[Congressional Record (Bound Edition), Volume 154 (2008), Part 16]
[Senate]
[Pages 22182-22187]
[From the U.S. Government Publishing Office, www.gpo.gov]




         ADVANCING AMERICA'S PRIORITIES ACT--MOTION TO PROCEED

  The PRESIDING OFFICER. The motion to proceed to S. 3297 is pending.
  The Senator from Vermont.
  Mr. LEAHY. Mr. President, I understood we were in a position to move 
forward on the IP bill, plus a number of judges who are on the 
calendar. As Members know, in a rather extraordinary fashion, I 
expedited the consideration of 10 judges, notwithstanding the Thurmond 
rule and the late date and had gotten support from my side for not 
holding them over the normal time. I had understood we had an agreement 
to move forward on the IP bill, plus four or five of these judges this 
morning. That seems to be somewhat in doubt. According to the House, 
the IP bill has to go over now. All these matters, I suppose, we could 
bring them up next year, but I would rather get them done this year.
  The PRESIDING OFFICER. The Senator from Arizona.
  Mr. KYL. Before there is a request propounded, I think it would be 
useful to have a conversation. I think it ought to be possible for us 
to work out all of these; that is to say, judges and the IP bill. We 
need a little more conversation in order to do so. I am personally 
ready to do it right now if the chairman is willing.
  Mr. LEAHY. Mr. President, I am going to momentarily suggest the 
absence of a quorum. We are into about a 5-minute window to work it 
out. I respect the rights of all Senators. The suggestion that the IP 
wait until next year, it is strongly supported by the Chamber of 
Commerce, the National Association of Manufacturers, about every 
Republican group there is. We had worked that out and included things 
that Republican Senators wanted. As a practical matter, though, if it 
has to wait any longer, we can assume it is dead. I assume I will still 
be chairman of the Judiciary Committee next year. I am perfectly happy 
to bring up all these judges and IP enforcement next year, if that is 
what my friends on the other side wish.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. BUNNING. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BUNNING. Mr. President, I do not wish to interfere with the 
negotiations going on and the potential of an agreement being reached 
on the judges and the other things that are being discussed, but I do 
have about 15 minutes on the current situation in the markets, and I 
would like to speak on that. So I would be more than happy to wait for 
them to finish their negotiations or go ahead and speak as though in 
morning business, depending on the ruling of the Chair.
  The PRESIDING OFFICER. Is there objection to the Senator from 
Kentucky proceeding for up to 15 minutes as in morning business?
  Without objection, it is so ordered.
  Mr. BUNNING. Thank you, Mr. President.


                         Federal Reserve Policy

  Mr. President, I rise to speak about the current economic situation 
and the bailout bill that will soon be coming to the floor of the 
Senate. Let me start by saying I am as concerned about what is going on 
in the financial markets and the economy as everyone else. I know there 
are extreme tensions in the credit markets, and those problems could 
soon have an impact on businesses and individuals who had nothing to do 
with the mortgage mess. However, I do not agree that the bill we have 
been discussing, and would probably come to the floor of the Senate, 
will fix those problems.
  I also strongly disagree with the Senators who have come to the floor 
and declared that this crisis is a failure of the free markets. No. The 
root of the crisis is the failure of Government. It comes from a 
failure of regulation and, most importantly, monetary policy. In the 
long term, we certainly need to update our financial regulations to 
reflect the realities of our modern economic system. But it is just 
plain wrong to blame failures of our regulations and regulators on the 
markets.
  A little history is in order. Our financial regulations are based on 
structures put in place during the Great Depression. Our laws simply do 
not reflect the current landscape of the financial markets. Once upon a 
time, banks may have been the only instruments that were a danger to 
the entire financial system, but it is now clear that other 
institutions are now so big and connected that we cannot ignore them in 
the future. Also, many of today's common financial instruments did not 
even exist 20 years ago, much less when our laws were written.
  But our regulatory structure is not the only problem. The real fuel 
on the fire of this crisis has been the monetary policy of the Federal 
Reserve. I have been a vocal critic of the Fed for many years and have 
been warning that their policies would hurt Americans in the short and 
long run. For most of these years, I did not have much company. But I 
am glad many economists and commentators have recently joined me in my 
criticism of the Fed.
  During the second half of his time as Fed Chief, former Chairman Alan 
Greenspan tried to micromanage the economy with monetary policy. Any 
economy is going to have its ups and downs, and it was foolish to try 
to stop that. But Chairman Greenspan did it anyway. By trying to smooth 
out those bumps, he overshot to the high and low sides, creating 
bubbles and then recessions.
  I have spoken many times on the floor about the Fed policies that led 
to the housing bubble, but a few parts are worth repeating. Everyone 
remembers the dot-com bubble, which itself was partly a result of the 
easy money pumped into the system by the Fed in the late 1990s. Well, 
Chairman Greenspan set out to pop that bubble and

[[Page 22183]]

kept raising interest rates in the face of a slowdown, driving the 
economy into recession.
  In order to undo the problems created by his tight money, he then 
overshot the other way, taking interest rates as low as 1 percent for a 
year and below 2 percent for nearly 3 years. In turn, that easy money 
ignited the housing market by bringing mortgage interest rates to 
alltime lows. Low-cost borrowing encouraged excessive risk taking in 
the financial markets and led investors to pump borrowed funds into all 
kinds of investments, including the various mortgage lending vehicles.
  In 2004, Mr. Greenspan encouraged borrowers to get adjustable rate 
mortgages because of all the money they would save. Four months later, 
he started a series of 17 interest rate increases that helped make 
those mortgages unaffordable for the hundreds of thousands of borrowers 
who listened to his advice. I warned him about that advice the 
following day after his speech, but that warning fell on deaf ears.
  Then, in 2005, rising interest rates and housing price appreciation 
overcame the ability of borrowers to afford the house they wanted. To 
keep the party going, borrowers, lenders, investors, rating agencies, 
and everyone else involved lowered their standards and kept mortgages 
flowing to less creditworthy borrowers who were buying evermore 
expensive homes.
  Chairman Greenspan also let investors and homeowners down by failing 
to police the banks and other lenders as they wrote even more risky 
mortgages. Regulated banks were allowed to keep most of their risky 
assets off their balance sheets. Even worse, he refused to use the 
power Congress gave the Federal Reserve in the Home Ownership and 
Equity Protection Act of 1994 to oversee all lenders, even those not 
affiliated with banks. His refusal to rein in the worst lending 
practices allowed banks and others, including Freddie Mac and Fannie 
Mae, to write the loans that are now at the center of our mortgage 
crisis. Chairman Ben Bernanke issued rules under that law in July of 
2008--14 years later--but that was far too late to solve the problem.
  Before turning to the coming legislation, I wish to mention a few 
more failures of Government that directly contributed to this mess. 
Federal regulations require the use of ratings from rating agencies 
that have proven to be wrong on the biggest financial failures of the 
last decade. The Community Reinvestment Act forced banks to make loans 
they would not otherwise make based on the credit history of the 
borrower. The Securities and Exchange Commission, under former Chairman 
Donaldson, failed to establish meaningful oversight and leverage 
restrictions for investment banks.
  Fannie Mae and Freddie Mac used the implied backing of the Government 
to grow so large that their takeover by the Government effectively 
doubled the national debt. They were pushed by their executives and the 
Clinton administration to loosen their lending standards and write the 
loans that drove the companies to the point of being bailed out by the 
taxpayers.
  Finally, the same individuals who have come to this building to ask 
for the latest bailout set the stage for the very panic they are using 
to justify the bailout. The Secretary of the Treasury and the Fed 
Chairman set expectations for Government intervention when they bailed 
out Bear Stearns in March. The markets operated all summer with the 
belief that the Government would step in and rescue failing firms. Then 
they let Lehman Brothers fail, and the markets had to adjust to the 
idea that Wall Street would have to take the losses for Wall Street's 
bad decisions, not the taxpayers. That new uncertainty could be the 
most significant contributing factor to why the markets panicked last 
week. What is more, the panic today is a result of the high 
expectations set last week when the Secretary and Chairman announced 
their plan. When resistance in Congress and the public outrage over the 
plan became clear, the markets walked back to the edge of panic.


                            Bailout Proposal

  Now I wish to talk about the bailout bill that we expect to have on 
the floor of the Senate soon. The Paulson proposal is an attempt to do 
what we so often do in Washington, DC--throw money at the problem. We 
cannot make bad mortgages go away. We cannot make the losses that our 
financial institutions are facing go away. Someone must take those 
losses. We can either let the people who made the bad decisions bear 
the consequences of their actions or we can spread the pain to others. 
That is exactly what Secretary Paulson proposes to do: take Wall 
Street's pain and spread it to Main Street, the taxpayers.
  We all know it is not fair to taxpayers to pick up Wall Street's tab. 
But what we do not know is if this plan could even work. All we have is 
the word of the Treasury Secretary and the Fed Chairman. But they have 
been wrong throughout this whole housing mess. They have previously 
told us that subprime problems would not spread and the economy was 
strong. Now they say we are on the edge of a severe recession or maybe 
the second-largest depression in the history of this great Republic.
  Well, I am not buying it, and neither are many of our Nation's 
leading economists. If some sort of Government intervention is needed 
to fix the mess created by the Government failure I talked about 
earlier, we need to get it right. Congress owes it to the American 
people to slow down and think this through. We need to know that 
whatever we do is going to fix the problem, protect the taxpayers, not 
reward those who made bad decisions, and make sure this does not happen 
again. But we cannot do that in 1 week as we are all trying to rush 
home. Congress needs to take this seriously and stay until we find the 
right solution, not just throw $700 billion at Wall Street as we walk 
out the door.
  Now, Mr. President, before I yield the floor, I ask unanimous consent 
that the two letters I mentioned from economists opposing the bill, 
along with an article from the New York Times from 1999 about the 
Clinton administration pushing Fannie and Freddie into risky loans, be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

       To the Speaker of the House of Representatives and the 
     President pro tempore of the Senate:
       As economists, we want to express to Congress our great 
     concern for the plan proposed by Treasury Secretary Paulson 
     to deal with the financial crisis. We are well aware ofthe 
     difficulty of the current financial situation and we agree 
     with the need for bold action to ensure that the financial 
     system continues to function. We see three fatal pitfalls in 
     the currently proposed plan:
       (1) Its fairness. The plan is a subsidy to investors at 
     taxpayers' expense. Investors who took risks to earn profits 
     must also bear the losses. Not every business failure carries 
     systemic risk. The government can ensure a well-functioning 
     financial industry, able to make new loans to creditworthy 
     borrowers, without bailing out particular investors and 
     institutions whose choices proved unwise.
       (2) Its ambiguity. Neither the mission of the new agency 
     nor its oversight are clear. If taxpayers are to buy illiquid 
     and opaque assets from troubled sellers, the terms, 
     occasions, and methods of such purchases must be crystal 
     clear ahead of time and carefully monitored afterwards.
       (3) Its long-term effects. If the plan is enacted, its 
     effects will be with us for a generation. For all their 
     recent troubles, America's dynamic and innovative private 
     capital markets have brought the nation unparalleled 
     prosperity. Fundamentally weakening those markets in order to 
     calm short-run disruptions is desperately short-sighted.
       For these reasons we ask Congress not to rush, to hold 
     appropriate hearings, arid to carefully consider the right 
     course of action, and to wisely determine the future of the 
     financial industry and the U.S. economy for years to come.
       Signed:
         Acemoglu, Daron (Massachussets Institute of Technology); 
           Adler, Michael (Columbia University); Admati, Anat R. 
           (Stanford University); Alexis, Marcus (Northwestern 
           University); Alvarez, Fernando (University of Chicago); 
           Andersen, Torben (Northwestern University); Baliga, 
           Sandeep (Northwestern University); Banerjee, Abhijit V. 
           (Massachussets Institute of Technology); Barankay, Iwan 
           (University of Pennsylvania); Barry, Brian (University 
           of Chicago); Bartkus, James R. (Xavier University of 
           Louisiana); Becker, Charles M. (Duke University); 
           Becker, Robert A. (Indiana University);

[[Page 22184]]

           Beim, David (Columbia University); Berk, Jonathan 
           (Stanford University); Bisin, Alberto (New York 
           University); Bittlingmayer, George (University of 
           Kansas); Boldrin, Michele (Washington University); 
           Brooks, Taggert J. (University of Wisconsin); 
           Brynjolfsson, Erik (Massachusetts Institute of 
           Technology).
         Buera, Francisco J. (UCLA); Camp, Mary Elizabeth (Indiana 
           University); Carmel, Jonathan (University of Michigan); 
           Carroll, Christopher (Johns Hopkins University); 
           Cassar, Gavin (University of Pennsylvania); Chaney, 
           Thomas (University of Chicago); Chari, Varadarajan V. 
           (University of Minnesota); Chauvin, Keith W. 
           (University of Kansas); Chintagunta, Pradeep K. 
           (University of Chicago); Christiano, Lawrence J. 
           (Northwestern University); Cochrane, John (University 
           of Chicago); Coleman, John (Duke University); 
           Constantinides, George M. (University of Chicago); 
           Crain, Robert (UC Berkeley); Culp, Christopher 
           (University of Chicago); Da, Zhi (University of Notre 
           Dame); Davis, Morris (University of Wisconsin); De 
           Marzo Peter (Stanford University); Dube, Jean-Pierre H. 
           (University of Chicago); Edlin, Aaron (UC Berkeley).
         Eichenbaum, Martin (Northwestern University); Ely, 
           Jeffrey (Northwestern University); Eraslan, Hulya K. K. 
           (Johns Hopkins University); Faulhaber, Gerald 
           (University of Pennsylvania); Feldmann, Sven 
           (University of Melbourne); Fernandez-Villaverde, Jesus 
           (University of Pennsylvania); Fohlin, Caroline (Johns 
           Hopkins University); Fox, Jeremy T. (University of 
           Chicago); Frank, Murray Z. (University of Minnesota); 
           Frenzen, Jonathan (University of Chicago); Fuchs, 
           William (University of Chicago); Fudenberg, Drew 
           (Harvard University); Gabaix, Xavier (New York 
           University); Gao, Paul (Notre Dame University); 
           Garicano, Luis (University of Chicago); Gerakos, Joseph 
           J. (University of Chicago); Gibbs, Michael (University 
           of Chicago); Glomm, Gerhard (Indiana University); 
           Goettler, Ron (University of Chicago); Goldin, Claudia 
           (Harvard University).
         Gordon, Robert J. (Northwestern University); Greenstone, 
           Michael (Massachusetts Institute of Technology); 
           Guadalupe, Maria (Columbia University); Guerrieri, 
           Veronica (University of Chicago); Hagerty, Kathleen 
           (Northwestern University); Hamada, Robert S. 
           (University of Chicago); Hansen, Lars (University of 
           Chicago); Harris, Milton (University of Chicago); Hart, 
           Oliver (Harvard University); Hazlett, Thomas W. (George 
           Mason University); Heaton, John (University of 
           Chicago); Heckman, James (University of Chicago--Nobel 
           Laureate); Henderson, David R. (Hoover Institution); 
           Henisz, Witold (University of Pennsylvania); Hertzberg, 
           Andrew (Columbia University); Hite, Gailen (Columbia 
           University); Hitsch, Gunther J. (University of 
           Chicago); Hodrick, Robert J. (Columbia University); 
           Hopenhayn, Hugo (UCLA); Hurst, Erik (University of 
           Chicago).
         Imrohoroglu, Ayse (University of Southern California); 
           Isakson, Hans (University of Northern Iowa); Israel, 
           Ronen (London Business School); Jaffee, Dwight M. (UC 
           Berkeley); Jagannathan, Ravi (Northwestern University); 
           Jenter, Dirk (Stanford University); Jones, Charles M. 
           (Columbia Business School); Kaboski, Joseph P. (Ohio 
           State University); Kahn, Matthew (UCLA); Kaplan, Ethan 
           (Stockholm University); Karolyi, Andrew (Ohio State 
           University); Kashyap, Anil (University of Chicago); 
           Keim, Donald B (University of Pennsylvania); Ketkar, 
           Suhas L (Vanderbilt University); Kiesling, Lynne 
           (Northwestern University); Klenow, Pete (Stanford 
           University); Koch, Paul (University of Kansas); 
           Kocherlakota, Narayana (University of Minnesota); 
           Koijen, S.J., Ralph (University of Chicago); Kondo, 
           Jiro (Northwestern University).
         Korteweg, Arthur (Stanford University); Kortum, Samuel 
           (University of Chicago); Krueger, Dirk (University of 
           Pennsylvania); Ledesma, Patricia (Northwestern 
           University); Lee, Lung-fei (Ohio State University); 
           Leeper, Eric M. (Indiana University); Leuz, Christian 
           (University of Chicago); Levine, David T. (UC 
           Berkeley); Levine, David K. (Washington University); 
           Levy, David M. (George Mason University); Linnainmaa, 
           Juhani (University of Chicago); Lott, Jr., John R. 
           (University of Maryland); Lucas, Robert (University of 
           Chicago--Nobel Laureate); Luttmer, Erzo G.J. 
           (University of Minnesota); Manski, Charles F. 
           (Northwestern University); Martin, Ian (Stanford 
           University); Mayer, Christopher (Columbia University); 
           Mazzeo, Michael (Northwestern University); McDonald, 
           Robert (Northwestern University); Meadow, Scott F. 
           (University of Chicago).
         Mehra, Rajnish (UC Santa Barbara); Mian, Atif (University 
           of Chicago); Middlebrook, Art (University of Chicago); 
           Miguel, Edward (UC Berkeley); Miravete, Eugenio J. 
           (University of Texas at Austin); Miron, Jeffrey 
           (Harvard University); Moretti, Enrico (UC Berkeley); 
           Moriguchi, Chiaki (Northwestern University); Moro, 
           Andrea (Vanderbilt University); Morse, Adair 
           (University of Chicago); Mortensen, Dale T. 
           (Northwestern University); Mortimer, Julie Holland 
           (Harvard University); Muralidharan, Karthik (UC San 
           Diego); Nanda, Dhananjay (University of Miami); Nevo, 
           Aviv (Northwestern University); Ohanian, Lee (UCLA); 
           Pagliari, Joseph (University of Chicago); Papanikolaou, 
           Dimitris (Northwestern University); Parker, Jonathan 
           (Northwestern University); Paul, Evans (Ohio State 
           University).
         Pejovich, Svetozar (Steve); (Texas A&M University); 
           Peltzman, Sam (University of Chicago); Perri, Fabrizio 
           (University of Minnesota); Phelan, Christopher 
           (University of Minnesota); Piazzesi, Monika (Stanford 
           University); Piskorski, Tomasz (Columbia University); 
           Rampini, Adriano (Duke University); Reagan, Patricia 
           (Ohio State University); Reich, Michael (UC Berkeley); 
           Reuben, Ernesto (Northwestern University); Roberts, 
           Michael (University of Pennsylvania); Robinson, David 
           (Duke University); Rogers, Michele (Northwestern 
           University); Rotella, Elyce (Indiana University); Ruud, 
           Paul (Vassar College); Safford, Sean (University of 
           Chicago); Sandbu, Martin E. (University of 
           Pennsylvania); Sapienza, Paola (Northwestern 
           University); Savor, Pavel (University of Pennsylvania); 
           Scharfstein, David (Harvard University).
         Seim, Katja (University of Pennsylvania); Seru, Amit 
           (University of Chicago); Shang-Jin, Wei (Columbia 
           University); Shimer, Robert (University of Chicago); 
           Shore, Stephen H. (Johns Hopkins University); Siegel, 
           Ron (Northwestern University); Smith, David C. 
           (University of Virginia); Smith, Vernon L.--(Chapman 
           University- Nobel Laureate); Sorensen, Morten (Columbia 
           University); Spiegel, Matthew (Yale University); 
           Stevenson, Betsey (University of Pennsylvania); Stokey, 
           Nancy (University of Chicago); Strahan, Philip (Boston 
           College); Strebulaev, Ilya (Stanford University); Sufi, 
           Amir (University of Chicago); Tabarrok, Alex (George 
           Mason University); Taylor, Alan M. (UC Davis); 
           Thompson, Tim (Northwestern University); Tschoegl, 
           Adrian E. (University of Pennsylvania); Uhlig, Harald 
           (University of Chicago).
         Ulrich, Maxim (Columbia University); Van Buskirk, Andrew 
           (University of Chicago); Veronesi, Pietro (University 
           of Chicago); Vissing-Jorgensen, Annette (Northwestern 
           University); Wacziarg, Romain (UCLA); Weill, Pierre-
           Olivier (UCLA); Williamson, Samuel H. (Miami 
           University); Witte, Mark (Northwestern University); 
           Wolfers, Justin (University of Pennsylvania); 
           Woutersen, Tiemen (Johns Hopkins University); Zingales, 
           Luigi (University of Chicago); Zitzewitz, Eric 
           (Dartmouth College).
                                  ____

       We, the undersigned economists, write to strongly advise 
     against the proposed $700 billion bailout of the financial 
     services sector as a response to current trends in the 
     market. Granting the Treasury broad authority to purchase 
     troubled assets from private entities poses a significant 
     threat to taxpayers while failing to address fundamental 
     problems that have created a bloated, over-leveraged 
     financial services sector.
       Such a large government intervention would create changes 
     whose effects will linger long into the future. The Treasury 
     plan would fundamentally alter the workings of the market, 
     transferring the burden of risk to the taxpayer. At the same 
     time; the $700 billion proposal does not offer fundamental 
     reforms required to avoid a repeat of the current problem. 
     Many of the troubles in today's market are the result of past 
     government policies (especially in the housing sector) 
     exacerbated by loose monetary policy. Congress has been 
     reluctant to reform the government sponsored enterprises that 
     lie at the heart of today's troubled markets, and there is 
     little to suggest the necessary reforms will be implemented 
     in the wake of a bailout. Taxpayers should be wary of such an 
     approach.
       In addition to the moral hazard inherent in the proposal, 
     the plan makes it difficult to move resources to more highly 
     valued uses. Successful firms that may have been in a 
     position to acquire troubled firms would no longer have a 
     market advantage allowing them to do so; instead, entities 
     that were struggling would now be shored up and competing on 
     equal footing with their more efficient competitors.
       Although it is clear that the financial sector has entered 
     turbulent times, it is by no means evident that providing the 
     U.S. Treasury with $700 billion to purchase troubled assets 
     will resolve the crisis. It is clear, however, that the 
     federal government will be

[[Page 22185]]

     facing substantially higher deficits and taxpayers will be 
     exposed to a significant new burden just as the looming 
     crisis in entitlement spending appears on the horizon.
       For these reasons, we find the proposed $700 billion 
     bailout an improper response to the current financial crisis.
           Sincerely,
         Dick Armey, FreedomWorks Foundation; Wayne Brough, 
           FreedomWorks Foundation; Alan C. Stockman, University 
           of Rochester; Ambassador Alberto Piedra, Institute of 
           World Politics; Arthur A. Fleisher III, Denver 
           Metropolitan State College of Denver; Bryan Caplan, 
           George Mason University; Burt Abrams, University of 
           Delaware; Cecil E. Bohanan, Ball State University; 
           Charles N. Steele, Hillsdale College; Charles W. Baird, 
           California State University East Bay; D. Eric 
           Shansberg, Indiana University Southeast.
         Donald L. Alexander, Western Michigan University; E.S. 
           Savas, Baruch College/CUNY; Ed Stringham, Trinity 
           College; Erik Gartzke, University of California, San 
           Diego; Frank Falero, California State University, 
           Bakersfield; George Selgin, West Virginia University; 
           Howard Baetjer, Jr., Towson University; Ivan Pongracic, 
           Jr., Hillsdale College; James L. Huffman, Clark 
           University; James McClure, Ball State University; Joe 
           Pomykala, Towson University.
         John P. Cochran, Metropolitan State College of Denver; 
           Kishore G. Kulkarni, Metropolitan State College of 
           Denver; Lawrence H. White, University of Missouri-St. 
           Louis; M. Northrup Buechner, St. John's University; 
           Melvin Hinich, University of Texas, Austin; Nikolai G. 
           Wenzel, Hillsdale College; Norman Bailey, Institute of 
           World Politics; Paul Evans, Ohio State University; 
           Randall Holcombe, Florida State University; Richard W. 
           Rahn, Institute for Global Economic Growth; Robert 
           Heidt, Indiana University School of Law, Bloomington.
         Rodolfo Gonzalez, San Jose State University; Roy Cordato, 
           John Locke Foundation; Samuel Bostaph, University of 
           Dallas; Scott Bradford, Brigham Young University; 
           Soheila Fardanesh, Towson University; Stephen Shmanske, 
           California State University, East Bay; T. Norman Van 
           Cott, Ball State University; Walter Block, Loyola 
           University New Orleans; William Barnett, II, Loyola 
           University New Orleans; William F. Shughart, II, 
           University of Mississippi; William Niskanen, Cato 
           Institute.
                                  ____


                [From the New York Times, Sept. 30,1999]

            Fannie Mae Eases Credit To Aid Mortgage Lending

                         (By Steven A. Holmes)

       In a move that could help increase home ownership rates 
     among minorities and low-income consumers, the Fannie Mae 
     Corporation is easing the credit requirements on loans that 
     it will purchase from banks and other lenders.
       The action, which will begin as a pilot program involving 
     24 banks in 15 markets--including the New York metropolitan 
     region--will encourage those banks to extend home mortgages 
     to individuals whose credit is generally not good enough to 
     qualify for conventional loans. Fannie Mae officials say they 
     hope to make it a nationwide program by next spring.
       Fannie Mae, the nation's biggest underwriter of home 
     mortgages, has been under increasing pressure from the 
     Clinton Administration to expand mortgage loans among low and 
     moderate income people and felt pressure from stock holders 
     to maintain its phenomenal growth in profits.
       In addition, banks, thrift institutions and mortgage 
     companies have been pressing Fannie Mae to help them make 
     more loans to so-called subprime borrowers. These borrowers 
     whose incomes, credit ratings and savings are not good enough 
     to qualify for conventional loans, can only get loans from 
     finance companies that charge much higher interest rates--
     anywhere from three to four percentage points higher than 
     conventional loans.
       ``Fannie Mae has expanded home ownership for millions of 
     families in the 1990's by reducing down payment 
     requirements,'' said Franklin D. Raines, Fannie Mae's 
     chairman and chief executive officer. ``Yet there remain too 
     many borrowers whose credit is just a notch below what our 
     underwriting has required who have been relegated to paying 
     significantly higher mortgage rates in the so-called subprime 
     market.''
       Demographic information on these borrowers is sketchy. But 
     at least one study indicates that 18 percent of the loans in 
     the subprime market went to black borrowers, compared to 5 
     per cent of loans in the conventional loan market.
       In moving, even tentatively, into this new area of lending, 
     Fannie Mae is taking on significantly more risk, which may 
     not pose any difficulties during flush economic times. But 
     the government-subsidized corporation may run into trouble in 
     an economic downturn, prompting a government rescue similar 
     to that of the savings and loan industry in the 1980's.
       ``From the perspective of many people, including me, this 
     is another thrift industry growing up around us,'' said Peter 
     Wallison a resident fellow at the American Enterprise 
     Institute. ``If they fail, the government will have to step 
     up and bail them out the way it stepped up and bailed out the 
     thrift industry.''
       Under Fannie Mae's pilot program, consumers who qualify can 
     secure a mortgage with an interest rate one percentage point 
     above that of a conventional, 30-year fixed rate mortgage of 
     less than $240,000--a rate that currently averages about 7.76 
     per cent. If the borrower makes his or her monthly payments 
     on time for two years, the one percentage point premium is 
     dropped.
       Fannie Mae, the nation's biggest underwriter of home 
     mortgages, does not lend money directly to consumers. 
     Instead, it purchases loans that banks make on what is called 
     the secondary market. By expanding the type of loans that it 
     will buy, Fannie Mae is hoping to spur banks to make more 
     loans to people with less-than-stellar credit ratings.
       Fannie Mae officials stress that the new mortgages will be 
     extended to all potential borrowers who can qualify for a 
     mortgage. But they add that the move is intended in part to 
     increase the number of minority and low income home owners 
     who tend to have worse credit ratings than non-Hispanic 
     whites.
       Home ownership has, in fact, exploded among minorities 
     during the economic boom of the 1990's. The number of 
     mortgages extended to Hispanic applicants jumped by 87.2 per 
     cent from 1993 to 1998, according to Harvard University's 
     Joint Center for Housing Studies. During that same period the 
     number of African Americans who got mortgages to buy a home 
     increased by 71.9 per cent and the number of Asian Americans 
     by 46.3 per cent.
       In contrast, the number of non-Hispanic whites who received 
     loans for homes increased by 31.2 per cent.
       Despite these gains, home ownership rates for minorities 
     continue to lag behind non-Hispanic whites, in part because 
     blacks and Hispanics in particular tend to have on average 
     worse credit ratings.
       In July, the Department of Housing and Urban Development 
     proposed that by the year 2001,50 percent of Fannie Mae's and 
     Freddie Mac's portfolio be made up of loans to low and 
     moderate-income borrowers. Last year, 44 percent of the loans 
     Fannie Mae purchased were from these groups.
       The change in policy also comes at the same time that HUD 
     is investigating allegations of racial discrimination in the 
     automated underwriting systems used by Fannie Mae and Freddie 
     Mac to determine the credit-worthiness of credit applicants.

  Mr. BUNNING. Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from California is recognized.
  Mrs. FEINSTEIN. Mr. President, I believe I am next in line to make 
remarks as in morning business, and I wish to do so.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  Mrs. FEINSTEIN. Thank you very much.


                            Financial Crisis

  Mrs. FEINSTEIN. Mr. President, to date I have received from 
Californians more than 50,000 calls and letters, the great bulk of them 
in opposition to any form of meeting this crisis with financial help 
from the Federal Government. I wanted to come to the floor to very 
simply state how I see this and some of the principles that I hope will 
be forthcoming in this draft. Before I do so, I wish to pay particular 
commendation to Senator Dodd, Senator Schumer, Senator Bennett, and 
others who have been working so hard on this issue. I have tried to 
keep in touch--I am not a negotiator; I am not on the committee--but 
California is the biggest State, the largest economic engine, and 
people are really concerned.
  We face the most significant economic crisis in 75 years right now. 
Swift and comprehensive action is crucial to the overall health of our 
economy. None of us wants to be in this position, and there are no good 
options here. Nobody likes the idea of spending massive sums of 
Government money to rescue major corporations from their bad financial 
decisions. But no one also should be fooled into thinking this problem 
only belongs to the banks and that it is a good idea to let them fail. 
The pain felt by Wall Street one day is felt there, and then 2, 3, 4 
weeks down the pike, it is felt on Main Street.
  The turbulence in our financial sector has already resulted in 
thousands of layoffs in the banking and finance sectors, and that 
number will skyrocket if there is a full collapse. The

[[Page 22186]]

shock waves of failure will extend far beyond the banking and finance 
sectors. A shrinking pool of credit would affect the home loans, credit 
card limits, auto loans, and insurance policies of average Americans. I 
am receiving calls from people who tell me they want to buy a house, 
but they can't get the credit or the mortgage to do so. Why? Because 
that market of credit is drying up more rapidly one day after the 
other. It would have a major impact on State and local governments 
which would lose tens of millions of dollars, if not hundreds of 
millions of dollars.
  Hurricane Ike shut down refineries on the gulf coast 2 weeks ago, and 
now, today, people are waiting hours in lines for gasoline in the 
South. Similarly, the collapse of the financial sector would have 
severe consequences for Americans all across the economic spectrum: for 
the person who owns the grocery store, the laundry, the bank, the 
insurance company. Then, if the worst happens, layoffs. And even more 
than that, somebody shows up for work and finds their business has 
closed because the owner of that business can't get credit to buy the 
goods he hopes to sell that week or that month. Wages and employment 
rates have already fallen even as the cost of basic necessities has 
skyrocketed. Our Nation is facing the highest unemployment rate in 5 
years, at 6.1 percent. Over 605,000 jobs have been lost nationwide this 
year. My own State of California, a state of 38 million people, has the 
third highest unemployment rate in the Nation at 7.7 percent. That is 
1.4 million people out of work today. One and a half million people--
that is bigger than some States. We have 1.5 million people out of 
work, and one-half million have had their unemployment insurance expire 
and have nothing today.
  Congress is faced with a situation where we have to act and we have 
to do two things. We have to provide some reform in the system of 
regulation and oversight that is supposed to protect our economy. We 
also have to find a permanent and effective solution to keep liquidity 
and credit functioning so that markets can recover and make profit. The 
situation, I believe, is grave, and timely, prudent action is needed.
  Just last night, the sixth largest bank in America--Washington 
Mutual--was seized by government regulators and most of its assets will 
be sold to JPMorgan Chase. This follows on the heels of bankruptcies 
and takeovers of Bear Stearns, Lehman Brothers, AIG, Fannie Mae, and 
Freddie Mac. If nothing is done, the crisis will continue to spread and 
one by one the dominos will fall.
  Now, this isn't just about Wall Street. Because we are this credit 
society, the financial troubles facing major economic institutions will 
ricochet throughout this Nation and affect everyone. So I believe the 
need for action is clear. But that doesn't mean Congress should simply 
be a rubberstamp for an unprecedented and unbridled program.
  My constituents by the thousands have made their views clear. I 
believe they are responding to the original 3-page proposal by the 
Secretary of the Treasury. It is clear by now that that 3-page proposal 
is a nonstarter. It is dead on arrival and that is good. Secretary 
Paulson's proposal asked Congress to write a $700 billion check to an 
economic czar who would have been empowered to spend it without any 
administrative oversight, legal requirements, or legislative review. 
Decisions made by the Treasury Secretary would be nonreviewable by any 
court or agency, and the fate of our entire economy would be committed 
to the sole discretion of one man alone--the man we know today, and the 
man whom we don't know after January.
  Additionally, the lack of governance or oversight in this plan was 
matched by the lack of a requirement for regular reports to Congress. 
This proposal stipulated that the economic czar, newly created, would 
report to Congress after the first three months with reports once every 
6 months after that. This was untenable. Six months is an eternity when 
you are spending billions a week. The Treasury Secretary asked Congress 
to approve this massive program without delay or interference. It is 
hard to think of any other time in our history when Congress has been 
asked for so much money and so much power to be concentrated in the 
hands of one person. It is a nonstarter.
  Yesterday, shortly before we met for the Democratic Policy Committee 
lunch, we were told there had been a bipartisan agreement on principles 
of a possible solution, and many of us rejoiced. We know that our 
Members, both Republican and Democrat, have been working hard to try to 
produce something that was positive. Then, all of a sudden, it changed. 
One Presidential candidate parachuted into town which proved to be 
enormously destructive to the process. Now, negotiations are back on 
the table, and as I say, we have just received a draft bill of certain 
principles.
  I would like to outline quickly those principles that I think are 
important. First is a phase-in. No one wants to put $700 billion 
immediately at the discretion of one person or even a group of a very 
few people, no matter how bright, how skilled, how informed they might 
be on banking or finance principles. The funding should come in phases 
and Congress should have the opportunity to make its voice heard if the 
program isn't working or needs to be adjusted.
  The second point: Oversight, accountability, and governance. The 
Treasury Secretary should not and must not have unbridled authority to 
determine winners and losers, essentially choosing which struggling 
financial institution will survive and which will not. The original 
plan placed all authority in the hands of this one man, and this is why 
I say it was DOA--dead on arrival--at the Congress. We must assure that 
controls are in place to watch taxpayer dollars and make sure they are 
well-spent fixing the problem, and that oversight by a governance 
committee and the Banking Committees are strong, and that they give the 
best opportunity for the American people to recover their investment 
and, yes, even eventually make a profit from that investment. That can 
be done and it has been done in the past.
  I believe that frequent reporting to Congress is critical. 
Transparency, sunlight on this, is critical. So Congress should receive 
regular, timely briefings, perhaps weekly for the first quarter, on a 
program of this magnitude. A proposal should mandate frequent reporting 
and the public should be ensured of transparency to the maximum extent 
possible.
  I also believe that within the first quarter--and this, to me, is 
key--a comprehensive legislative proposal for reform must be put 
forward. We must reform those speculative practices that impact price 
function of markets. We must deal with the unregulated practices that 
have furthered this crisis. Look. I represent a State that was cost $40 
billion in the Enron episode during 1999 and 2000 by speculation, by 
manipulation, and by fraud. There still is inadequate regulation of 
energy commodities sold on the futures market. And that is just one 
point in all of this. We must prevent these things from happening. The 
only way to do it is to improve the transparency of all markets. No 
hidden deals. Swaps, in my view, should be ended. The London loophole 
should be ended.
  We have to outline rules for increasing regulation of the mortgage-
backed securities market, along with comprehensive oversight of the 
mortgage industry and lending practices for both prime and subprime 
lending.
  Senator Martinez of Florida and I had a part in the earlier housing 
bill, which included our legislation entitled the SAFE Mortgage 
Licensing Act. We found that the market was rife with fraud. We found 
there was one company that hired hairdressers and others who sold 
mortgages in their spare time. We found there were unscrupulous 
mortgage brokers out there unlicensed, preying upon people, walking off 
with tens of thousands of dollars of cash. This has to end. It has to 
be controlled. It has to be regulated.
  So I believe the crisis of 2008 stems from the failure of Federal 
regulators to rein in this Wild West mentality of those Wall Street 
executives who led those firms and who thought that nothing was out of 
bounds. Every quick

[[Page 22187]]

scheme was worth the time, and worth a try. Congress cannot ignore this 
as the root cause of the crisis. It was inherent in the subprime 
marketplace, and it has now spread to the prime mortgage marketplace.
  It is also critical that accurate assessments of the value of these 
illiquid mortgage-related assets be performed to limit the taxpayers' 
exposure to risk and structure purchases to ensure the greatest 
possible return on investment.
  Taxpayer money must be shielded at all costs from risk to the 
greatest extent possible.
  Reciprocity is not a bad concept if you can carry it out. The 
Government must not simply act as a repository for risky investments 
that have gone bad. An economic rescue effort that serves taxpayers 
well must allow them to benefit from the potential profits of rescued 
entities. So a model--and it may well be in these new principles--must 
be developed to ensure the taxpayers are not only the first paid back 
but have an opportunity to share in future profits through warrants 
and/or stocks.
  As to executive compensation limits, simply put, Californians are 
frosted by the absence of controls on executive compensation. Virtually 
all of the 50,000 phone calls and letters mentioned this one way or 
another. There must be limits. I am told that the reason the Treasury 
Secretary does not want limits on executive compensation is because he 
believes that an executive then will not bring his company in to 
partake in any program that is set up. Here is my response to that: We 
can put that executive on his boat, take that boat out in the ocean, 
and set it on fire. If that is how he feels, that is what should 
happen, or his company doesn't come in. But to say that the Federal 
Government is going to be responsible for tens of millions of dollars 
of executive salaries, golden parachutes, whether they are a matter of 
contract right or not, is not acceptable to the average person whose 
taxpayer dollars are used in this bailout. That is just fact.
  The one proposal that was made by one of the Presidential candidates 
that I agree with is that there should be a limit of $400,000 on 
executive compensation. If they don't like it, too bad, don't 
participate in the program. As I have talked with people on Wall Street 
and otherwise, they don't believe it is true that an executive, if his 
pay is tailored down, will not bring a company in that needs help. I 
hope that is true. I believe there should be precise limits set on 
executive pay.
  Finally, as to tangible benefits for Main Street in the form of 
mortgage relief, there have been more than 500,000 foreclosures in my 
home State of California so far this year. In the second quarter of 
this year, foreclosures were up 300 percent over the second quarter of 
2007. More than 800,000 are predicted before this year is over.
  I have a city in California where 1 out of every 25 homes is in 
foreclosure. This is new housing in subdivisions. As you look at it, 
you will see garage doors kicked in. You will see houses vandalized. 
You will see the grass and grounds dry. You will see the street 
sprinkled with ``For Sale'' signs, and nobody buys because the market 
has become so depressed.
  This crisis has roots in the subprime housing boom that went bust, 
and it would be unconscionable for us to simply bail out Wall Street 
while leaving these homeowners to fend for themselves.
  Everything I have been told, and I have talked to people in this 
business, here is what they tell me: It is more cost-effective to 
renegotiate a subprime loan and keep a family in a house than it is to 
foreclose and run the risks of what happens to that home on a depressed 
market as credit is drying up, as vandals loot it, as landscaping dries 
up, as more homes in the area become foreclosed upon; the way to go is 
to renegotiate these mortgages with the exiting homeowner wherever 
possible. I feel very strongly that should be the case.
  I don't know what I or any of us will do if we authorize this kind of 
expenditure and we find down the pike in my State that the rest of the 
year, 800,000 to 1 million Americans are being thrown out of their 
homes despite this form of rescue effort. Think of what it means, Mr. 
President, in your State. You vote for this, any other Senator votes 
for it, and these foreclosures continue to take place and individual 
families continue to be thrown out of their homes. It is not a tenable 
situation.
  I hope, if anybody is listening at all, that in the negotiating team, 
they will make a real effort to mandate in some way that subprime 
foreclosures be renegotiated, that families, wherever possible, who 
have an ability to pay, have that ability to pay met with a 
renegotiated loan. I have done this now in cases with families who were 
taken advantage of. We called the CEO of the bank, and the bank has 
seen that the loan was renegotiated, in one case in Los Angeles down to 
2 percent. That is better than foreclosing and running the uncertainty 
of the sale of the asset in a very depressed housing market.
  These are my thoughts. Again, it is easy to come to the floor and 
give your thoughts. It is much more difficult to sit at that 
negotiating table.
  I once again thank those Senators on both sides of the aisle who 
really understand the nature of this crisis--that it isn't only Wall 
Street, that it does involve Main Street, and if there is a serious 
crash, it will hurt tens of millions of Americans, many of them in 
irreparable ways. So we must do what we must do, and we must do it 
prudently and carefully.
  I yield the floor. I suggest the absence of quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. LEAHY. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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