[Congressional Record (Bound Edition), Volume 154 (2008), Part 17]
[Senate]
[Pages 23813-23819]
[From the U.S. Government Publishing Office, www.gpo.gov]




                    EMERGENCY ECONOMIC STABILITY ACT

  Mr. KYL. Mr. President, I know that many of my fellow Members are 
concerned about the scale of this package. And while I agree that more 
private sector involvement would be preferable to placing hundreds of 
billions of taxpayer dollars at risk, I think that the enormity of the 
current financial crisis requires the government to act. I believe that 
the legislation before us will establish the appropriate conditions for 
financial markets to begin repricing mortgage related investments like 
mortgage backed securities, MBS, collateralized debt obligations, CDOs, 
and whole loans in order to provide liquidity to solvent financial 
institutions. Then, these institutions can begin trading again so that 
we can avoid a complete collapse of our nation's credit markets and 
return to normal.
  Impaired loans are now being held on the balance sheets of banks and 
other financial institutions as mortgage backed securities, MBS. 
Uncertainty surrounding the value of the underlying mortgages has made 
it virtually impossible to find an efficiently functioning market for 
these securities or rationally value them.
  The uncertainty surrounding the value of these assets has caused 
banks and other financial institutions to gradually withdraw from the 
market and refrain from making new loans to firms or individuals in 
order to preserve their capital. Unfortunately, the underlying value of 
many of these securities is high but firms lack confidence to reengage 
in the market.
  The Treasury's plan intends to make a market for these securities, 
allow them to be priced so that trading can continue and reinitialize 
financial intermediation.
  Treasury's ``troubled asset relief program'' will purchase illiquid 
mortgage assets directly using a reverse auction to purchase the 
impaired assets in order to create a market and establish a price for 
the assets. In a reverse auction the role of buyer and seller are 
reversed. In a standard auction, buyers compete by make bids for a 
security and the best offer is taken, thereby establishing a price. 
This price discovery process is important because it reveals 
information about what the buyers and sellers think a security is 
worth. A reverse auction would also be better than Treasury trying to 
assign a price without the input of the seller. It would also hopefully 
prevent Treasury from paying too high a price.
  The Secretary of Treasury, Chairman Bernanke, large national 
financial institutions, small Arizona community banks and credit unions 
have all warned me of the serious implications of not passing this 
legislation and the impact it will have on the lives of everyday 
Americans.
  Sound financial institutions, manufacturers and small businesses are 
all struggling to find investors willing to provide them with cash to 
fund their operations. Instead, investors are irrationally selling 
their stocks and bonds regardless of whether or not the companies are 
making money and are instead hording cash, investing their money in 
government bonds and even gold.
  If Congress fails to act, the consequences for Main Street will be 
severe. If banks are even willing to lend, mortgage loan interest rates 
will continue to rise making the purchase of a home less affordable. 
Major manufacturers won't be able to obtain affordable credit to 
purchase the raw materials and working capital that they need to stay 
in business. America's farmers won't be able to finance the large 
upfront costs associated with purchasing fertilizer and seed to plant 
their crops. Small businesses will not be able to get funding to extend 
credit to their own customers who wish to make every day purchases. 
Loans for college could dry up.
  The stock market lost over a trillion dollars on Tuesday, reducing 
American wealth and individuals' retirement accounts. For the tens of 
thousands of dollars in reduced account balances, those in retirement 
or approaching retirement will be forced to contemplate accepting a 
lower standard of living in retirement or consider working longer.
  One must remember that even though the plan contemplates the purchase 
of up to $700 billion in assets that the program is not likely to cost 
the taxpayer that much or even a significant portion of that amount.
  According to CBO, ``enacting the bill would likely entail some 
budgetary cost which would, however, be substantially smaller than $700 
billion.''
  Why? Treasury will be borrowing money to buy assets, many of which do 
have value and are generating income. Most of the whole mortgages which 
underpin the MBS and CDOs Treasury will purchase have value because 
most Americans are current on their mortgage payments. In fact, 92 
percent of mortgages are performing.
  Any potential cost associated with the program is likely to be offset 
because Treasury can take advantage of our government's low financing 
costs and purchase MBS by borrowing at around 3.5 percent. The 
difference between the rate Treasury borrows funds at and the return on 
MBS will be profit which can be used to help finance the overall 
program.
  Furthermore, like any good investor, the government will be buying 
securities at a relatively low price, likely below the securities' fair 
market value and holding the assets until their price rises.
  The bill also includes a provision intended to protect against 
potential losses by requiring that firms selling troubled assets to the 
government provide warrants or senior debt instruments. The warrants 
would give the Treasury the right to buy stock in the future at a fixed 
price.
  In fact, warrants were issued to the federal government as part of 
previous deals to provide lending to both Chrysler and America West 
Airlines, AWA. According to CBO, ``AWA partially compensated the 
government for the loan guarantee by giving it warrants to buy as many 
as 18.8 million shares of the company's Class B common stock at an 
exercise price of $3 per share--the strike price--for a term of 10 
years. Those warrants increase in value with the market price of AWA 
stock and thus provide the government with additional compensation if 
its guarantee allows the company to return to profitability. Similarly, 
Chrysler issued warrants to the government to purchase up to 14.4 
million shares of Chrysler's common stock, also with a term of 10 
years.''
  The Federal Government lost $85 million and $256 million on America 
West and Chrysler's actual loan guarantees, respectively. However, the 
warrants gained in value making the Federal Government $80 million and 
$119 million, respectively ultimately reducing the overall cost of both 
loans to the taxpayer.
  One final element of the plan protecting taxpayers requires that in 5 
years, the President submit a proposal to Congress to recoup any 
projected taxpayer losses from those in the financial services industry 
that benefit from the program.
  So as a result of these protections every dime we get back from asset

[[Page 23814]]

sales, warrants or future recoupment will go to debt reduction.
  Mr. KERRY. Mr. President, to protect and defend the economic health 
of our Nation and the security of the systems on which our prosperity 
depends, I am pleased that the Senate passed the Emergency Economic 
Stabilization Act last night. I call upon my colleagues in the House of 
Representatives to pass this legislation as soon as possible because I 
believe it will help restore confidence in our capital markets and our 
financial institutions. It will help our Nation avert serious economic 
dislocation that could have been the cost of inaction
  I want to take this opportunity to thank Majority Leader Reid, Senate 
Banking Committee Chairman Dodd and Senate Finance Committee Chairman 
Baucus for their efforts to include critical modifications to the 
proposed plan by Treasury Secretary Paulson and Federal Reserve 
Chairman Bernanke. This legislation we are considering today includes 
provisions that will protect the taxpayer, limit executive 
compensation, provide critically needed assistance to homeowners, and 
provide strong congressional and judicial review procedures. Without 
their efforts, I do not believe we would have been able to pass this 
critically needed legislation.
  Our Nation is facing its greatest economic crisis since the Great 
Depression. A series of financial institution failures and frozen 
credit markets have imperiled our economy. We need to take immediate 
action to restore confidence and help stop this threat and stabilize 
our financial system.
  Every American family is concerned about the economic situation we 
face. They are already facing rising gas prices, food prices, health 
care costs and college tuition. Many are wondering: How will bailing 
out Wall Street firms help me? The answer is we have to bail out Wall 
Street to protect Main Street.
  This will not be done without great expense to the taxpayers. 
However, I strongly believe that taking quick and decisive action is 
not only our best option it may be our only option. As we consider this 
extraordinary commitment on the part of the American taxpayer, we have 
to ask ourselves: What is the price of inaction?
  The ripple effect of the collapse of Wall Street's major financial 
institutions could develop into an economic disaster sweeping across 
the country. The stark reality is that without massive Federal 
assistance, our financial system could collapse. Small businesses would 
be unable to obtain financing and jobs would vanish. Families would be 
unable to borrow for new homes or to send their children to college. 
Retirement funds could plummet. Those are the stakes.
  The Emergency Economic Stabilization Act will provide up to $700 
billion to the Secretary of the Treasury to buy mortgages and other 
assets from financial institutions. Instead of giving all the funds at 
once, as requested by Secretary Paulson, the legislation gives the 
Treasury only $250 billon immediately. The bill requires the President 
to certify that the additional $450 billion are required subject to 
congressional disapproval. It requires the Treasury to modify mortgage 
loans whenever possible to help keep families in their homes. It 
requires companies that sell bad assets to the Government to give 
taxpayers the opportunity to share in their future growth. This will 
help offset the costs of this program. Finally, it includes meaningful 
limits on both executive compensation and ``golden parachutes''. This 
will help insure that not one dime of taxpayer funds will be used to 
pay the salary of CEOs who have abused the public trust and played a 
role in developing the economic crisis we face.
  American families must have confidence that the deposits they have in 
our banks are safe. Thanks to measures put in place during the Great 
Depression, deposits of up to $100,000 are guaranteed by the Federal 
Government. I am pleased this legislation temporarily raises the FDIC 
limit to $250,000. I think it will help small businesses, make our 
banking system more secure, and help restore public confidence in our 
financial system.
  The Emergency Economic Stabilization Act of 2008 also contains an 
important provision that will help hundreds of community banks 
throughout the country. Prior to the Federal Housing Finance Agency 
placing Fannie Mae and Freddie Mac into conservatorship, many banks had 
invested in Fannie Mae and Freddie Mac preferred stock. Unfortunately, 
the value of these shares was essentially eliminated due to the 
Government's action. These investments--standard means for the banking 
industry and the Government-Sponsored enterprises to provide and raise 
capital--have always been viewed as a conservative investment by 
financial institutions.
  These investments provided capital to Fannie and Freddie, and thus 
indirectly benefited the economy by helping Fannie and Freddie provide 
liquidity to the secondary mortgage market. Unfortunately, losses on 
these shares will have significant tax consequences for these banks, 
which will translate into fewer loans being made across the Nation.
  Section 301 of the legislation provides targeted tax relief for all 
banks holding Fannie Mae and Freddie Mac preferred stock by allowing 
institutions to treat the losses on these securities as ordinary losses 
for tax purposes. This temporary change will provide a vital tax 
reduction against ordinary income and preserve a portion of the capital 
lost due to the Government's actions with regards to the Government-
sponsored enterprises.
  The bill is designed to give all banks--especially community banks--
regardless of size or organizational structure, ordinary tax relief for 
these holdings. I encourage the Secretary of the Treasury to work with 
Congress and the banking industry to ensure that all institutions have 
access to this relief.
  We have no guarantee that this program will fix this acute crisis. 
What we do know is that if Government does not step in to provide 
funding, we could hasten an economic meltdown.
  After this plan is enacted into law, we must take bold action to 
revamp our regulatory practices, fix the derivatives market, offer an 
additional economic stimulus for businesses, provide liquidity for 
small businesses and provide real assistance to families bearing the 
weight of the crisis. This will be a long process.
  I believe the moment has come to rethink the trend over the past 
generation toward deregulation of our financial institutions and 
capital markets. You can see it in the excessive use of derivatives to 
manage risk. You can see it in the reckless use of leverage by some 
financial institutions to finance ever riskier and more lucrative 
financial products. You can see it in our housing markets, where the 
concept of risk became our greatest undervalued asset. You can see it 
in the failure to require Fannie Mae and Freddie Mac to set aside the 
appropriate capital reserves. You can see it in the outrageous salaries 
that so many CEOs of troubled companies have earned in recent years 
which can be tied directly to the strategies they adopted that showed 
no respect for the risks they were taking with other people's money or 
to our Nation's economic future.
  This was a perfect storm: irresponsible lending, irresponsible 
borrowing and a lack of basic oversight and effective regulation put 
millions of families in homes they could not afford. Too many Americans 
took unreasonable risks to buy a home when markets were booming. Too 
many financial institutions lowered their lending standards but didn't 
plan appropriately for increased risk. At the same time, some borrowers 
inflated their incomes and misrepresented themselves in order to buy 
expensive homes that they could not afford.
  In 1994, I supported the Home Ownership and Equity Protection Act 
which gave the Federal Reserve the authority to prohibit unfair and 
deceptive lending practices. It took the Federal Reserve 14 years to 
implement regulations to stop abusive and deceptive practices which 
helped cause the housing crisis.
  Since 2000, I have been concerned about predatory lending and have 
supported legislation to stop the excesses

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that these lenders have too often hoodwinked homeowners into accepting. 
It stopped companies from imposing high-cost mortgages, included 
critical consumer disclosures, required creditors to assess the 
consumer's ability to pay, prohibited prepayment fees and penalties. 
This could have stopped many of the excesses we are paying for today 
from occurring in the first place. Unfortunately, this legislation did 
not receive any support from the other side.
  The damage has been staggering. Five million homeowners are either in 
default or in foreclosure and 10,000 more join them in foreclosure 
every day. Some economists warn that the spike in foreclosures could 
lower home values by 30 percent--when even a 10 percent decline takes 
$2 trillion in wealth from American homeowners. The loans financing 
these homes are now frozen on the balance sheets of banks and other 
financial institutions, preventing them from providing new loans. Today 
we are living the consequences: an economy teetering on the edge.
  It is obvious to every American that we need greater regulation of 
our mortgage markets and our lending practices. We must eliminate the 
unfair and deceptive practices that helped cause our current economic 
difficulties immediately.
  Another crucial ingredient in today's crisis is the use of complex 
financial derivatives. These complex financial maneuvers--hidden from 
the view of most Americans--have quietly become a crucial part of 
managing risk in our economy. In May, the Bank for International 
Settlements estimated that the total value of derivative contracts was 
approximately $600 trillion. To put this speculation in context: that 
is 200 times larger than the Federal budget.
  Derivatives are essentially bets on future economic behavior: 
financial contracts which can gain or lose value as the price of some 
underlying commodity, financial indicator or other variable changes. 
Unfortunately their rise to prominence in our economy was not matched 
with an increase in regulation or transparency. Warren Buffett has 
previously called derivatives ``. . . financial weapons of mass 
destruction, carrying dangers that, while now latent, are potentially 
lethal.''
  The continuing uncertainty over derivatives has helped to bring about 
the recent freeze in our credit markets. For example, Bear Stearns was 
deeply involved in the financial derivatives markets. The Federal 
Reserve eventually provided up to $30 billion and convinced JP Morgan 
to purchase Bear Stearns because they feared its sudden collapse would 
produce a tidal wave of defaults around the globe. Also, since Lehman 
Brothers filed for bankruptcy, financial institutions and corporations 
have been unsure how to process and cover its derivatives and credit 
default swaps.
  Congress must consider and pass legislation to reform and manage 
derivatives. We must learn from the current crisis and develop 
safeguards that ensure that the failure of a financial institution 
which holds derivatives does not cause a freeze in our credit markets.
  The housing crisis also triggered a reassessment of other financial 
risks, including leveraged loans taken out by financial institutions to 
increase profits. This approach allows institutions to take much larger 
market positions which increases their profits but also increases their 
risk. In 2004, the Securities and Exchange Commission relaxed capital 
rules for investment banks which allowed these firms to increase their 
risks during good economic times. Unfortunately, some financial 
institutions were reckless in their use of leverage.
  Published reports say Merrill Lynch borrowed an astounding 44 times 
the size of its capital to increase profits. If you borrow 44 times 
your capital and your investments increase only 1 percent you have 
actually made a 44 percent profit. Unfortunately, the reverse is also 
true. Think about it: If you have $1 and you use it to borrow and 
invest $44, common sense tells you that if things go wrong, you will be 
in a world of trouble. Well, that is exactly what happened. These risky 
investments caught up to Merrill Lynch. They were bought out by Bank of 
America after facing bankruptcy earlier this month.
  We need to dramatically increase our oversight of all financial 
institutions and increase capital standards to insure companies like 
Merrill Lynch and Lehman Brothers can never again impact the U.S. 
financial system due to their risky business plans.
  The government sponsored entities, GSEs, particularly Fannie Mae and 
Freddie Mac and the FHA have played a critical role in expanding 
homeownership. However, like too many financial institutions, these 
organizations included subprime mortgage debt in their portfolios but 
didn't plan appropriately for the increased risk they had incurred. The 
Congress and the Bush administration also failed to require Fannie Mae 
and Freddie Mac to increase their capital requirements to adjust to the 
increased risks. As a result, the Bush administration was forced to put 
both Fannie Mae and Freddie Mac into conservatorship earlier this month 
at a cost of approximately $200 billion to the taxpayers.
  Back in 2004, I said that I expressed concern about governance and 
accounting problems at Freddie Mac and that I would support legislation 
that provides for strong, effective supervision and regulation of 
government-sponsored enterprises within a framework that assures their 
safety and soundness. During the 109th Congress, the Bush 
administration blocked the enactment of bipartisan legislation to 
reform Fannie Mae and Freddie Mac.
  Going forward, in order to stop the increasing numbers of 
foreclosures, we need the GSEs to continue their mission, within 
appropriate capital constraints, to help stabilize the mortgage 
markets.
  Executive compensation is another area that we need to address. We 
have all read about the outrageous salaries that many of the CEOs of 
troubled companies have earned over the past few years. Some have 
increased their pay by increasing the risks their companies take. I am 
pleased that Chairman Baucus of the Senate Finance Committee is pushing 
for changes in the Treasury proposal to prevent excessive compensation 
and golden parachutes for executives who sell troubled assets under the 
Treasury program. CEOs, who abused the public trust and played a role 
in developing the current economic crisis and are now asking to be 
bailed out, will not be able to receive severance packages or excessive 
salaries. Taxpayers will not subsidize their excessive salaries.
  When you add it all up, the financial crisis is a result of failures 
over the past generation to provide appropriate regulation and 
supervision of the financial services industry. Over the past 8 years, 
however, what was effectively a trend toward deregulation turned into a 
stampede. The Bush administration and others in Congress have 
consistently railed against oversight and accountability during the 
last 8 years; now taxpayers are forced to clean up this 
administration's mess.
  So I urge my colleagues in the House of Representatives to come 
together to support the Emergency Economic Stabilization Act that will 
help protect our vital national interest in the continued health of our 
economy. Next, we need to come together as a nation to help those who 
have been hurt by the economic crisis and to finally respond to the 
structural problems that have brought us to this point.
  Mr. REED. Mr. President, middle-class families are being squeezed 
financially. They feel that the economy and the Government are just not 
working for them.
  The vast majority of Americans are unhappy with the direction 
President Bush has led us over the last 8 years.
  For most of the last decade there has been far too little oversight 
of the financial marketplace and too little help for the middle class.
  I share that frustration. I have voted time and again for common 
sense tax cuts for the middle class, developing alternative sources of 
energy, like solar and wind power, greater investment in our roads and 
bridges, improving our schools, and expanding health coverage for 
children, new regulations to protect consumers, a responsible end to 
the war in Iraq and a host of other

[[Page 23816]]

important initiatives, but the sad reality is that time and again those 
efforts have been dashed by filibusters and vetoes by the President and 
his allies.
  But as real as that frustration is, the economic situation requires 
us to act swiftly and responsibly.
  The choice now is to act on this bill or watch as this economic 
crisis makes the already difficult economy even worse. If we fail to 
act, there will be more impacts on the lives of an already struggling 
middle class--job losses, pension losses, and an ever harder time 
paying for college.
  That is why we must act, and that is why we must pass this 
legislation.
  When this proposal was first unveiled, it was little more than a 
blank check, and I know the people of Rhode Island were outraged just 
like me.
  But this proposal is vastly different.
  Gone is the blank check.
  In its place there are strong protections for the taxpayers, a 
greater likelihood of success, better oversight, and, most importantly, 
a chance for a return on this investment in stabilizing the economy.
  When the President sent us his blank check, it was clear that we 
needed to make sure we followed the same principle anyone follows when 
they lend money which is that you get paid back. That is why I fought 
and got bipartisan support for a provision that ensures taxpayers do 
not remain exposed to all of the risks of this program by requiring if 
you participate in this taxpayer-funded program, that taxpayers get a 
piece of your future profits through a share in the profit of the 
assisted company.
  This device, known as a warrant, is nothing new, and it can be very 
effective. In fact, in the Chrysler loan guarantee, warrants were used 
and resulted in a profit to the Government and in turn the American 
people. Warrants were also a part of the successful effort to revive 
the airline industry after 9/11. Most recently, Warren Buffett included 
them in his deal with Goldman Sachs last week, as did the FDIC in its 
recent brokering of the purchase of Wachovia by Citibank.
  Warrants allow the taxpayers to get their money back and more if a 
participating company rights itself. In other words, as the company's 
stock goes up--as it should over time--taxpayers get to participate in 
that appreciation and even enjoy a reasonable premium.
  No one will be shocked to learn that the President and Wall Street 
opposed my idea for warrants. But when faced with the simple fact that 
any Wall Street business transaction would exact no less of a price, 
protecting the taxpayer won and the special interests lost.
  There are no guarantees that the assets purchased under this program 
will eventually appreciate, though that is certainly our hope, but at 
the very least warrants help safeguard the taxpayer against losses on 
those assets that underperform.
  It is only right to ensure that the taxpayer not foot the bill for 
this rescue plan because the point of this economic rescue plan is to 
provide liquidity throughout our credit markets, not to line the 
pockets of those looking to make a buck on the backs of the taxpayer.
  We also said ``no'' when it came to the President's proposal to spend 
all these funds with zero oversight and transparency. Now, there is a 
clear requirement that all of these arrangements are transparent and 
above board. Moreover, there will be a panel of outside experts who 
must report to the Congress and the American people on the Treasury 
Secretary's use of these funds and submit a regulatory reform plan in 
January 2009 so we can work on new laws to prevent a similar case of 
market failure. And, we included provisions to ensure that no-bid 
contracts are not awarded, contracting rules are followed, conflicts of 
interest are prevented, and courts have the authority to review any 
questions about this law.
  And, we took a strong first step when it comes to the excessive pay 
of too many executives on Wall Street who got us into this mess. 
Indeed, under this bill, there will be no golden parachutes for those 
executives who helped create this financial crisis. Instead, they will 
see those sweetheart deals go away, and, indeed, the Securities and 
Exchange Commission and the FBI have launched investigations into many 
of these questionable financial transactions.
  Lastly, we should not overlook that this bill also extends a number 
of tax cuts that will generate investments in alternative sources of 
energy and green job creation as well as a tax cut for approximately 
92,000 middle class Rhode Islanders who would otherwise face the 
Alternative Minimum Tax.
  This bill is necessary, but not perfect. It should be stronger when 
it comes to impacting those who got us into this mess, and it should 
contain some of the consumer and investor protections and accounting 
reforms I have called for over the years. There should be more 
resources to prevent foreclosures, not to aid people who took out a 
mortgage they should not have, but to protect the property values and 
stability of those neighborhoods facing a growing number of 
foreclosures.
  If we don't follow up this vote with increased transparency and 
better regulations of the financial marketplace, we could very well 
find ourselves debating another economic rescue package in the not too 
distant future.
  Indeed, I have held eleven hearings over the last year and a half in 
an effort to bring these regulation and accounting issues to the 
attention of my colleagues and the administration. These may have 
seemed like arcane hearings to many, but the reality is those who were 
supposed to enforce the rules of the marketplace and protect the 
economy were asleep at the wheel, or worse, blinded by a misguided 
ideology that over-relies on deregulation. Time and time again, 
witnesses at these hearings said everything was okay or was at least 
manageable. They said we should not have hearings and that less 
oversight and regulation would cure any problems. Now, two of the 
companies that testified don't even exist. The status quo is 
unacceptable, and I am hard at work on legislation to reform oversight 
of Wall Street because the current system failed.
  The bill is prompted by a systematic failure by all the financial 
regulators who turned a blind eye to the problems that had been 
identified well before this crisis erupted.
  Reckless and irresponsible business decisions brought us here, but 
lax oversight and poor risk management by regulators also played a 
starring role.
  No one is happy that we have to act, but we need to act to avoid 
further damage to our economy. The task before us now is to protect 
people's jobs and retirement savings, and do our best to craft a 
solution to the credit crisis that prevents our economy from grinding 
to a halt.
  The question must also be asked: How can we prevent this from 
happening again?
  The administration found that it could no longer control events. 
Instead, events controlled the administration as credit markets have 
stubbornly remained frozen and banks still refuse to lend to each 
other. Small businesses are finding it harder to get credit, as are 
consumers.
  No one takes lightly voting for a $700 billion package, even with 
taxpayer protections I and my colleagues built into it. These 
sophisticated institutions and complex instruments impact very 
concrete, everyday assets, from homes to retirement savings. We must 
act now to protect these important assets.
  Fundamentally, this is about protecting the savings and well-being of 
all Americans and providing access to capital and credit for businesses 
and governments to make investments in our future.
  The Senate has taken the first step and I urge the passage of this 
legislation.
  Mr. ROCKEFELLER. Mr. President, I rise today, at this difficult 
moment in the history of our Nation, as a proud Senator from West 
Virginia--a State whose people know a thing or two about working hard, 
playing by the rules, and protecting and defending the American dream 
in the face of adversity. They believe in looking out for

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one another, and they deserve just that in return from their 
Government.
  For some time now, many West Virginia families have been besieged by 
rising gas prices and increased food and utility bills. Already 
strained paychecks are being stretched to the limit, and families are 
increasingly finding themselves on shaky ground. They know they are one 
illness, one lost job, one accident away from falling into a deep hole. 
People are worried that they are going to lose their homes, they are 
watching their property values decrease as neighbors face foreclosure, 
and they are fearful that this will be the week their job gets cut or 
their retirement plan goes under. This anxiety is not just being felt 
by those who make the minimum wage, it is being felt by everyone in 
every corner of my State. People are angry, and I share that anger.
  I have spent my entire career fighting for West Virginians to have a 
voice and to make sure they don't get the short end of the stick. The 
Putnam County factory worker who relies on their job at the plant, the 
St. Marys High School student who is dreaming of attending college to 
be a teacher, and the thousands of homeowners across the state who are 
entitled to real peace of mind knowing that the house they have been 
paying for every month like clockwork for 20 years will not be taken 
from them.
  As our financial markets have deteriorated, banks have collapsed and 
credit has begun drying up. Small businesses have had a tougher time 
accessing capital to operate and keep workers employed. Even prominent 
American companies such as GE, GM, and Caterpillar are beginning to 
feel this credit crunch. That means less investing in the future, fewer 
plants opening, and--what I fear most--massive layoffs, long 
unemployment lines, and a real run on the banks.
  Just yesterday I was contacted by the president of a midsized West 
Virginia manufacturing company that is feeling the pain of this 
financial crisis. Because of the credit crunch, his customers can't get 
the capital to purchase his products, cutting in to his company's 
sales. Monday's huge drop in the stock market, after the House failed 
to pass a rescue bill, caused his employees' 401(k) plans to lose a 
full year's worth of value in one day. That means his employees would 
have to work one additional year in order to recover the value in their 
retirement plan.
  We all knew the economy was weakening but the magnitude of this 
crisis--watching our financial system crumble--has been shocking. The 
full impact of this disaster is not yet known, but it is safe to say 
this is the most troubling series of financial events I have seen in my 
lifetime.
  In response to this crisis, the President sent the Congress a request 
for a $700 billion blank check--with no details on how the money would 
be spent, no oversight, no regulations for greedy Wall Street bankers, 
and most importantly no protections for taxpayers.
  With my colleagues on both sides of the aisle, I have been working to 
determine the best way forward. I have considered the situation and the 
options very carefully. I have consulted experts in West Virginia and 
elsewhere, and I have concluded that what we face is extremely serious; 
and if we do not take action now, the impact on West Virginia families 
will be devastating.
  We should not be in this situation. The lack of regulation or warning 
by the Bush administration is reprehensible, but the challenge is very 
serious and we must face it together head on. There is no guarantee 
that a rescue plan will stop the bleeding, but we must try.
  From the beginning, I made it very clear that I would only support a 
rescue plan that looked out for the needs of people on Main Street and 
for the taxpayers who work to keep this country strong. The rescue plan 
we have agreed to is designed to help West Virginians get some of the 
financial help and tax relief they need and will need in the difficult 
months ahead. The plan is not perfect and we must do more--but it is an 
important step.
  Six key pieces of the legislation were critical for my support:
  First, the bill mandates that taxpayers share in any future profits 
in order to recoup their funding if at all possible.
  The legislation gives the Treasury Department the authority to take 
warrants or equity in companies that participate, effectively acquiring 
stock in the company. The warrants help reduce the risk to the 
taxpayers. If the price the government pays for the assets is low and 
the banks end up benefiting, the government would own a share of that 
benefit. If the government is unable to recover the money spent by 
Treasury after five years, the President must submit a plan to recover 
the shortfall from the financial services industry.
  Second, the bill establishes an oversight board and an independent 
Inspector General who will watch over the day-to-day operations of the 
Treasury from the inside out.
  I joined some of my Senate colleagues led by the distinguished 
chairman of the Senate Finance Committee, Max Baucus, in calling for 
this IG. The American people deserve the advocacy of a tough, 
independent IG who wakes up every morning with one mission in mind: to 
track the work of the Treasury--in the greatest detail possible--in 
order to hold the officials executing this plan accountable and protect 
taxpayer dollars.
  Third, the bill limits executive pay for failed CEOs who abused the 
public trust, and for continuing or future CEOs whose companies 
participate in the Government rescue.
  It was recently reported that Wall Street's five biggest firms paid 
more than $3 billion in the last 5 years to their top executives while 
they presided over the sale of the subprime loans and securities that 
brought down our financial markets. This is offensive and immoral. 
These are taxpayer dollars--the American people's money--and we cannot 
allow this to continue.
  The legislation limits CEOs and corporate executives from leaving 
companies they drove into bankruptcy with ``golden parachutes''--
especially with taxpayer dollars. The bill cuts the current tax 
deduction on executive pay in half and then charges a 20 percent excise 
tax on any company that gives excessive compensation packages. These 
restrictions were hard fought, and in my view not enough, but if some 
companies or executives find a loophole and try to take advantage of 
taxpayer dollars here, I assure you we will clamp down even further.
  Fourth, the bill provides relief to homeowners who have been caught 
up in the current mortgage crisis and are trying to save their homes.
  The bill starts to address the root of this financial crisis--
foreclosures--not by giving a pass to individuals who took out loans 
they could not afford, but by allowing the Government to renegotiate 
mortgage terms. Two million more foreclosures are projected in the next 
year and it is in everyone's interest to bring that number down, 
keeping more families in their homes and paying off their debts.
  Fifth, the bill raises the FDIC insurance limit temporarily to 
$250,000, providing more liquidity to banks and addressing the current 
crisis of confidence, which is causing people to pull their money out 
of their banks and contributing to the credit crunch.
  This is especially important to small businesses which employ over 50 
percent of our private work force in West Virginia and which rely on 
banks to loan them the necessary capital to make payroll, stock their 
shelves, and invest in new projects and jobs.
  Sixth and lastly, the bill includes very substantial tax relief, so 
that working Americans also get the financial help they need in this 
time of crisis.
  Now 24 million families who can't afford a higher tax bill--including 
86 thousand in West Virginia--will be protected from the Alternative 
Minimum Tax. The parents of almost 80,000 West Virginia children will 
now qualify for an even better child tax credit, and families will get 
help with college costs. Teachers who put out money from their own 
pocket to buy school supplies will get a deduction to help pay them 
back, and companies will get a boost to do more research and 
development and create new jobs.

[[Page 23818]]

  And very importantly--for a secure future on all fronts--the bill 
puts into law a whole host of energy and clean coal provisions: $5 
billion for renewable energy, $1.5 billion for clean coal facilities, 
$1.2 billion for the Black Lung Trust Fund, and an incentive for the 
steel industry fuel, a $20 credit for carbon sequestration, and more 
protection for our coal miners with increased investment in mine rescue 
teams and state-of-the-art mine safety equipment.
  As a Governor of West Virginia during the early 1980s, I saw the 
crippling and damaging effects that the recession had on the people of 
my state. I don't want to see our industries fail, thousands of people 
lose their jobs, or the kind of fear, uncertainty, and hopelessness 
that defined those times.
  Nothing matters more to me than helping West Virginia families hold 
on to their life savings, their jobs, their homes, their retirement, 
and their hopes for the future.
  Failure to act will severely hurt West Virginia families and that is 
a risk I am not willing to take.
  I also want to be clear that there are likely more tough times ahead. 
This plan is intended to prevent an economic catastrophe, but it alone 
will not put us on the path to prosperity.
  We still must turn our attention to broader economic recovery, from 
healthcare, to increased wages, to expanded job opportunities, to major 
public infrastructure investments, to restoring fairness to our tax 
system so that the middle class can once again prosper.
  The people of West Virginia deserve lasting solutions and I will 
fight every day to make sure this happens.


                         timber tax provisions

  Mrs. LINCOLN. Mr. President, I am concerned that this stabilization 
package, which includes0package of business tax incentives, does not 
extend the timber tax provisions that were enacted in sections 15311 
and 15312 of the farm bill and which are scheduled to expire in May 
2009. I and others have long advocated the enactment of provisions that 
would permanently reform the tax rules for timber income. Given budget 
constraints, as part of the farm bill, we established the new rules for 
1 year as a first step. It is important that the provisions not be 
allowed to lapse. Otherwise, our good work could be undone because we 
will revert to the same situation as before in which companies that 
harvest timber are subject to higher tax rates simply because of their 
form of business organization.
  As we consider tax extenders legislation, my specific concern is 
that, by extending a variety of expiring tax provisions until the end 
of 2009 but not extending the timber tax provisions, we may create the 
impression that the timber tax provisions are not likely to be 
extended. Because of this concern, I am interested in learning, from 
the chairman and ranking member of the Finance Committee, about their 
plans for considering an extension of the timber tax provisions.
  Mr. SMITH. Mr. President, I agree with Senator Lincoln. We made good 
progress in enacting the timber tax provisions in the farm bill, but we 
must take the important next step of making the provisions permanent 
or, at the very least, extending them.
  Mrs. MURRAY. Mr. President, I would like to agree with the points 
made by my colleagues. The timber tax provisions are critically 
important to Washington and other States that rely on timber jobs, and 
the provisions must be extended promptly. I have discussed this matter 
with the chairman of the Finance Committee, and he has assured me that 
he will work to extend the provisions early next year.
  Mr. BAUCUS. I am happy to respond to the Senators from Arkansas, 
Oregon, and Washington, whom I have worked with for several years on 
this issue. They and others have persuaded me that the timber tax 
provisions are fair and are important. That is why I strongly supported 
including the provisions in the farm bill.
  That said, I believe that the timber tax provisions are in a 
different category than the extenders that are included in the current 
bill. The extenders in this bill are provisions that have been in the 
Tax Code for some time, and most already have expired. The timber tax 
provisions, in contrast, are new--enacted earlier this year--and, as 
the Senator said, they do not expire until May 2009. In light of that, 
although I strongly support the timber tax provisions, I believe that 
it is better to address them early next year rather than as part of 
this bill. I anticipate that we will be considering tax legislation 
early in the next Congress. I will work with Senator Lincoln, Senator 
Murray, and other interested Senators to see that the timber tax 
provisions are extended.
  Mr. GRASSLEY. I agree with the chairman of the Finance Committee. I 
support the timber tax provisions and believe they should be made 
permanent or at least extended. I also agree with Senator Baucus that 
we have time to consider the matter early next year, and I will work 
with him to pass a timely extension.
  Mr. DODD. Mr. President, I rise to discuss the intent in section 
105(c) of the Emergency Economic Stabilization Act of 2008, 
``Regulatory Modernization Report,'' of the important requirements for 
analysis of regulation of the over-the-counter swaps market and for 
recommendations regarding the enhancement of the clearing and 
settlement of over-the-counter swaps.
  The OTC swaps market is enormous, estimated to be $600 trillion. This 
market is primarily made up of interest rate swaps and Credit default 
swaps. Corporations, banks, insurance companies, GSEs, pension funds, 
State and local governments and endowments all participate in the OTC 
swaps market.
  The OTC swaps market is a ``bilateral contract'' market which does 
not involve an exchange or a clearinghouse. It is directly between two 
parties, which results in each party bearing ``counter party credit 
risk.'' In other words, if one of the two parties goes bankrupt or 
fails to pay, the other party can suffer a complete loss on the 
transaction.
  Since the OTC swaps market has impacts on the financial system, it is 
appropriate and timely to look at it carefully. Some of the largest OTC 
swaps market dealers and market participants have been merged in 
federally arranged transactions into stronger market participants, 
taken into Government conservatorships or receiverships or provided a 
line of credit directly by the Federal Government. These actions were 
taken, in part, because of concerns by Federal authorities about either 
the losses in their OTC swaps books and or the potential cascading 
effect on OTC swaps market if such an entity failed.
  The Treasury Report should look at the OTC swaps market generally and 
the current and potential options for improvements in clearing 
contracts, such as through a Federally licensed clearinghouse, with a 
view to whether it would materially lower credit risk. The Report 
should consider issues such as the processing of confirmations, 
margining, collateral management, market access, transparency in 
pricing, and safety and soundness concerns.
  Mr. President, I want to acknowledge the efforts of the many staff 
members who have labored almost around the clock over the past several 
weeks to help craft this legislation.


                       From the Banking Committee

       Amy Friend, Dean Shahinian, Jonathan Miller, Aaron Klein, 
     Julie Chon, Jenn Fogel-Bublick, Lynsey Graham, Brian 
     Filipowich, Drew Colbert.


           From Senator Gregg's Committee and personal staff

       Denzel McGuire, Jim Hearn, Allison Parent, Christopher 
     Gahan.


                       From the Finance Committee

       Russ Sullivan, Cathy Koch, Mark Prater.


       From Senator Conrad's Budget Committee and Personal Staff

       Mary Naylor, Tom Mahr, Lisa Konwinski, Matt Salomon, John 
     Righter.


                      From the Judiciary Committee

       Bruce Cohen, Kristine Lucius.


                   From the Majority Leader's office

       Bruce King, Mark Wetjen, Gary Myrick, Randy Devalk.


                  From the Republican Leader's office

       Rohit Kumar, Derek Kan.


                 From the Office of Legislative Counsel

       Laura Ayoud, Rob Grant, Didem Nisanci with Senator Reid, 
     David Stoopler with Senator Schumer.

[[Page 23819]]

       Last but not least, our extraordinary Floor Staff, led by 
     Lula Davis and Dave Chiappa.

                          ____________________