[Congressional Record (Bound Edition), Volume 154 (2008), Part 18]
[Senate]
[Pages 24525-24527]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              THE ECONOMY

  Mr. DORGAN. Mr. President, all of us in this country are nervous and 
very worried about the American economy. This is an economic engine 
that has been the wonder of the world. It has provided so much good for 
so many people, expanding opportunities for jobs and careers, and for 
people to own homes. This is an extraordinary place, this place called 
the United States. We have been through tough times and good times, and 
this turns out to be one of those pretty difficult times for our 
economy. This ship of state has sort of stopped in the water, the 
engine isn't working very well, and we have a lot of trouble.
  Since the first of this year, nearly 2 million people have lost their 
jobs. That sounds like just a statistic, but in a home where one spouse 
had to tell the other that they had lost their job, that is a disaster. 
So almost 2 million people have lost their jobs, and the question is, 
How many more will lose their jobs before we find a way to provide a 
foundation for building this economy back to an economy of strength and 
opportunity once again?
  We are discussing here in the Senate and in the Congress a proposed 
$15 billion bridge loan for the automobile industry. My colleagues have 
been speaking about that, and there are a lot of jobs at stake, so 
there is a lot of passion on both sides of this issue. It appears to me 
that there are somewhere around 3 to 4 million jobs at stake with the 
automobile industry. I think the question is, at this precarious 
moment, teetering on the edge of a cliff with this economy, what would 
it mean if somehow we decide whatever happens will happen and we will 
let it happen, watch it happen, but we won't take action? What would it 
mean if a couple of million American people lost their jobs on top of 
what we have just seen? So I don't think the prospect is for us to sit 
around and be observers. We have to be active. We have to be involved, 
and we have to try to find ways to provide confidence that there will 
be an economic recovery.
  Now, I am concerned about this recession, which is very deep. It is 
devastating to American families who have lost a substantial part of 
their assets and their 401(k)s and their retirement accounts. It is 
devastating to those who have lost their jobs. But I am concerned about 
something else as well: I am concerned about a government and a 
constitution that somehow seems to have invented a completely separate 
approach to governing. And let me describe what I mean. I am perfectly 
understanding of those that need to take and want to take emergency 
action to try to provide opportunities for the recovery of this 
economy. I understand that. I have studied economics. I taught 
economics briefly. I understand, having studied what happened in the 
Great Depression, the need to take aggressive action. But no one, in my 
judgment, has ever suggested that the need to take aggressive action 
should somehow obliterate the requirement for oversight and for 
accountability. But that is exactly what I think is happening today 
with an extraordinary kind of government outside of the regular process 
that we understand government to adopt based on our Constitution.
  Let me describe what I mean and my concern about it. As I look at 
what has happened with bailout funds, rescue funds, all kinds of 
emergency actions, there is about $8.5 trillion in taxpayer funds that 
has now been put at risk. I am not talking billions, I am not talking 
about millions or thousands, I am talking about $8.5 trillion of 
taxpayer funds that appears to me to have been placed at risk. In 
almost all cases, this was done without the consent of the Congress, 
outside of any vote that occurred here in the Congress.
  Now, I am not suggesting that the emergency powers, for example, at 
the Federal Reserve Board that Chairman Bernanke is using--should not 
have been a significant part of this effort to try to create emergency 
measures to address the economic trouble we face. I am not suggesting 
that at all. What I am saying is this: We have people huddled in rooms 
around here for days and days and days talking about what kinds of 
conditions should you put on the proposal of $15 billion that would be 
a bridge loan for the automobile industry, what kinds of tough 
conditions should they be, spell them out, make sure they are there. 
Well, guess what. With almost all of the Wall Street bailout money, 
there are no conditions, no real accountability that I am aware of.
  Nobody was sitting in a room saying: You know what, let's establish 
tough conditions when we open the Fed's window for the first time in 
history for the investment banks to come and get direct lending from 
the Federal Reserve Board. I didn't see any conditions attached to 
that. You go down the list of things, and the Federal Reserve programs 
are $5.55 trillion.
  Now, I am not suggesting the taxpayers are going to lose that money. 
They will perhaps lose some of it for sure, but some of it represents 
mortgages that likely will be good in the long term. The guarantee of 
certain kinds of mortgage securities, the funding for certain 
investment bank operations--you know I am not suggesting all of this is 
going to be lost, but clearly some will be lost. The taxpayers are at 
risk. Did anyone talk about what kinds of conditions should exist for 
that?
  As I said, for a week now there have been people huddling about what 
are the strict and strong conditions you can attach to this $15 
billion. I am in favor of strict and strong conditions to the things we 
do to move money into these circumstances. I am in favor of that. But 
why is it just here? Why not the $5.5 trillion? The FDIC program, $1.5 
trillion, the Treasury Department, $1.1 trillion, $700 billion of which 
is called the Troubled Asset Relief Program--that, by the way, is a 
misnomer.

[[Page 24526]]

That is what the Secretary of the Treasury asked for. He asked for $700 
billion to buy troubled assets from financial firms. The Congress gave 
him the $700 billion. I did not vote for that, but the Congress gave 
him $700 billion, and very quickly he said: Well, that is not what I 
meant. I have changed my mind. We are not going to buy troubled assets, 
we are going to invest in capital in banks. So he promptly put $125 
billion into nine banks--some of which apparently didn't want it--in 
order to, as the Treasury Secretary said, expand lending because the 
credit markets were frozen.
  Well, guess what. That $125 billion called troubled asset relief 
money was put into banks instead as capital investments with no 
requirement at all that they expand lending. The purpose of the 
investment was to expand lending, but there was no requirement that 
they expand lending. Pretty inexplicable to me. But the point is, $700 
billion of this $1.1 trillion is the troubled asset relief fund, and 
then Federal housing has about $300 billion.
  By the way, this has not been easy information to get. Some 
enterprising work by a number of reporters--Bloomberg, for example--was 
first to try to figure out what is out here in terms of liability. What 
are the risks? What are the American taxpayers being asked to assume 
with respect to a burden? The fact is, it was hard to find. And despite 
the promises and pledges of transparency and accountability, it doesn't 
exist. We are told: Well, this is not transparent because it is 
difficult to do that, to tell folks at so-and-so that this company got 
a loan and this company didn't. I don't understand that. The promise of 
transparency was not some sort of tepid promise; it was a promise that 
what was going to be done would be available to be observed by the 
American people. That regrettably has not been the case.
  So the Troubled Asset Relief Program was a program that actually was 
the only portion of this $700 billion that was considered by the 
Congress. Despite the fact that the Secretary of the Treasury wanted 
$700 billion with a three-page piece of legislation, those who worked 
on that did put some conditions, accountability and oversight 
requirements in the legislation. These requirements that have existed 
for the TARP program don't exist for any other program.
  What I suggest we do is this: I am going to introduce legislation 
that would the apply the conditions and other safeguards that exist for 
the TARP program--the Troubled Asset Relief Program--to all of the 
other federal lending activities so that we have tough conditions 
attached to all of these activities and some accountability and 
transparency and oversight.
  It is almost unbelievable to me that we have this massive amount of 
money being moved around with no one--except for the $700 billion--in 
an elective position responsive to the American people. The American 
people, after all, are the ones who assume the risk of all of this--
with no one in an elective position making these judgments.
  This is kind of an extraordinary form of government we are seeing. It 
is one I do not think you read in the Constitution. Again, my criticism 
is not to those who are interested in being active to address an 
economic crisis. I believe you have to be active to address a crisis. 
But I think those who are working now on the auto issue, who are 
insisting on strict conditions, are completely at odds with virtually 
everything else that has been done without conditions or oversight at 
all. That makes no sense to me at all.
  The TARP program has conditions of oversight, accountability, and 
transparency. None of them are applicable to the other portions--which 
is about $7.8 trillion. Is anybody asking why? Is anybody asking why 
should they not be applicable? I am going to introduce legislation that 
would make these same conditions applicable to all these areas. It 
doesn't matter whether it is an open Fed window or some other 
guarantee--we have $7.8 trillion of other guarantees that put the 
taxpayers at risk. In one way or another the American people deserve to 
be able to see what is happening to them.
  I am going to introduce a number of pieces of legislation. One of 
them will be to impose the same conditions and oversight in the 
troubled asset program to all the other programs that exist here. 
Second, I am going to propose a piece of legislation called the 
Financial Reform Commission, creating a high-level commission that 
would report back to the Congress in about 6 months about how we would 
reform our system of finance in this country.
  We can't continue this. The fact is, what happened threw this 
country's economy into the ditch. It caused an enormous wreck. And we 
are going to keep doing it? I don't think so. It has to change. It has 
to be reformed. Some of the largest financial enterprises in this 
country have gotten massive amounts of money, hundreds of billions of 
dollars, but no one has shut the gate, as I described yesterday.
  I come from a rural background where we had cattle and horses. I 
understand about closing the gate. No one has closed the gate here. I 
described yesterday what caused all this--unbelievable reckless 
behavior, unbelievable greed. Lots of interests were making lots of 
money.
  The story the other day was about someone who was in charge of risk 
management for one of the big investment banks. One guy is in charge of 
risk management, the other guy is in charge of trading CDOs--
collateralized debt obligations. The guy in charge of trading CDOs 
didn't have a very difficult time getting his activities through the 
risk manager and they loaded up. Both of them were making over $20 
million a year. Let me say that again--both of them make over $20 
million a year. This company loads up with massive quantities of toxic 
assets.
  Now we are all stuck with the proposition of the Federal Reserve 
Board, the Treasury Department, and others, including the FDIC, trying 
to come to the rescue but coming to the rescue without any notion of 
how you close the gate on that kind of behavior, first of all; and, 
second, what kind of conditions attach to that rescue.
  Again, I say about all this effort today and in the last week about 
imposing conditions on the automobile industry--sign me up. I am for 
that. I am not for using taxpayers' money without substantial 
limitations and conditions. But then why are we standing here with $7.8 
trillion having been put at risk for the American taxpayer with few or 
no conditions, with little or no transparency, with almost no 
accountability, when Treasury comes up and says we will stick $45 
billion into a big financing agency, one of the biggest in the country, 
and, by the way, you don't have to get rid of anybody. Nobody loses his 
job. We don't impose a requirement that you cannot pay big bonuses. We 
will just give you the money.
  The question is, What caused the requirement to give them the money? 
The answer is unbelievable recklessness by people who were greedy, 
making lots and lots of money. Why would you provide money to an 
enterprise of that type without very substantial restrictions and 
conditions attached to that money? That is a question I think the 
Treasury Secretary should answer, the Chairman of the Federal Reserve 
Board should answer. The American people deserve that answer. We need a 
financial reform commission that decides how do we reform this going 
forward.
  Let me tell you about the reform that happened 9 years ago. The 
reform 9 years ago, by the ``smartest guys in the room,'' was: We are 
hopelessly old-fashioned in our finance, hopelessly out of date.
  Leading up to the Great Depression--the 1920s, leading up to the 
1930s--we saw banks that were engaged in very risky enterprises: Real 
estate, securities, a whole series of things that were risky. The 
country plunged into a big old depression, banks closed all over the 
country, and emergency legislation was put together--Glass-Steagall 
among them--that said: You know what. It is nuts to have banks engaged 
in risky enterprises. We are going to separate them, and we are going 
to make sure you can never do it again.

[[Page 24527]]

That is why legislation such as Glass-Steagall was passed. It protected 
that banking system whose not only reality of safety and soundness is 
important, but the perception of safety and soundness is critical, 
because without that perception, a run on the bank can bring a bank 
down.
  We went on after the Great Depression, having separated those kind of 
risk activities from banking. Then, in 1999, Senator Phil Gramm from 
Texas led the effort in the Senate, and the effort was in the House as 
well, to say: This is hopelessly old-fashioned. Are you kidding me? We 
can't create big financial institutions, holding companies that allow 
us to merge investment banks with real banks and get involved in the 
issues of real estate and securities and so on? Let's pass a piece of 
legislation called the Financial Modernization Act and get rid of all 
this obstruction that has been put in place after the Great Depression.
  I wish to put up what I said during the debate in 1999 on the floor 
of the Senate. When the Financial Modernization Act left the Senate, 
the conference report, eight of us voted no. I was one of the eight who 
voted no. Here is what I said in a speech on the floor of the Senate: 
``This bill will also in my judgment raise the likelihood of future 
massive taxpayer bailouts.''
  I am not prescient. I am not someone who can see the future. But I 
believed what we were doing in 1999 was unbelievably ignorant of the 
lessons we should have learned from the Great Depression.
  ``The bill will also in my judgment raise the likelihood of future 
massive taxpayer bailouts,'' I said in May of 1999. I wish I was wrong. 
Nine years later, here we are on the floor of the Senate, and we are 
seeing bailouts in every direction from the Federal Reserve Board, the 
Treasury, and others. I also said during that same debate: ``I say to 
the people who own banks, if you want to gamble, go to Las Vegas.''
  But that wasn't enough. We had a lot of folks who decided, you know 
what, we need to get banking, once again, involved in some of the more 
profitable enterprises such as real estate and securities. We ought to 
be able, they said, to pass a financial modernization act that allows 
the creation of big financial holding companies with a homogenization 
of all kinds of different enterprises under one roof. They said we will 
put up firewalls, apparently firewalls made of balsa wood or paper, but 
we will put up firewalls, and things will be great, and so it passed. 
Only eight of us voted no in the Senate when that conference report 
left.
  Yesterday, I described what happened as a result. It was similar to 
hogs in a corncrib, grunting and shoving and snorting. You heard it for 
a decade, especially in recent years. The most egregious part of it 
started with the subprime loans, but it was also with derivatives and 
credit default swaps. I said this back in 1999:

       If you want to trade in derivatives, God bless you. Do it 
     with your own money. Do not do it through the deposits that 
     are guaranteed by the American people.

  There were four pieces of legislation I introduced during the interim 
going back to 1995 to try to prohibit banks from trading in 
derivatives. Let me put up a chart that shows what has happened with 
derivatives. The top five bailed-out banks: JPMorgan Chase got $25 
billion in bailout funds from the U.S. Government. They have a notional 
value of derivatives of $91.3 trillion. The Bank of America got $15 
billion in bailout funds. They have a $39.7 trillion notional value of 
derivatives. The list goes on. Citigroup, $45 billion in bailout funds, 
$37 trillion in notional value of derivatives.
  This sort of mixes the terms. There is something called credit 
default swaps out there, something over $50 trillion of credit default 
swaps. If someone wants to know what they are, look at the AIG story. 
You will understand what brought them down. It was run by a little 
operation over in London with several hundred people. All this 
represented an unbelievable amount of reckless speculation that should 
never have been allowed to happen. That bill passed the Congress. 
President Clinton signed it. We have people--some of whom will come 
into this new administration--who were supportive of it. I think it was 
a horrible mistake. If we do not recognize it now, even as we are 
trying to dig out of this hole, we are going to head right back to the 
next hole. We need to have the Financial Reform Commission that 
develops the recommendations similar to what happened post-depression 
that will allow us to put together the kind of protections, once again, 
to make sure this will never again happen.
  Let me also say I am going to introduce legislation calling for a 
National Financial Crimes Task Force. There needs to be accountability. 
I am not suggesting all of it is criminal or even a major part of it is 
criminal, but some of it undoubtedly represents criminal behavior. Yet 
there is virtually no investigation going on, on these issues. It is so 
unbelievable. I chaired the hearings in the Senate on the Enron 
Corporation. You remember Enron. That was a criminal enterprise that 
bilked particularly the west coast taxpayers and ratepayers for 
electricity out of billions of dollars. I chaired the hearing when Ken 
Lay, the chairman of Enron, came and lifted his hand to tell the truth 
and then took the fifth amendment.
  Think of this, Enron was a big deal, a big scam and, in part, a 
criminal enterprise. In retrospect, the amount of money involved there 
is minuscule compared to the trillions of dollars we are talking about 
here that resulted from reckless business management and reckless 
practices.
  I talked about derivatives and credit default swaps. I'll just 
mention, once again, the issue of subprime loans, when companies were 
advertising to the American people they should come to their company to 
get a loan, because if you were bankrupt, if you had slow pay, if you 
had bad credit, they wanted you to get a loan with them. In fact, they 
would encourage you to get a loan with them, and you wouldn't have to 
document it. That is called a no doc loan. You don't have to document 
your loan. Come to us, Zoom Credit said, come to us and get a loan. 
Slow pay? Bankruptcy? Troubles? It doesn't matter--come to us. That is 
just an example.
  In fact, yesterday I showed that the largest mortgage banker in the 
country was engaged in the same sort of thing and that has already 
collapsed as well and the guy who ran it got off with a couple hundred 
million dollars, at least as I understand it.
  My time is about up. My interest is in protecting the economy and 
protecting this country and protecting American taxpayers. We need to 
try to give some protection to American jobs and to protect taxpayers 
and that means strong conditions, strong oversight, transparency, and 
accountability. I am for taking emergency action. I am for doing what 
we can to pull this country out of this hole. But we ought not decide 
we are going to impose very strict conditions on this tiny little piece 
and on all the rest of trillions of dollars, it is Katy bar the door; 
whatever happens, happens; and don't complain.
  That is not what the role of the Congress should be. This Congress 
should insist on every dollar that is committed on behalf of the 
American taxpayers that we have accountability, responsibility and 
transparency and strong conditions. That has not been the case to this 
point and I intend to introduce legislation that requires it.
  I yield the floor.

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