[Congressional Record (Bound Edition), Volume 154 (2008), Part 4]
[Senate]
[Pages 4460-4462]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              THE ECONOMY

  Mr. DORGAN. Mr. President, I have come today to talk a bit about the 
economy and where we find ourselves. This week we are going to talk 
about housing.
  The effort we have made in the Senate in the majority party to pass 
emergency housing legislation is very important. I want to put up some 
charts that show what was happening in this country with respect to 
housing and what was happening at least to begin to cause the partial 
collapse we have seen.
  This is an advertisement by a company called Millennia Mortgage. Here 
is what it said to the American people. I don't know this company, but 
they said:

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

  Millennia Mortgage. Come over here and get a mortgage from us. You 
don't have to make a payment for 12 months, they said.
  Here is a company appropriately named. I don't know this company 
either--Zoom Credit. They told the American people:

       Credit approval is just seconds away. Get on the fast track 
     at Zoom Credit. At the speed of light, Zoom Credit will 
     preapprove you for a car loan, a home loan, or a credit card. 
     Even if your credit's in the tank. Zoom Credit is like money 
     in the bank. Zoom Credit specializes in credit repair, debt 
     consolidation, too, bankruptcy, slow credit, no credit--who 
     cares?

  That is what Zoom Credit had to say to the American people.
  Then Countrywide, the country's largest mortgage lender, said:

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

  Just call us; that is not a problem. If you are a bad risk, you don't 
pay your bills, call us. This from the largest mortgage lender in this 
country.
  And then we wonder what happened? What could have caused all of this 
economic trouble? Everyone understands this does not work. Mortgage 
revenue companies advertising: Come to us if you have bad credit; let 
us give you a loan of some type. And by the way, the same companies, in 
many cases, applied what is called predatory lending--high-pressure, 
cold-call telephone sales to people who say: I know you have a 
mortgage, but we will give you a different mortgage. We will give you 
one with a 2-percent interest rate, not telling them it will reset to 7 
percent or 9 percent or, in some cases, more with prepayment penalties. 
And the broker who was able to convince someone to do that got a big 
fat bonus. The mortgage company, well, they got mortgages with big 
interest rates once they reset, and prepayment penalties so the people 
could not get out of them. Then what they were able to do was slice 
them up and put them into--like they did in the old days, like they 
would pack sawdust into sausages for filler--they would take good 
mortgages, bad mortgages, subprime, potentially bad, put them all 
together, slice them up, dice them, and ship them off to a hedge fund 
that buys them--in some cases the mortgage banks had their own mortgage 
sides to purchase these securitized investments--and no one knew what 
was in them. Very much like sausage, I might say. Nobody knew what was 
there.
  Now all of a sudden, they have all of this paper out there and we 
have about 7.2 million families with what are called subprime 
mortgages, an outstanding value of $1.3 trillion. It is estimated that 
2 million families will lose their homes in the next 2 years. By the 
way, 2 million families, that is 5.4 million people who will be 
affected by the loss of their home in the next couple of years.
  We put together legislation to try to address this issue in the 
Senate, and we have had great difficulty moving it. We hope in the next 
day or so we will at least be able to get a motion to proceed.
  It is interesting, when we are talking about trying to help some 
people avoid losing their homes, they say: Well, we don't want to help 
folks such as that. I agree that those who were buying houses for the 
sake of flipping them, making a bunch of money in the bubble of housing 
prices, I am not interested very much in them, but I am very interested 
in someone who was a victim of predatory lending by a bunch of folks 
who were getting rich, making a lot of money and those folks are now 
threatened with losing their house. I am very interested in seeing if 
we can help them a bit.
  It is interesting, the big folks always get help. The Federal Reserve 
Board and the administration, with Treasury Secretary Paulson, have 
rushed in. They arranged for JP Morgan to buy Bear Stearns, a big old 
investment bank. Bear Stearns was worth about $20 billion a couple of 
months ago. It was acquired by JP Morgan for $1.3 billion in the last 
couple of weeks and the Federal Government, through the Federal Reserve 
Board, will put up $29 billion to pick up the risks on the assets. 
Think of that. One investment bank gets a $1.3 billion acquisition of 
another investment bank that was worth $20 billion a couple of weeks 
ago, and

[[Page 4461]]

the Federal taxpayers come in to provide $29 billion as a safety net 
for the risk JP Morgan assumes.
  On top of that, the Fed comes in and says for the first time since 
the Great Depression that they will make direct loans to investment 
banks. They have previously made loans to depository banks over which 
they have regulatory control, but now they will make direct loans to 
investment banks.
  In addition, they will make a $200 billion loan available to Wall 
Street bond dealers. It is kind of a form of no-fault capitalism.
  I don't know whether the Fed and the Bush administration are doing 
the right thing. I don't know. I know we cannot, none of us--the 
administration or the Fed or the Congress--decide to do nothing. We are 
trying to decide on behalf of families who are about to lose homes to 
see if we can't do something to give them some help. Obviously, a lot 
of help has been extended to the Wall Street interests--a lot of help, 
$30 billion, $200 billion, direct lending to investment banks. That is 
a lot of help. But when it comes to the homeowners, well, not so fast; 
let's worry about that, they say.
  The Secretary of the Treasury has made the point that the problem has 
not been the lack of regulation. That has exactly been the problem, 
lack of regulation. We must have some kind of regulatory authority to 
look over the shoulder and watch and see what is happening. But the 
fact is there has been no regulation.
  The fact is the Federal Reserve Board in the Greenspan era, more 
recently Bernanke, and the Bush administration have watched while all 
of these financial engineers have created the most sophisticated of 
securities and devices. The financial engineers created things such as 
derivatives, collateralized debt obligations, called CDOs, credit 
default swaps--$23 trillion of notional values out there in credit 
default swaps--loan syndications, securitization, off-the-balance-sheet 
debt vehicles. It is unbelievable what has been going on, all in the 
name of financial engineering, and while the economy was going up, 
everybody thought they were all geniuses. And now as it is collapsing 
like a house of cards, the Federal Reserve and the head of the Treasury 
Department rush to try to help the big interests. The question is, what 
about the rest of the folks who are getting hurt? There are a lot of 
them. What about the rest?
  I mentioned Bear Stearns was about to go belly up and the Fed and the 
Treasury Department assessed that could not happen because it would 
affect the entire financial system. I don't know whether they are 
right. I know it has become a kind of no-fault capitalism when the 
investment banks can take very big risks, and then when it comes time 
that it does not work out, the taxpayers come in and say: Don't worry, 
we will put up a safety net.
  About 16 months ago, Bear Stearns gave the chairman of Bear Stearns, 
James Cayne, a stock bonus of $14.8 million. The year before, he had 
gotten $30.3 million in compensation. This company that went belly up 
over the last 5 years, the chairman, Mr. Cayne, made $156 million in 
income. Let me say that again. This is a company that went belly up 
because it took risks that were way outside the norm, in my judgment. 
The chairman received $156 million between 2002 and 2006. The CEO, Alan 
Schwartz, received $141 million in income during that same period, and 
the former company president, Warren Spector, $168 million.
  Let me say that again. Three top officials at Bear Stearns, 15, 16 
months ago received very large bonuses, and in the last 5 years 
received the following compensations: $156 million, $141 million, and 
$168 million. This is like hogs in a trough, all except for the 
grunting and shoving, which we cannot yet hear, but we will, I assume. 
It is unbelievable. There is unbelievable greed in this system.
  We are told again by the Secretary of the Treasury that this was not 
the fault of a lack of regulation. Of course, it was the fault of no 
regulation.
  This is from the Wall Street Journal, March 2008:

       A year ago at a Honolulu hotel, the heads of three Federal 
     regulatory agencies charged with guarding the soundness of 
     America's banks delivered this message: We're the ones you 
     want regulating you.

  Essentially telling them, we are going to compete for lax 
regulations. It doesn't matter what you do, we are not going to watch 
very much because we believe in deregulation.
  So we have an unbelievable amount of hedge fund activity that did not 
use to exist in this country. It is now completely deregulated--hedge 
funds involved in derivatives way behind the curtain, and nobody knows 
what is going on; mortgage companies advertising that you ought to get 
a mortgage from them if you have bad credit because they wish to give 
you a mortgage, and then they slice it up in securities and send it 
around the world and no one knows what is in these securities. All of a 
sudden that piece of sausage explodes and we wonder why? It exploded 
because it never made good business sense, and now the American 
taxpayers are going to bail them all out.
  We cannot begin to address this problem unless we understand that 
when the big interests are going to make hundreds of millions, even 
billions of dollars as a result of almost unprecedented greed, there 
needs to be some regulation. That is a fact. Regulation is not a four-
letter word. It is an essential part of good government.
  Long ago, I and others have been on the floor of the Senate talking 
about need for some regulation with respect to hedge funds, but we have 
not been able to get legislation through the Congress. But this is not 
just about regulating hedge funds; it is about the agencies that are 
already empowered to regulate refusing to do their jobs.
  The Secretary of the Treasury today announced a series of steps that 
he portrays as a substantial addressing of the issues that are now 
involved in subprime lending and the other financial difficulties. But 
in many ways, it is moving the boxes around and, it appears to me to be 
deregulation rather than the need for additional regulation and 
additional oversight.
  It is not just in this area of housing, it is not just in the area of 
investment banking or hedge funds. I have mentioned on the floor 
previously that there is unbelievable speculation in a range of areas. 
Oil--the fact is I believe, and there are some experts who believe, 
that the price of oil at the moment is about $30 above where it ought 
to be. Why? Because for the first time hedge funds and investment banks 
are hip deep in the oil futures market, driving up the price of oil, 
having nothing at all to do with the supply and demand of oil. Once 
again, unbelievable speculation. For what purpose? For the purpose of 
unbelievable profitability.
  We have not had investment banks previously buying oil storage 
capability so they can buy oil on the futures market and take it off 
the market and put it in storage and wait until the price goes up. We 
have not had that before. That is the kind of speculation that I think 
is counter to the interests of this country's economy. It is not 
counter to the interests of those who want very large profits, even if 
the rest of the American people have to pay for that unbelievable 
speculation.
  There are some who say, if we can address this issue now, the issue 
of housing, the issue of predatory lending, if we can address the issue 
of investment banks, the issues of some hedge funds, that will all be 
fine. That is not the case either. There are some other underlying 
problems that almost everyone in this world knows but no one is 
interested in doing anything about it. The dollar is losing value 
substantially for a number of reasons, but at least two of those 
reasons are obvious: No. 1, an $800 billion trade deficit; No. 2, the 
$700 billion required additional borrowing this year because of budget 
policy.
  I know the President says the deficit is a projected $410 billion. 
That is not true. Take a look at what our country is going to be 
required to borrow in the coming years--$700 billion. You add an $800 
billion trade deficit to a $700 billion borrowing requirement because 
of a reckless budget policy and you have $1.5 trillion borrowing in 1 
year against a $14 trillion economy. People know that doesn't work.

[[Page 4462]]

  I mean, the fact is, we have to fix this system, and we start, it 
seems to me, this week, with the proposition that if we can deal with 
the housing piece, at least you start trying to help some of the 
American people who really deserve some help at this point in order to 
keep their homes. That is the first piece of legislation on the floor 
of the Senate this week. That is a reasonable thing to do. If this 
Government, at its highest levels, can take billions and tens of 
billions of dollars around Wall Street and say to the Wall Street 
firms, here is $29 billion if you will pay $1.3 billion for a firm that 
used to be worth $20 billion a couple weeks ago--if we can do that and 
assume all that risk on behalf of the American taxpayers for the kind 
of activities on Wall Street that represent, in my judgment, unsound 
business practices and unbelievable speculation, this Congress can 
certainly reach out to home owners across this country to say that we 
want to give them some help. We will see tomorrow or the next day what 
might or might not happen with respect to the willingness of this 
Senate to address this housing issue.

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