, were advertising 
``no doc'' loans. It doesn't have anything to do with doctors. That 
means you can get a mortgage from them for your home without having to 
document your income. You are going to ask them to provide the funding 
for you to buy a home, and they say you don't have to document your 
income to us in order to get that loan. That is so far afield and 
ignorant, in my judgment, of what you would expect in terms of sound 
business practices that it is even hard to describe.
  Here is what is on the Internet this morning. Easy loan for you. It 
says that you can get your loan, without collateral, in a couple days. 
Even with bad credit, no credit or bankruptcy, your unsecured loan is 
completely guaranteed. Think of that. We have people asking over in a 
House committee today to have the American taxpayers provide $700 
billion for a bailout. And on the same day, on the Internet, here is a 
company that is advertising that they will give you a loan with no 
collateral. It will take a couple days. Even if you have bad credit, no 
credit, or bankruptcy, we will guaranteed your unsecured loan. Is 
somebody going to fix this, I wonder.
  Here is what I found on the Internet this morning. 
SpeedyBadCreditLoans.com. Think of that. Isn't that unbelievable, 
SpeedyBadCreditLoans.com. I guess there is a dot.com for almost 
everything, including speedy bad credit. If you have bad credit, type 
in your characteristics. I have bad credit. Can I get a mortgage? Can I 
get a loan? Bad credit loans. Bad credit, no problem; no credit, no 
problem; bankruptcy, no problem. Get a guaranteed bad credit personal 
loan today.
  I am wondering if those we are paying to be regulators in the Federal 
agencies today who are supposed to deal with predatory lending, 
deceptive practices, I wonder if they are still asleep at their desks 
or are they going to the Internet to find out these kinds of business 
practices exist on the Internet? Probably not.
  I found this today as well. I could do this all day because it is all 
over the Internet. ``Bad credit personal loans, a Christian faith-based 
service. Fast results in just 60 seconds.'' There is a modicum of 
responsibility here. It says you have to reside in the United States. 
That is really helpful, I guess. Bad credit personal loans. If you have 
bad credit and some Christian faith, if you live in the United States, 
we have some money for you.
  This is an example of a cesspool of greed, and we can't possibly 
begin addressing these issues, the underlying problems on Wall Street, 
the financial wreckage that has been caused, without addressing this 
situation. You are going to decide to bail out whatever, you are going 
to put up $1.7 trillion and try to stabilize things when you have this 
sort of thing going on in the country? This is almost unbelievable.
  On Monday, there was an analysis of what happened in the marketplace. 
Why was there a precipitous, larger than ever, 1-day drop in the value 
of the dollar? Why was there the largest 1-day runup in the price of 
oil, accompanied by a 300-plus point drop in the market? Most of the 
analysis was people were concerned about the value of the dollar, 
throwing massive amounts of credit, the substantial amount of money 
that is being provided to bail out firms to provide undergirding loans 
for firms. All of this is added to the Federal debt, by the way, which 
itself is about $700 billion in trade debt in this year, about $700 
billion in fiscal policy debt in this year. That's almost 10 percent of 
this country's GDP in 1 year. Analysts take a look at that and say: On 
top of that unbelievable debt and fiscal policy, you have run off the 
rails in fiscal policy, you are off the rails in trade policy with 
unbelievable debt, we will now ante up a substantial amount of money 
for Federal bailouts, and analysts say: I worry about what that will do 
to the value of the dollar.
  The electronic herd that bets on currency, the currency traders, when 
they go against a currency, they can destroy an economy and devalue the 
dollar, meaning people pull their investments and put it in gold and 
put it in commodities. That is what dramatically can destroy an 
economy.
  It may well be true that might be worse. The destruction of the 
economy might be worse by dramatically eroding the value of the dollar 
and having the currency traders run against this dollar than not doing 
the $700 billion that Secretary Paulson and Mr. Bernanke suggest.
  I think it is the case that this Congress has a responsibility to do 
something. Doing nothing is not something that makes sense. We cannot 
decide: You know what, whatever is happening is happening; we are 
oblivious to it; we will decide to take the same tack regulators have 
taken in the last 7 years and sit around and observe and from time to 
time grin or just decide that we will be completely ambivalent about 
what is happening. We cannot do that. We have to take some action.
  So the question is, What? First and most important for me is we have 
to restore the stability and the safety of the banking system. I think 
that means we should recreate the protections that existed after the 
Great Depression. It may not be that we recreate explicitly what Glass-
Steagall provided, but the protections that it provided must exist 
going forward. Otherwise, we will not have done anything by bailing out 
anybody. We will still have the same circumstances existing in our 
economy, with people advertising on the Internet that we would like to 
put bad paper out, thereby giving mortgages to people with bad credit, 
bankruptcy, or other slow-pay problems in their credit history.
  It makes no sense to me to ignore what happens when you merge or 
combine the functions of banking with the functions of investment in 
real estate and securities. Banking requires not just the reality of 
safety and soundness but the very perception of safety and soundness. 
If people perceive a bank is not safe and sound, they will run on the 
bank and the bank will fail, inevitably, regardless of how much capital 
it has. It will not have enough capital to withstand a run on the bank. 
That is why just the perception of the safety and soundness of banking 
enterprises is imperative. We went far afield in deciding that we will 
allow the fusing of inherently risky enterprises, investments and 
securities and real estate, to banking.
  I know that some point to as a success allowing, for example, Bank of 
America to come in and purchase one of the failing investment banks. I 
don't view that as a success. At the moment, it was able to forestall a 
failure. But now we have attached a large banking enterprise, whose 
perception of safety and soundness is critically important, to an 
investment bank that was failing. I don't see that as success. I think 
it is moving in exactly the wrong direction.
  I want us to find a menu of ways to provide confidence to the 
American people that we are moving in the right direction. That 
requires a lot of things. No. 1, straighten out this wildly escalating 
trade deficit. We cannot have a $60 billion-a-month trade deficit. That 
is what destroys your currency value. We have to get real on fiscal 
policy. We cannot continue to spend what we

[[Page 20731]]

don't have on things we don't need. We have to find a way to create a 
fiscal policy that has some stability and balance to it. We have to 
address these business practices with effective regulation. We have to 
recreate the protections that existed for the banking system.
  We have to address the wildly excessive and speculative incomes and 
salaries on Wall Street which I think incentivized reckless behavior. 
As I indicated, in the last 3 years on Wall Street, just the bonuses--I 
am not talking about salaries--just the bonuses were $100 billion. Many 
of them went to the very people who steered us into this corral. In the 
old western movies, they used to call this a box canyon: there is only 
one way in and one way out. The same people who got us there made a 
massive amount of money putting us where we now are.
  As I said, we need a system of regulation that gives us some 
accountability that laws are going to be followed, that we are going to 
regulate the deceptive practices, predator lending, and so on.
  Then I think, as well, we need to have some period of forbearance on 
mortgages where people who can continue to make payments even under the 
original interest rate can make those payments for a period of time and 
continue to stay in those homes. That is the only way we will begin to 
put some strength under the value of homes. Otherwise, we will continue 
to see a collapsing of home values. As I said, 2 million families will 
lose their homes this year unless we find a way to take some action.
  Finally, we should create a taxpayer protection task force. No matter 
what else we do, we need to investigate and claw back ill-gotten gains 
in which people have gotten away with billions of dollars by shady 
business practices.
  Whatever this Congress decides to do or must do, the American 
taxpayer ought to have a share in the increased values of the 
investments that are made in their name.
  There is one point that unites everybody in this Chamber, perhaps in 
this Congress, perhaps in the entire country. I don't think anybody 
knows what the right answer is. We certainly can take a look at this 
situation and understand now what caused much of this, but I don't know 
that anybody has a magic bullet that says you do this and we 
immediately provide stability, we move this country toward higher 
ground, we have stopped some of the volatility. I don't know that 
anybody knows that. But I think the American taxpayers are plenty 
worried about what I think is a stampede in the wrong direction.
  On Friday, we were told by the same people who have reassured us in 
recent months that things are OK, things are stable, don't worry. We 
were then told by the very same people that in the next several days, 
the American taxpayers need to ante up a $700 billion bailout plan, 
following a substantial amount of money that has already been provided 
by the American taxpayers to bail out and to provide support for 
investment banks that were failing. And we are told: Here is a 3- page 
piece of legislation, one provision of which is that one person will 
decide where the $700 billion goes, and that person's decision will not 
be reviewable by the courts or by the Congress. In my judgment, that is 
a nonstarter. Congress is not going to do that, should not do that.
  The question is, What do we do in the coming couple of days to 
provide some assurance and stability? I think it makes some sense to go 
back to the fundamentals, and the fundamentals are, you start fixing 
that which caused this problem. You connect the protections that used 
to exist. If you start fixing, at the foundation, some of the issues 
that caused this problem, you will begin to engineer some confidence in 
this country.
  Finally, I used to teach some economics briefly in college. I talked 
a lot about the supply-and-demand curves, and all of the things we know 
are in the books that describe the way the economy works. But no one 
really knows much about how the economy works. We all think we do. 
Economics is a little bit of psychology pumped up with helium. It is a 
lot of discussion about what we think might or might not happen.
  The most important thing to understand about this economy is the 
American economy expands when people are confident about the future. If 
people think the future is going to be better for them and their 
family--they have a job, feel good, feel secure--they do things that 
manifest that security. They buy a home, buy a car, take a trip. They 
do things that manifest people's confidence in the future, and that 
creates economic expansion. If, on the other hand, people are not 
confident about the future and concerned about the future, concerned 
about their job, concerned about job security, then they do exactly the 
opposite. They decide not to buy that car. They decide not to take that 
trip. They defer the purchase they were going to make. And then we have 
economic contraction.
  This is not about an engine room of a ship of state with a lot of 
levers and gears and dials and gauges that you can get just right to 
make this economy work. This is a lot about consumer confidence, how do 
you provide confidence in the future. That is how we begin to expand 
this economy.
  How can people have confidence in the future when they see these 
unbelievable wild gyrations that are occurring on Wall Street? How can 
they have confidence in the future when they know what the root of it 
is? People have been advertising to them that if you are bankrupt, if 
you have slow credit or no credit, come here, we will give you a loan. 
How can that engender confidence? And how can people have confidence in 
an economy where we have a President who says: You know what, we are 
going to go fight a war and not pay for it; I insist we not pay a 
penny; I insist that while we fight this war, we are going to charge 
every single cent, and if you in Congress want to pay for it, I will 
veto the bill that raises the funds. Is that going to give people 
confidence? I don't think so.
  People have a right to be concerned about an economy that is deep in 
debt and getting deeper every day and a trade policy that ships our 
jobs overseas and ends up with a $700 billion trade deficit every year 
that will have to be repaid with a lower standard of living in our 
country. People have a right to be concerned about that.
  If you go back to the fundamentals and start putting some of this 
back together--a fiscal policy that makes sense, a trade policy that 
stands up for this country's economic interests, and firing the 
regulators who won't regulate, and put in place new regulations and new 
regulators who will do the job they are paid to do, and then restore 
the laws that provided protection so we don't fuse risk with banking--
if you start doing those kinds of things and telling the American 
people we are going to bring back some of those ill-gotten gains, and 
we are going to stop these outer space incomes of hundreds of millions 
of dollars a year. In fact, the highest income earner last year was 
$3.6 billion. That is a $300-million-a-month paycheck. Does that seem a 
little out of line to you? It does to me.
  I have covered a lot of ground, and my sense is that we have work to 
do to give the American people the comfort and the assurance that we 
are dealing with the fundamentals that will put this country back on 
better footing. We won't do that by deciding to write a check and 
offering up a bunch of money. It won't happen. I mean, that is not what 
is going to provide confidence to the American people. What will 
provide confidence is effective leadership, leadership that says here 
are the six or eight things that are wrong, we know they are wrong, we 
have known for some while, and now we are going to make them right. If 
we can we can work on those issues together, I think the American 
people finally will decide there is some leadership that will give us 
the opportunity for a better future.
  Mr. President, I yield the floor, and I suggest the absence of a 
quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. DORGAN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.

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  The PRESIDING OFFICER. Without objection, it is so ordered.

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