[Congressional Record (Bound Edition), Volume 154 (2008), Part 17]
[Senate]
[Pages 23790-23796]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       ECONOMIC STABILIZATION ACT

  Mr. HARKIN. Mr. President, last night I reluctantly voted in favor of 
the Economic Stabilization Act. I want to emphasize the word 
``reluctantly.'' I did so because the Nation's financial system faces 
serious challenges, and it was important for us to act. However, I am 
under no illusion. While this rescue plan will likely calm and 
stabilize the financial system, at least in the short term, it is not 
as strong as it should be in terms of protecting taxpayers' money, and 
it does not get at the underlying problem of what got us here in the 
first place.
  Over the last week, I worked with a number of other Senators to 
improve this measure that was in the House, that the House turned down. 
For example, I joined with a group of Senators in developing and 
creating a special inspector general to oversee the emergency efforts 
of the Treasury Department and to investigate the inevitable waste, 
fraud, and abuse as the bailout goes forward. I say ``inevitable'' 
because when you have $700 billion sloshing around out there and you 
have one person sort of deciding where it goes, that just invites a lot 
of mischief. So we have this special inspector general to oversee that. 
That was a good addition. I am pleased that recommendation was included 
in the final bill.
  I am disappointed that the limits on executive compensation in the 
bill are not as strong as I would have liked and others would have 
liked. The final decisions on executive compensation are

[[Page 23791]]

left to the Secretary, who, by his background, training, and 
everything, is certainly no champion of limits on executive 
compensation. Look at his own background, for example. I felt and still 
feel we should have definitive, hard limits on executive compensation. 
If they are going to come in here and ask the taxpayers to bail them 
out, they are, in fact, becoming, effectively, like Government 
employees, and they should not make anything more, I have often said, 
than the highest paid Government employee, who is the President of the 
United States. If they do not like it, they do not have to come to us 
for the taxpayers to bail them out. So that is something we are going 
to have to fix.
  Likewise, the final decision on acquiring stock in participating 
banks--that is, getting equity positions--is crucial to protecting 
taxpayers' money. The decision on what we do on equity is left up to 
the Secretary again--either this Secretary or whoever follows this 
Secretary--and this Secretary has indicated he does not favor the 
Government taking an equity stake. Well, I beg to differ. Again, if our 
taxpayers are being asked to put up their money and to put this debt on 
their children and their grandchildren, well, they and their children 
and grandchildren ought to have an equity stake, and nothing less will 
suffice. Again, that is something else that has to be fixed.
  In addition, I am disappointed that banks are still not required by 
law to open their books so we can determine how they valued the assets 
the Government will be purchasing. We need full disclosure and 
transparency from participating institutions. If we are going to invest 
taxpayers' money in these banks and acquire their debt portfolios, then 
we need to know the details of their methods and their proprietary 
models for placing values on those portfolios. It is not enough for 
them to give us the balance sheet. That is not enough. What we need to 
know is how they got there in the first place, what models they used 
internally to decide how they would place the value on a certain asset, 
how they decided how much to pay for a certain asset and how much to 
sell that asset to someone else.
  Therein lies perhaps some of the answers to the questions of how we 
got here in the first place. Again, there is nothing in this bill that 
would require them to do it, but they have to be forced to do that. You 
will hear: There is transparency; we put transparency in the bill. The 
transparency is in terms of the Secretary buying the assets and how 
that is done and it is all open and aboveboard. There is nothing in 
this bill that requires transparency to look at their books to see how 
they got there in the first place.
  Ask yourself this question: You have a company. For a number of 
reasons, you are going underwater, you are going bankrupt. You go to a 
bank to get a loan to get back on your feet, hopefully to get up and 
operating again. Is the bank going to be satisfied with looking at your 
balance sheet, your assets and debits? No. The bank is going to want to 
know what got you in trouble. Why are you here seeking our help? What 
were you doing there that got you into this trouble? Let's look at all 
your books. No bank is going to loan you money based upon your balance 
sheet, if you are underwater, declaring bankruptcy or about to.
  We are the bank now, the taxpayers. The Federal Government is now the 
bank. When they come to us and they have assets and they put in this 
reverse auction, we ought to say: OK, let's take a look at your books; 
not just your balance sheet, but how did you get to the valuation of 
those assets? How did you come by those assets? What did you pay for 
those assets? Why didn't you pay that much for those assets? What was 
the model you used when you went to the computers and all these 
``brainiac'' people decided how much they would pay for these assets? 
That is a very important point to know. And, if we are to protect the 
taxpayers, we need to fully understand all of the details about these 
financial paper we may be buying which may prevent our overpaying.
  I brought that up with Secretary Paulson in a meeting. I couldn't 
believe his response. His response was: We can't do that because a lot 
of times they don't even know how they got there.
  That is true. You can ask a lot of Senators who were in that meeting 
when I asked the question. That was his response. They don't even know 
how they got there.
  I am sorry. They do know how they got there. If they flipped a coin, 
they ought to tell us that is what they did. But I don't think that 
happened. It happened because they had internal accounting structures 
and computer models that they used to decide how much to pay for an 
asset, to buy it or not, how much to put it on their books as, maybe 
sometimes how much to sell it at. That is what we need to know. Don't 
tell me they don't have that information. They do. I know it is 
proprietary but, nonetheless, if they are coming to us asking us to buy 
these assets, we have to know how they got there. If we know that, then 
that helps us next year when we come back to change the fundamentals, 
to put in more regulation, more oversight of financial markets, which 
we have to do. But if we don't know how they got there, how are we 
going to know, as makers of public policy and protecting the taxpayers 
in the future, what we need to do in the regulatory scheme? I am 
disappointed that we don't have that.
  There is one other aspect of this bill that troubles me. That is the 
fact that we put all the $700 billion basically out there on the table. 
Again, Secretary Paulson was asked by Senator Schumer of New York, was 
he going to spend all that $700 billion in the first couple weeks. He 
said, no, it will take about $50 billion a month. This raised a lot of 
questions in my mind and the minds of others. If it is $50 billion per 
month, why do we to have give you 700? Why don't we give you $50 
billion for the next 4 or 5 months, and then we will sunset it and take 
a look at it, see how it works. If it works, come back. Congress, I am 
sure, would be more than happy then to debate it and extend this. I 
thought that was a good proposal. In other words, put out 5 months' 
worth, put out $250 or $300 billion, sunset it, come back in February. 
Let's see how it is working. Is this working? Is it not working? Then 
make the decision whether we want to put another $350 billion of 
taxpayer money out there.
  What happened, finally, in the bill is a scheme that they put out, I 
think, $250 billion right now. The Secretary can get another $100 
billion by the President snapping his fingers, saying: I want it. He 
gets $100 billion. Then, to get access to the other $350 billion, there 
has to be a request from the President. Then Congress has 15 days in 
which to deny it. They get it, but we have 15 days in which to deny it.
  You might say: Well, that is some protection. It is. Except if we 
deny it, the President can override it. He can veto that. Then we have 
to have a two-thirds vote to override the veto in both Houses. So this 
is heavily skewed toward letting the executive branch decide on the 
full $700 billion. This is something we ought to come back and fix when 
we return in January. Again, there were some questions raised about 
that $700 billion.
  I was interested to read in Forbes, September 23, it says:

       In fact, some of the most basic details, including the $700 
     billion figure Treasury would use to buy up bad debt, are 
     fuzzy. ``It's not based on any particular data point,'' a 
     Treasury spokeswoman told Forbes.com Tuesday. ``We just 
     wanted to choose a really large number.''

  So the $700 billion, where did it come from? They wanted a large 
number. Tell that to the taxpayers.
  I ask unanimous consent that this article from forbes.com entitled 
``Bad News for the Bailout,'' be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                   [From Forbes.com, Sept. 23, 2008]

                        Bad News for the Bailout

                 (By Brian Wingfield and Josh Zumbrun)

       Lawmakers on Capitol Hill seem determined to work together 
     to pass a bill that will get the credit markets churning 
     again. But will they do it this week, as some had hoped just 
     a few days ago? Don't count on it.

[[Page 23792]]

       ``Do I expect to pass something this week?'' Senate 
     Majority Leader Harry Reid, D-Nev., mused to reporters 
     Tuesday. ``I expect to pass something as soon as we can. I 
     think its important that we get it done right, not get it 
     done fast.''
       Sen. Sherrod Brown, D-Ohio, says his office has gotten 
     ``close to zero'' calls in support of the $700 billion plan 
     proposed by the administration. He doubts it'll happen 
     immediately either. ``I don't think it has to be a week'' he 
     says. ``If we do it right, then we need to take as long as it 
     needs.''
       The more Congress examines the Bush administration's 
     bailout plan, the hazier its outcome gets. At a Senate 
     Banking Committee hearing Tuesday, lawmakers on both sides of 
     the aisle complained of being rushed to pass legislation or 
     else risk financial meltdown.
       ``The secretary and the administration need to know that 
     what they have sent to us is not acceptable,'' says Committee 
     Chairman Chris Dodd, D-Conn. The committee's top Republican, 
     Alabama Sen. Richard Shelby, says he's concerned about its 
     cost and whether it will even work.
       In fact, some of the most basic details, including the $700 
     billion figure Treasury would use to buy up bad debt, are 
     fuzzy.
       ``It's not based on any particular data point,'' a Treasury 
     spokeswoman told Forbes.com Tuesday. ``We just wanted to 
     choose a really large number.''
       Wow. If it wants to see a bailout bill passed soon, the 
     administration's going to have to come up with some hard 
     answers to hard questions. Public support for it already 
     seems to be waning. According to a Rasmussen Reports poll 
     released Tuesday, 44 percent of those surveyed oppose the 
     administration's plan, up from 37 percent Monday.
       Treasury Secretary Henry Paulson and Federal Reserve 
     Chairman Ben Bernanke, who testified before the Senate 
     committee Tuesday, will get a chance to fine tune their 
     answers Wednesday afternoon, when they appear before the 
     House Financial Services Committee.
       A spokesman for House Speaker Nancy Pelosi, D-Calif., says 
     she is optimistic that the House will pass a bill this week. 
     But that doesn't mean the Senate, which is by nature more 
     sluggish than its larger counterpart on the other side of 
     Capitol Hill, will be so quick to act.

  Mr. HARKIN. With all my concerns, why did I vote for the bill? For 
the following reasons: We did get a change in the Federal Deposit 
Insurance Corporation insurance on banks. It was raised from $100,000 
to $250,000. That is even too low. That is an inflationary increase. 
That is where FDIC would be today in their insurance on deposits in 
banks if, in fact, it had kept pace with inflation. Quite frankly, it 
would be more than that. I think it ought to be at least $1 million. 
Some people are advocating that it ought to be removed completely. 
Ireland did that. They raised their deposit insurance completely off 
all the banks. I don't know if I would go that far, but it ought to be 
at least a million or so because I think depositors would be more 
comfortable choosing smaller retail banks and community banks. Smaller 
independent banks have more conservative investment standards. They are 
better regulated. They are more likely to lend to small businesses and 
manufacturers which are the backbone of our American economy. Again, 
many of the independent banks in Iowa and around the United States do a 
darn good job of investing depositors' money. They invest it in local 
businesses, manufacturers, startup companies or expansions, the 
backbone of the American economy, sort of where the rubber meets the 
road, where people get jobs. Yet they are limited to $100,000 right 
now. At least this raises it to $250,000, and it should be a lot more. 
Depositors would feel more comfortable putting money in those banks.
  Right now big depositors feel very comfortable putting $20 million in 
Citibank. Why? Their deposits are not guaranteed, but they know 
Citibank is too big to fail. We now know some of these banks are now 
going to be--JPMorgan Chase--too big to fail. Let's put all our money 
there. The Government is not going to let them fail.
  Quite frankly, I believe very strongly that a lot of our smaller, 
independent banks do a much better job of investing our money than some 
of the New York banks that used to be investment banks but now want to 
become depository banks. I was happy to at least raise the FDIC to 
$250,000. I think it should be higher, but at least that is better than 
nothing.
  The fact is, the choice was either to vote for the bill, despite its 
flaws, or do nothing, and doing nothing was not an acceptable option. I 
am hopeful that in the short term this rescue package will work to calm 
markets and restore confidence in the financial system and loosen up on 
what is called the liquidity crisis. We are hearing of instances where 
small businesses in Iowa cannot get the funds that they need. We are 
hearing about construction projects that are being cancelled. That is 
costing jobs in my state. I hope it will have an effect worldwide of 
calming things. But I also hope and insist that we come back early next 
year to strengthen and improve the rescue framework. I will be working 
with others to do that. As I said, we need to strengthen the equity 
position of taxpayers. We have to redo that $700 billion and how that 
is parceled out. We have to be stronger on executive compensation and 
equity.
  We need to look, at that point in time, at whether we want to also 
use this money, rather than going in at the top, maybe to go in at the 
bottom, to help homeowners with their mortgages. I have often said 
there were two ways of approaching this bailout. You put it in at the 
top, and it trickles down or you put it in at the bottom and it 
percolates up. I would prefer putting it in at the bottom and letting 
it percolate up. We know that trickle-down economics has failed this 
country time and time again. As one worker told me once, he said: You 
know, I have heard all about this trickle down. I have been waiting. I 
haven't felt a drop. I would settle for a heavy dew. I haven't even 
seen that.
  We know what works. We know that when you put money in at the bottom, 
it does percolate up. Our whole economy is strengthened because of it. 
When we come back, that is what we have to do in January and February, 
change this thing around.
  I might mention one other thing. When we come back, we have to do 
something about credit card debt. I keep hearing everyone talking about 
a credit crunch. When I talk to my constituents about a credit crunch, 
they think I am talking about credit cards. I was told there is 
something floating around this country, nine credit cards for every 
individual. I don't know if that is true, but that is what they say. I 
read that. We know there are too many credit cards. We know credit 
cards are too easy to get. One of the reasons they are so easy to get 
is because the interest rates are out of sight, and people don't know 
what they are being charged for interest on their credit cards. These 
young people get credit cards sent to them as soon as they graduate. 
They get one after another. Credit cards are easy to use. Then you get 
the bill, but you can roll it over and pay it next month. OK, maybe I 
can do that. But they don't realize that 12 percent or 15 percent this 
month can rise up to 28 percent; and not just for the next month, it 
can impact purchases made before that point. Now you are paying 28 
percent on items you buy. So many people have been hooked on this, 
using their credit cards. So we have to do something about the credit 
card debt.
  There is a bill called the Credit Card Accountability, Responsibility 
and Disclosure Act, the CARD Act, of which I am a cosponsor. As we come 
back in January and February, that is something else we are going to 
have to incorporate into this so-called bailout.
  There is one other thing we will have to do. I was sorry to see it 
lost in the Senate earlier this week. That is the stimulus package. We 
had a package to put money in at the bottom, let it percolate up, by 
helping people with extending their unemployment benefits which has the 
biggest bang for the buck in terms of economic stimulus. People on food 
stamps, investing in rebuilding our schools, our roads, bridges, our 
sewer and water systems, that goes directly to people, and it helps 
stimulate the economy and puts people to work. That bill had a pricetag 
of about $56 billion. That is not chump change. That is lot of money: 
$56 billion. But do you know, in what we just voted on last night with 
$700 billion, $54 billion is, what, not quite 8 percent of what we 
voted on last night, which we turned down earlier this week to 
stimulate the economy by putting people to work. Well, I

[[Page 23793]]

think we have to come back and do that again next year. That is to 
stimulate our economy.
  But there are some other provisions in the rescue bill that are 
extremely important and valuable. The bill includes a number of tax 
provisions important to Iowans in particular, including energy 
production tax credits for producers of wind energy and biomass energy. 
That will create a lot of new jobs in Iowa and continue the jobs we 
have.
  They are important tax provisions, added by my colleague, Senator 
Grassley, on the Finance Committee that I have been a strong supporter 
of, to help the victims of the floods we had in Iowa, to help them get 
back on their feet, to help the small businesses get back on their 
feet. It is vitally important to get our economy going back in the 
State of Iowa. That was in the bill last night.
  There is also a provision in there to improve the prospects for the 
construction of ethanol pipelines--something vitally important to the 
fledgling biofuels industry that I have led on. It is important to get 
ethanol back to the east coast, where a lot of people live, from the 
Midwest where we produce it. That was also in the bill last night.
  In addition, there was another thing in that bill last night that we 
have been trying to do for many years around here, and that is to get 
mental health parity. In other words, if you have health insurance, 
they would treat mental health, an addiction, just the same as they 
would any other health problem. We have been trying to get that for 
years, and we finally got it in the bill last night. That will make 
sure families struggling with mental illness do not have that challenge 
compounded by having to pay for it out of their pockets. It will be 
covered by their insurance. It is named after Senator Paul Wellstone 
and Senator Pete Domenici, both of whom worked very hard to get it 
passed.
  Well, Mr. President, it was an overwhelming, bipartisan vote last 
night. There are a lot of reasons we need to come back, as I said, next 
year and make some changes, and we will do that. Hopefully, as I said, 
this will calm the markets.
  Now, Mr. President, I want to ask consent for a number of articles to 
be printed in the Record at the conclusion of my remarks.
  One is an article by Jonathan Koppell and William Goetzmann entitled 
``The Trickle-Up Bailout.'' I will quote from one part of it. It says:

       The financial crisis is a liquidity crisis, yes, but it is 
     ultimately a product of homeowner failures to pay. Unless 
     this fundamental problem is fixed, we will continue to see--
     and need to treat--the symptoms. The proposed bailout ignores 
     this. Yet the sum being demanded from taxpayers is almost 
     certainly more than sufficient to pay off all currently 
     delinquent mortgages.

  They call this the ``trickle down,'' what we passed, rather than the 
``trickle up'' bailout.
  Mr. President, I ask unanimous consent that article be printed in the 
Record at the conclusion of my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. HARKIN. Mr. President, I will also ask consent that an article by 
Harold Meyerson entitled ``Slow Rise for a New Era'' be included in the 
Record. Again, I will quote from that article. Mr. Meyerson talked 
about this bill being passed. He said:

       If that happens--

  If we pass this bill--

     the next move would be for Democrats to craft a solution more 
     in the spirit of FDR:

  Franklin Roosevelt.

       Save American capitalism by fundamentally reshaping it. 
     They could direct the government to raise the amount of 
     depositors' money it insures--

  We did in the bill last night a little bit--

     to compel the banks to write down their losses, to 
     recapitalize the banks by taking a significant equity 
     interest in them, and to refinance beleaguered homeowners 
     directly.

  Mr. President, I also ask unanimous consent that article be printed 
in the Record at the conclusion of my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 2.)
  Mr. HARKIN. Mr. President, I will also ask consent that a list of 
economists who signed a letter saying there are better ways to approach 
the problems we have in our financial institutions rather than what we 
did last night be printed in the Record. It is a letter that was sent 
to the Speaker and the President. They said:

       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 see three fatal 
     pitfalls in the currently proposed plan:
       (1) Its fairness. . . .
       (2) Its ambiguity. . . .
       (3) Its long-term effects. . . .

  So, Mr. President, I ask consent that this list also be printed in 
the Record to show that--again, the one thing that bothered me in the 
hearings we had on this plan is, we only heard from the administration. 
We only heard from people who were for the plan. Why didn't we hear 
from other people, 200 other economists, Nobel prize-winning 
economists, who say there is a better way of doing this, folks?
  I think when we come back in January, and perhaps even between now 
and January, we ought to be hearing from these people to see what 
changes we ought to make in this proposal when we come back in January.
  I ask unanimous consent to have that letter and list printed in the 
Record at the end of my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 3.)
  Mr. HARKIN. Lastly, Mr. President, I have an article by William 
Isaac, former head of the Federal Deposit Insurance Corporation. It is 
a Washington Post article dated September 27, entitled ``A Better Way 
to Aid Banks.'' I also ask unanimous consent that article be printed in 
the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 4.)
  Mr. HARKIN. Mr. President, to sum it up, as I said when I started, I 
reluctantly supported this bill. I hope it will calm the markets. But I 
am under no illusions that what we did last night solves the problem of 
why we got here in the first place. To that end, we have to come back. 
We have to have hearings. We have to bring in other people. We have to 
get a better handle on what was going on, and next year, with a new 
administration and a new Congress, I think one of the first things we 
have to do is to fix this, make it more equitable, make it more fair to 
the taxpayers of this country, and to get at the underlying 
fundamentals of why we are here and not just to be satisfied with 
stopping the bleeding, which is what we did last night.
  So, Mr. President, with that, I yield the floor.

                               Exhibit 1

                         The Trickle-Up Bailout

          (By Jonathan G.S. Koppell and William N. Goetzmann)

       The theory underlying the bailout plan stalled in Congress 
     is that rescuing the finance industry will restore market 
     stability and that the benefits will eventually trickle down 
     to average Americans. Thus, solving the sub-prime mortgage 
     crisis has morphed into a much larger challenge: reassembling 
     the architecture of the financial markets, which seemingly 
     requires giving the Treasury secretary nearly a trillion 
     dollars and extraordinary latitude to pick winners and 
     losers.
       There is an easier and more politically palatable fix: Pay 
     off all the delinquent mortgages.
       The financial crisis is a liquidity crisis, yes, but it is 
     ultimately a product of homeowner failures to pay. Unless 
     this fundamental problem is fixed, we will continue to see--
     and need to treat--the symptoms. The proposed bailout ignores 
     this. Yet the sum being demanded from taxpayers is almost 
     certainly more than sufficient to pay off all currently 
     delinquent mortgages.
       If the government did this, all the complex derivatives 
     based on these mortgages would be as good as U.S. Treasuries. 
     Their fair value would jump to 100 cents on the dollar, 
     rescuing teetering financial institutions. The credit markets 
     would be resuscitated overnight. Foreclosures would stop.
       Some will argue that it is grossly unfair to pay off the 
     mortgages of borrowers who took risks and lost. In other 
     words, why should my profligate neighbor be rewarded for 
     over-leveraging himself?
       Because such unfairness is a small price to pay to avoid a 
     rapid transition to a socialist economy, the collapse of our 
     financial system (and its related global implications) and

[[Page 23794]]

     a frightening shift of economic power toward the executive 
     branch. Why shell out $700 billion to Wall Street dealmakers 
     and the companies they managed into this mess? Wouldn't it be 
     preferable for individual homeowners to benefit directly?
       Implementation could follow the example of the Home Owners' 
     Loan Corp., which in the 1930s issued new mortgages to a 
     quarter of American homeowners. The government could offer to 
     refinance all mortgages issued in the past five years with a 
     fixed-rate, 30-year mortgage at 6 percent. No credit scores, 
     no questions asked; just pay off the principal of the 
     existing mortgage with a government check. If monthly 
     payments are still too high, homeowners could reduce their 
     indebtedness in exchange for a share of the future price 
     appreciation of the house. That is, the government would take 
     an ownership interest in the house just as it would take an 
     ownership interest in the financial institutions that would 
     be bailed out under the Treasury's plan.
       All this could be done through the Federal Housing 
     Administration, with the help of Fannie Mae and Freddie Mac, 
     which have the infrastructure to implement this plan rapidly. 
     An equity participation structure would prevent thousands of 
     foreclosed homes from being dumped on a strained housing 
     market and would allow prices to reach a new equilibrium that 
     is based on realistic demand for houses rather than on easy 
     money or impending foreclosures.
       Like the administration's proposal, this plan would result 
     in the government owning assets. But these assets would be 
     real estate, not complex derivatives whose true value would 
     take weeks to discern. Homeowners would become partners with 
     the government in resolving the crisis.
       When Congress returns, lawmakers are likely to modify and 
     then pass the administration's bailout proposal. They should 
     consider ways to implement this bottom-up solution. Combining 
     this approach with the government's proposal could greatly 
     benefit taxpayers. Yes, the government's swift purchase of 
     illiquid securities would stabilize compromised financial 
     institutions and the credit markets. But the notion that 
     taxpayers would benefit in the long run is pure speculation, 
     particularly if the government overpaid for the securities. 
     On the other hand, once a government-sponsored refinancing 
     wave kicked in, the full value of the securities in the 
     government's portfolio would be restored, and they could be 
     sold off in an orderly manner, with Uncle Sam taking profits 
     that would cover the cost of the bailout.
       The public is rightly concerned that the administration's 
     bailout would benefit only powerful financial institutions. 
     No matter how it's done, rescuing the financial system is a 
     large, complex gamble.
       This solution would start by helping ordinary Americans and 
     would quickly spill over to revive the financial markets. 
     Directly addressing the underlying cause of the crisis would 
     help ensure that we would not be facing the same crisis again 
     down the road. While Wall Street has only recently felt the 
     bite of foreclosures delinquencies, communities across the 
     nation will face greater financial and social fallout if the 
     foreclosure crisis continues.
                                  ____


                               Exhibit 2

                        Slow Rise for a New Era

                          (By Harold Meyerson)

       We are, just now, stuck between eras. The old order--the 
     Reagan-age institutions built on the premise that the market 
     can do no wrong and the government no right--is dying. A new 
     order, in which Wall Street plays a diminished role and 
     Washington a larger one, is aborning, but the process is 
     painful and protracted.
       It shuddered to a halt on Monday, when House Republicans, 
     by 2 to 1, declined to support the administration's bailout 
     plan. To lay the blame on Speaker Nancy Pelosi's speech (in 
     which she even noted the work of House GOP leaders in 
     crafting the compromise) is to miss the larger picture: The 
     proposal asked Republicans to acknowledge the failure of the 
     market and the capacity of government to set things right. It 
     asked them to repudiate their worldview, to go against the 
     beliefs that impelled many of them to enter politics in the 
     first place.
       So as America experienced a financial crisis, House 
     Republicans experienced a crisis of faith. And on Monday, 
     most of them opted to stick to their faith, whatever the 
     financial consequences for the nation.
       Many of the Republicans' counterproposals to the bailout 
     bill were so wide of the mark that they can be understood 
     only as faith-based solutions to empirical problems. Banks 
     and investment houses are toppling like so many dominos, and, 
     to solve this crisis of capital evaporation, House 
     Republicans suggested reducing capital gains tax. Are we to 
     believe that more investors didn't rush to rescue 
     LehmanBearAIG-WaMuWachoviaEtc because they calculated that 
     the tax on the capital gains they'd realize was too high?
       Then again, the bill that the Republicans opposed was 
     itself a transitional document--to some extent ushering in a 
     new order, though designed chiefly to prop up the old. The 
     bailout plan's political travails can be traced to its 
     conception--a three-page proposal for the Treasury secretary, 
     who is the immediate past CEO of Wall Street's most 
     successful investment bank, to buy up financial institutions' 
     bad loans at prices he would set, with no oversight and no 
     aid to anybody else. End of story. The bill that went to the 
     House floor Monday had been significantly improved: It 
     created the possibility that the public would gain a limited 
     equity interest in some banks in return for the public's 
     largess; it restricted Wall Street CEO pay; it allowed for a 
     stock-transaction tax to cover any public losses if such 
     still existed after five years. But it had been stamped at 
     birth as a bailout for Wall Street, by a Treasury Department 
     that didn't see the glaringly obvious political problems that 
     created.
       It's possible that with a few cosmetic changes, the bill 
     can be passed by the House tomorrow. Or it may be that the 
     prospect of bailing out Wall Street with public funds offends 
     so many House members at both ends of the political spectrum 
     that it goes down to defeat again.
       If that happens, the next move would be for Democrats to 
     craft a solution more in the spirit of FDR: Save American 
     capitalism by fundamentally reshaping it. They could direct 
     the government to raise the amount of depositors' money it 
     insures, to compel the banks to write down their losses, to 
     recapitalize the banks by taking a significant equity 
     interest in them, and to refinance beleaguered homeowners 
     directly.
       Already, it's clear that we will emerge from this crisis 
     with fewer but bigger banks. As a result of the recent 
     government-arranged consolidations and fire sales, three 
     banks--JP Morgan Chase, Bank of America and Citigroup--will 
     control roughly one-third of all deposits. They will be too 
     big to fail. They will also be so big that they'll be able to 
     set the price for money when Americans come borrowing.
       As such, they will require tighter regulation than we've 
     imposed on banks before. And that's hardly the only arena in 
     which government will have to do more. With financial 
     institutions de-leveraging and lending less, it will fall 
     upon the government to invest more in the American economy--
     to diminish the effects of the recession that is coming down 
     the tracks and to build the kind of infrastructure that will 
     enhance American competitiveness in a global economy.
       It's not just investment banks that have fallen by the 
     wayside in the recent carnage; it's the ideology of 
     unregulated capitalism--of Reaganism. And if Republicans 
     cannot find a way to disenthrall themselves from their faith 
     in their old gods, they may ensure that the GOP itself 
     becomes one more casualty in the collapse of laissez faire.
                                  ____

       (This letter was sent to Congress on Wed., Sept. 24, 2008, 
     regarding the Treasury plan as outlined on that date. It does 
     not reflect all signatories' views on subsequent plans or 
     modifications of the bill.)
       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 of the 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, and 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 (Massachusetts Institute of Technology); 
     Ackerberg Daniel (UCLA); Adler Michael (Columbia University); 
     Admati Anat R. (Stanford University); Ales Laurence (Carnegie 
     Mellon University); Alexis Marcus (Northwestern University); 
     Alvarez Fernando (University of Chicago); Andersen Torben 
     (Northwestern University); Baliga Sandeep (Northwestern 
     University); Banerjee Abhijit V. (Massachusetts Institute of 
     Technology); Barankay Iwan (University of Pennsylvania); 
     Barry Brian (University of Chicago); Bartkus James R. (Xavier 
     University of Louisiana); Becker Charles M. (Duke

[[Page 23795]]

     University); Becker Robert A. (Indiana University); Beim 
     David (Columbia University); Berk Jonathan (Stanford 
     University); Bisin Alberto (New York University); 
     Bittlingmayer George (University of Kansas); Blank Emily 
     (Howard University); Boldrin Michele (Washington University); 
     Bollinger, Christopher R. (University of Kentucky); Bossi, 
     Luca (University of Miami); Brooks Taggert J. (University of 
     Wisconsin); Brynjolfsson Erik (Massachusetts Institute of 
     Technology); Buera Francisco J.(UCLA); Cabral Luis (New York 
     University); 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); Clementi, Gian Luca 
     (New York University); Cochrane John (University of Chicago); 
     Coleman John (Duke University); Constantinides George M. 
     (University of Chicago); Cooley, Thomas (New York 
     University); Crain Robert (UC Berkeley); Culp Christopher 
     (University of Chicago); Da Zhi (University of Notre Dame); 
     Darity, William (Duke University); 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); Fair Ray (Yale University); Faulhaber 
     Gerald (University of Pennsylvania); Feldmann Sven 
     (University of Melbourne); Fernandez, Raquel (New York 
     University); 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); Gregory, 
     Karl D. (Oakland University); 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 Gunter J. (University of 
     Chicago); Hodrick Robert J. (Columbia University).
       Hollifield Burton (Carnegie Mellon 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); Jovanovic Boyan 
     (New York University); Kaboski Joseph P. (Ohio State 
     University); Kahn Matthew (UCLA); Kaplan Ethan (Stockholm 
     University); Karaivanov Alexander (Simon Fraser 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 Ralph 
     S.J. (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); Letson David 
     (University of Miami); Leuz Christian (University of 
     Chicago); Levine David I. (UC Berkeley); Levine David K. 
     (Washington University); Levy David M. (George Mason 
     University); Linnainmaa Juhani (University of Chicago); Lott 
     John R. Jr. (University of Maryland); Lucas Robert 
     (University of Chicago--Nobel Laureate); Ludvigson, Sydney C. 
     (New York University); 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); Meeropol, Michael (Western New 
     England College); 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); Moeller, Thomas (Texas Christian 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); Moskowitz, 
     Tobias J. (University of Chicago); Munger Michael C. (Duke 
     University); Muralidharan Karthik (UC San Diego); Nair 
     Harikesh (Stanford University); 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); Pearce David (New York 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); Pippenger, Michael K. 
     (University of Alaska); Piskorski Tomasz (Columbia 
     University); Platt Brennan C. (Brigham Young University); 
     Rampini Adriano (Duke University); Ray, Debraj (New York 
     University); Reagan Patricia (Ohio State University); Reich 
     Michael (UC Berkeley); Reuben Ernesto (Northwestern 
     University); Rizzo, Mario (New York University); Roberts 
     Michael (University of Pennsylvania); Robinson David (Duke 
     University); Rogers Michele (Northwestern University).
       Rotella Elyce (Indiana University); Roussanov Nikolai 
     (University of Pennsylvania); Routledge Bryan R. (Carnegie 
     Mellon University); Ruud Paul (Vassar College); Safford Sean 
     (University of Chicago); Samaniego Roberto (George Washington 
     University); Sandbu Martin E. (University of Pennsylvania); 
     Sapienza Paola (Northwestern University); Savor Pavel 
     (University of Pennsylvania); Schaniel William C. (University 
     of West Georgia); 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); Spatt Chester (Carnegie Mellon 
     University); Spear Stephen (Carnegie Mellon 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).
       Troske Kenneth (University of Kentucky); Tschoegl Adrian E. 
     (University of Pennsylvania); Uhlig Harald (University of 
     Chicago); Ulrich, Maxim (Columbia University); Van Buskirk 
     Andrew (University of Chicago); Vargas Hernan (University of 
     Phoenix); Veronesi Pietro (University of Chicago); Vissing-
     Jorgensen Annette (Northwestern University); Wacziarg Romain 
     (UCLA); Walker Douglas O. (Regent University); Walker, Todd 
     (Indiana University); Weill Pierre-Olivier (UCLA); Williamson 
     Samuel H. (Miami University); Witte Mark (Northwestern 
     University); Wolfenzon, Daniel (Columbia University); Wolfers 
     Justin (University of Pennsylvania); Woutersen Tiemen (Johns 
     Hopkins University); Wu Yangru (Rutgers University); Yue 
     Vivian Z. (New York University); Zingales Luigi (University 
     of Chicago); Zitzewitz Eric (Dartmouth College).
                                  ____


                               Exhibit 4

               [From the Washington Post, Sept. 27, 2008]

                       A Better Way to Aid Banks

                         (By William M. Isaac)

       Congressional leaders are badly divided on the Treasury 
     plan to purchase $700 billion in troubled loans. Their angst 
     is understandable: It is far from clear that the plan is 
     necessary or will accomplish its objectives.
       It's worth recalling that our country dealt with far more 
     credit problems in the 1980s in a far harsher economic 
     environment than it faces today. About 3,000 bank and thrift 
     failures were handled without producing depositor panics and 
     massive instability in the financial system.
       The Federal Deposit Insurance Corp. has just handled 
     Washington Mutual, now the largest bank failure in history, 
     in an orderly manner, with no cost to the FDIC fund or 
     taxpayers. This is proof that our time-tested system for 
     resolving banking problems works.
       One argument for the urgency of the Treasury proposal is 
     that money market funds were under a great deal of pressure 
     last week as investors lost confidence and began withdrawing 
     their money. But putting the government's guarantee behind 
     money market funds--as Treasury did last week--should have 
     resolved this concern.
       Another rationale for acting immediately on the bailout is 
     that bank depositors are

[[Page 23796]]

     getting panicky--mostly in reaction to the July failure of 
     IndyMac, in which uninsured depositors were exposed to loss.
       Does this mean that we need to enact an emergency program 
     to purchase $700 billion worth of real estate loans? If the 
     problem is depositor confidence, perhaps we need to be 
     clearer about the fact that the FDIC fund is backed by the 
     full faith and credit of the government.
       If stronger action is needed, the FDIC could announce that 
     it will handle all bank failures, except those involving 
     significant fraudulent activities, as assisted mergers that 
     would protect all depositors and other general creditors. 
     This is how the FDIC handled Washington Mutual. It would be 
     easy to announce this as a temporary program if needed to 
     calm depositors.
       An additional benefit of this approach is that community 
     banks would be put on a par with the largest banks, 
     reassuring depositors who are unconvinced that the government 
     will protect uninsured depositors in small banks.
       I have doubts that the $700 billion bailout, if enacted, 
     would work. Would banks really be willing to part with the 
     loans, and would the government be able to sell them in the 
     marketplace on terms that the taxpayers would find 
     acceptable?
       To get banks to sell the loans, the government would need 
     to buy them at a price greater than what the private sector 
     would pay today. Many investors are open to purchasing the 
     loans now, but the financial institutions and investors 
     cannot agree on price. Thus private money is sitting on the 
     sidelines until there is clear evidence that we are at the 
     floor in real estate.
       Having financial institutions sell the loans to the 
     government at inflated prices so the government can turn 
     around and sell the loans to well-heeled investors at lower 
     prices strikes me as a very good deal for everyone but U.S. 
     taxpayers. Surely we can do better.
       One alternative is a ``net worth certificate'' program 
     along the lines of what Congress enacted in the 1980s for the 
     savings and loan industry. It was a big success and could 
     work in the current climate. The FDIC resolved a $100 billion 
     insolvency in the savings banks for a total cost of less than 
     $2 billion.
       The net worth certificate program was designed to shore up 
     the capital of weak banks to give them more time to resolve 
     their problems. The program involved no subsidy and no cash 
     outlay.
       The FDIC purchased net worth certificates (subordinated 
     debentures, a commonly used form of capital in banks) in 
     troubled banks that the agency determined could be viable if 
     they were given more time. Banks entering the program had to 
     agree to strict supervision from the FDIC, including 
     oversight of compensation of top executives and removal of 
     poor management.
       The FDIC paid for the net worth certificates by issuing 
     FDIC senior notes to the banks; there was no cash outlay. The 
     interest rate on the net worth certificates and the FDIC 
     notes was identical, so there was no subsidy.
       If such a program were enacted today, the capital position 
     of banks with real estate holdings would be bolstered, giving 
     those banks the ability to sell and restructure assets and 
     get on with their rehabilitation. No taxpayer money would be 
     spent, and the asset sale transactions would remain in the 
     private sector where they belong.
       If we were to (1) implement a program to ease the fears of 
     depositors and other general creditors of banks; (2) keep 
     tight restrictions on short sellers of financial stocks; (3) 
     suspend fair-value accounting (which has contributed mightily 
     to our problems by marking assets to unrealistic fire-sale 
     prices); and (4) authorize a net worth certificate program, 
     we could settle the financial markets without significant 
     expense to taxpayers.
       Say Congress spends $700 billion of taxpayer money on the 
     loan purchase proposal. What do we do next? If, however, we 
     implement the program suggested above, we will have $700 
     billion of dry powder we can put to work in targeted tax 
     incentives if needed to get the economy moving again.
       The banks do not need taxpayers to carry their loans. They 
     need proper accounting and regulatory policies that will give 
     them time to work through their problems.

  Mr. HARKIN. 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. HARKIN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________