[Congressional Record (Bound Edition), Volume 155 (2009), Part 6]
[House]
[Pages 7633-7637]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      THE SUBPRIME HOUSING CRISIS

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 6, 2009, the gentlewoman from Ohio (Ms. Kaptur) is recognized 
for 60 minutes as the designee of the majority leader.
  Ms. KAPTUR. Mr. Speaker, I ask unanimous consent to include 
extraneous material in the Record thereof as I proceed this evening.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentlewoman from Ohio?
  There was no objection.
  Ms. KAPTUR. Mr. Speaker, as our economy continues to oscillate, and 
the world markets with it, it is good to remind ourselves of some 
economic fundamentals so we can fix what ails us. Let us return to the 
opening fact: The proximate cause of America's downturn is the subprime 
housing crisis. It is not abating. Until America addresses that, our 
economy will continue to bleed.
  Washington is obstinately refusing to address that head-on. Six 
thousand six hundred homes enter foreclosure across this country every 
day. That is one home, one family every 13 seconds. Instead, Washington 
seems to still be just picking at the edges of the glaring headlights 
facing us.
  The President today, in the wake of AIG's giving AIG executives 
hundreds and hundreds more millions of dollars, taxpayer dollars, in 
bonuses, has stated the need for overall financial regulatory reform. 
He is right. America needs more than executive bonus reform, however. 
That only represents a wart on a very large elephant, of hundreds of 
billions and, indeed, trillions of dollars irresponsibly managed and 
the burden of resolution being put on our taxpayers, on their children, 
on their grandchildren. The executive and legislative branches of our 
government must dive in and reform this out-of-control financial 
marketplace. The Republic and our citizens deserve no less. The 
question for history is whether this Congress will meet its 
constitutional obligations to protect and defend the Republic.
  It is time that Wall Street and the megabanks saw the writing on the 
wall. Yet they seem hell-bent at resistance. Wall Street's response of 
putting its head in the sand and their hands in our pockets should be 
over. AIG's bonuses are merely the latest sign, like a big canary in 
the mine shaft sign, of Wall Street's high arrogance and its real 
power, I repeat, its real power, over the American people and the 
institutions that govern us. The voices of the people are not being 
fully heard. Wall Street's latest racketeering and ransacking of our 
Republic trumps anything they have done in the past.
  Let us recall the savings and loan debacle back in the 1980s when 
financial institutions dumped $150 billion of their bad debts onto the 
American people, onto their children. It was a huge load. In fact, 
we're still paying it. It became the third largest share of our 
Nation's long-term debt. We're paying for it until today. It gets 
hidden in the overall debt but it's in there. But Wall Street and the 
megabanks had no remorse. They smelled blood. They got away with what 
they did. And they learned something from that fiasco. They were able 
to wash their hands of responsibility. They got away with it.
  They then worked like eager beavers to change the laws of this 
country so that they could do even more. So much more. The savings and 
loan bailout marks the point in time when the largest financial 
institutions in this country figured out that they could push this 
Congress around and the President around, and they were emboldened by 
what they did. And they not only have ever since, and royally, I might 
add, but they have done so at a magnitude that is unprecedented. Who 
knows how deep the hole is this time around? They've already dumped 
$700 billion of their bills already directly on the American people, 
six times more than the last time.
  And on top of that, who knows really what debt the Federal Reserve is 
racking up in its hidden transactions, furiously assembled at its own 
counting house. Those secret transactions merely tell us how far out of 
control our elected representatives have been distanced from the 
government they are sworn to defend against all enemies.
  After the big banks were rewarded 20 years ago by forcing the public 
to pick up their dirty laundry, they enlarged their thievery during the 
1990s with a vengeance. Once most of America's thrift and home loan 
institutions were destroyed along with the savings ethic that had been 
embedded into the law, the megabanks set in place a massive racket to 
exploit and draw down the accumulated savings that were left, you can 
call it equity, of the American people represented in their homes, in 
the housing market. Wall Street and the megabanks accomplished their

[[Page 7634]]

goal. They drew down huge sums of equity from homeowners through scheme 
after conceivable scheme. Yes, they sucked out the value of what 
homeowners actually owned, not owed but owned, in their homes. Their 
schemes were masterful and they were morally wrong.
  Look in neighborhood after neighborhood in this country. I bet your 
property values have come down. If you're not losing your home, you've 
been impacted by it. Your equity has been lessened. They got to you 
too. They got to almost every single household in this country.

                              {time}  1745

  How did they do it? They had millions of schemes. Take widows' loans, 
widow, w-i-d-o-w. This was the rotten racket by which Wall Street's 
sharp-pencil boys preyed on grief-stricken women who had just lost 
their husbands, unethical moneymen at white-shoe Wall Street 
institutions like Citigroup, through its CitiFinancial, no less, 
drilled into that segment of the market for every penny they could 
exact.
  They promised widows--and they followed the obituaries to find them--
they promised widows that now that their husbands were gone, they 
needn't worry about their finances into the future. Just sign on the 
dotted line and an equity bonanza would be yielded to that widow.
  They failed to mention that in a few years the widow's mortgage 
payments would more than double. But who was to worry? Tragic, yes, but 
true. Did it happen, yes, over and over and over again.
  And those who worked for CitiFinancial across this Nation, and I am 
sure some are listening this evening, some refused to do that. They 
left their firms or they were terminated, but others did it.
  And every time they did it, they got a bonus on that widow's 
refinancing. I can't imagine how those people can sleep at night. 
That's how they made their money.
  Congress needs to hear from those widows. I know they are out there. 
What happened to them, in my opinion, was criminal.
  So the subprime housing implosion is the proximate cause of our 
downturn. But I have a question, why is our government not fully using 
the normal institutions that could resolve the crisis on the books of 
the financial institutions involved, the FDIC, the Federal Deposit 
Insurance Corporation and the Securities and Exchange Commission. Why 
aren't we?
  Last week we heard from the former chair of the Federal Deposit 
Insurance Corporation who served both Republican and Democratic 
Presidents back in the 1980s, Mr. William Isaac, who is published in 
Investment Dealers' Digest this week, an article I am going to quote 
from. He essentially resolved and successfully resolved over 3,000 
insolvent banks back in the 1980s.
  Every bank in Texas went down but one. Continental Bank of Illinois 
went down. He resolved those without a cost to the public. His answer 
to what we face is follows, a four-point alternative to the bailout 
bill. Implement a program that would ease the fears of depositors and 
other general creditors of banks. You do that through the FDIC and the 
Securities and Exchange Commission.
  No. 2, you reinstitute restrictions on short sellers. You do that 
through legislation or the SEC could do that. They haven't.
  No. 3, you could suspend or alter substantially mark-to-market 
accounting which has contributed to mightily to our current problems by 
marking assets to unrealistic fire-sale prices. We could authorize a 
net worth certificate program, that authority still exists. FDIC needs 
to use it.
  We could settle the financial markets, he says, without significant 
expense to taxpayers. This would leave $700 billion of dry powder we 
could put to work in targeted tax incentives, if needed, to get the 
economy moving again.
  But why hasn't Washington done what he suggests? Perhaps it's because 
the megabanks and their Wall Street patrons relish the world of greed 
in which they float. And, frankly, they have worked very hard and spent 
billions in lobbying fees and campaign contributions to set up the 
world just the way they like it, and they have been rewarded 
handsomely. They are still being rewarded very handsomely.
  They don't want to lose their grip. After all, they have figured it 
all out. From every angle, they know even that congressional elections 
are cheap. They are now the largest contributors, Wall Street, that is, 
to congressional elections and Presidential races. They figure about $3 
million a seat in here and a few hundred million for a President. You 
add those all up, it doesn't even equal what we put in to the AIG 
bailout for the entire Congress of the United States.
  The castle that Wall Street built, and which it is defending now at 
all costs, was built at the price of great harm to this republic. I 
believe that the situation can right itself, but it will take the 
American people taking back their power through us, those that they 
elect.
  The situation we face did not happen overnight. As I stated, it grew 
out of the savings and loan crisis. And let's look back at the late 
1980s and 1990s, in the 1990s, activities began and a plan was set in 
place by Wall Street and the largest money-center banks, and I will 
name them, JPMorgan Chase, Citigroup, Bank of America, HSBC, Wachovia 
and Wells Fargo--Wells Fargo and Bank of America down in Charlotte--to 
overleverage our U.S. housing market through such schemes as mortgage-
backed securities and home-equity loans to make extraordinary profits 
and enrich executives, boards and their shareholders. We know some of 
their names, but it's amazing how they can avoid the public limelight.
  The net result of their combined actions has been to indebt our 
Nation on the private side with our families and ultimately shift the 
cost of what they have done, their excesses, to the public realm.
  The Wall Street and Wall Street-related institutions lobbied to 
change Federal laws, along with executive actions, that aided and 
abetted their plan. In 1994, the Riegle-Neal Interstate Banking and 
Branching Efficiency Act was passed into law with Congress hastening 
bank mergers, resulting in the further concentration of financial power 
in money center banks, most often leading to Wall Street.
  And in local communities across this country, what happened was banks 
that had been headquartered in towns and cities began to disappear, as 
they were gobbled up by money center banks far from home. And 
communities across this country became derivative money centers of a 
headquartered bank a very long way home. Think about where you live. 
Think about what happened in your community.
  With the passage of the Riegle-Neal bill, what changed was this, the 
traditional concept of community banking where residential lending took 
the form of a loan which was made on the time-tested standards of 
character, collateral and collectability, was transformed into a bond 
and then security, which was broken into pieces and then sold into, 
ultimately, the international market, where you can't even find it, 
largely through Wall Street dealers. Essentially, collateral was 
overvalued, the value of the house became overvalued.
  Risk was masked and proper underwriting and oversight of the loans 
was dispensed with. Thus began the silent eroding of our Nation's 
community banks. They are not all gone, but they are fewer, and they 
are burdened unfairly by the economy Wall Street-money centered banks 
have delivered to them and us.
  In addition, in the years of 1993 and 1994, there were changes made 
at the Department of Housing and Urban Development that removed normal 
underwriting standards. For example, HUD's mortgage letter, 93-2, 
``Mandatory Direct Endorsement Processing,'' gave authority to home 
builder-owned lenders bye like KB Mortgage and affiliate lenders like 
Countrywide to independently approve their own loans.

[[Page 7635]]

  Then in 1994, HUD mortgage letter 94-54 allowed lenders to select 
their own appraisers. How do you like that?
  Secretary of HUD Henry Cisneros, upon departure from the Department 
of Housing and Urban Development, became a KB Home board member as well 
as a Countrywide board member. So as a public servant of the highest 
order, with the trust of the President and all those at HUD, Mr. 
Cisneros appears to have leveraged his position to his own benefit. Of 
course, appearances can be deceptive, and sometimes appearances are 
spot on.
  Continuing on, Mr. Speaker, in 1995 Congress passed, over my 
objection, the Private Securities Litigation Reform Act. This bill was 
the only bill ever passed by Congress over a Clinton veto, and it was 
part of Newt Gingrich's Contract with America. This law made securities 
class action lawsuits more difficult.
  In fact, Representative Ed Markey of Massachusetts offered an 
amendment to that bill that would have made those that sold derivatives 
still subject to class actions. But his amendment was not accepted, and 
it never passed.
  Back in those days, I can remember when the Securities and Exchange 
chair, Brooksley Born, made public statements talking about the 
necessity to regulate the derivatives market, what she saw happening. 
She was forced out of the SEC. I nominate her for a gold medal.
  In 1999 Gramm-Leach-Bliley Act passed Congress, and for the first 
time since the 1930s removed the regulatory barriers that existed 
between banks and insurance and real estate and commerce. It was like 
all the rules were thrown out.
  Insurance companies got into derivatives, securities houses got into 
housing and real estate, America's banking system was turned inside 
out. Over the next several years, the fury of an inflating housing 
market and mergers of financial institutions increased.
  To illustrate the general pattern of behavior, an interesting case to 
follow is that of investment bank Wasserstein Perella of New York and 
Chicago. It wasn't the largest, but one can follow and track it.
  In 2001, at the height of the mortgage bubble, it merged with 
Dresdner Bank of Germany, taking with it volumes of U.S. subprime 
paper. Today, Dresdner, which is the second largest bank in Germany, 
has been victimized by the subprime crisis and has been put up for 
sale. It is likely being acquired by Commerzbank in Germany, which is 
owned by their largest insurance group, Allianz Insurance Group of 
Germany. They have the same kinds of insurance problems as we do.
  The question is, on behalf of which institutions did Wasserstein 
Perella move the subprime paper? Equally interesting is, effective June 
5, 2008, last year, Dresdner Kleinwort Wasserstein Securities was 
listed on Federal Reserve Bank of New York's private government 
securities dealers' list. They are right on the inside. They are more 
on the inside than my neighbors are back in Ohio where 10 percent of 
our homes have been foreclosed. This means a foreign institution with 
severe financial problems is brought under the umbrella of the U.S. 
Federal Reserve.
  In fact, if you review the list of troubled money center banks, most 
of them are now listed on the preferred primary dealers' list at the 
Federal Reserve. The Fed is starting to look like the encampment of the 
most culpable.
  This brings me back to AIG. This weekend, AIG grudgingly released the 
names of the banks that they had to pay related to the credit default 
swaps on securities that failed. So AIG had to pay on those failures.
  Who did they pay with taxpayer dollars that bailed them out and 
continued to bail them out over and over to a level of $176 billion and 
beyond?
  You know the No. 1 company? As of Monday this week, Goldman Sachs. 
Well, they got $12.9 billion, Goldman Sachs. That's where the last two 
Secretaries of the Treasury have come from, both in Democratic and 
Republican administrations. We have a new Secretary of Treasury now who 
came from the New York Federal Reserve.
  I will insert in the Record the The New York Times article by Mary 
Williams Walsh.

             [From the New York Times, Washington Edition]

                 Firms to Which It Paid Taxpayer Money


                          Tracking the bailout

      Foreign and U.S. Banks Were Given Billions Against Bad Debt

                        (By Mary Williams Walsh)

       Amid rising pressure from Congress and taxpayers, the 
     American International Group on Sunday released the names of 
     dozens of financial institutions that benefited from the 
     Federal Reserve's decision last fall to save the giant 
     insurer from collapse with a huge rescue loan.
       Financial companies that received multibillion-dollar 
     payments owed by A.I.G. include Goldman Sachs ($12.9 
     billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 
     billion), Citigroup ($2.3 billion) and Wachovia ($1.5 
     billion).
       Big foreign banks also received large, sums from the 
     rescue, including Societe Generale of France and Deutsche 
     Bank of Germany, which each received nearly $12 billion; 
     Barclays of Britain ($8.5 billion); and UBS of Switzerland 
     ($5 billion).
       A.I.G. also named the 20 largest states, starting with 
     California, that stood to lose billions last fall because 
     A.I.G. was holding money they had raised with bond sales.
       In total, A.I.G. named nearly 80 companies and 
     municipalities that benefited most from the Fed rescue, 
     though many more that received smaller payments were left 
     out.
       The list, long sought by lawmakers, was released a day 
     after the disclosure that A.I.G. was paying out hundreds of 
     millions of dollars in bonuses to executives at the A.I.G. 
     division where the company's crisis originated. That drew 
     anger from Democratic and Republican lawmakers alike on 
     Sunday and left the Obama administration scrambling to 
     distance itself from A.I.G.
       ``There are a lot of terrible things that have happened in 
     the last 18 months, but what's happened at A.I.G. is the most 
     outrageous,'' Lawrence H. Summers, an economic adviser to 
     President Obama who was Treasury secretary in the Clinton 
     administration, said Sunday on ``This Week'' on ABC. He said 
     the administration had determined that it could not stop the 
     bonuses.
       But some members of Congress expressed outrage over the 
     bonuses. Representative Elijah E. Cummings, a Democrat of 
     Maryland who had demanded more information about the bonuses 
     last December, accused the company's chief executive, Edward 
     M. Liddy, of rewarding reckless business practices.
       ``A.I.G. has been trying to play the American people for 
     fools by giving nearly $1 billion in bonuses by the name of 
     retention payments,'' Mr. Cummings said on Sunday. ``These 
     payments are nothing but a reward for obvious failure, and it 
     is an egregious offense to have the American taxpayers foot 
     the bill.''
       An A.I.G. spokeswoman said Sunday that the company would 
     not identify the recipients of these bonuses, citing privacy 
     obligations.
       Ever since the insurer's rescue began, with the Fed's $85 
     billion emergency loan last fall, there have been demands for 
     a full public accounting of how the money was used. The 
     taxpayer assistance has now grown to $170 billion, and the 
     government owns nearly 80 percent of the company.
       But the insurance giant has refused until now to disclose 
     the names of its trading partners, or the amounts they 
     received, citing business confidentiality.
       A.I.G. finally relented after consulting with the companies 
     that received the government support. The company's chief 
     executive, Edward M. Liddy, said in a statement on Sunday: 
     ``Our decision to disclose these transactions was made 
     following conversations with the counterparties and the 
     recognition of the extraordinarily nature of these 
     transactions.''
       Still, the disclosure is not likely to calm the ire aimed 
     at the company and its trading partners.
       The Fed chairman, Ben S. Bernanke, appearing on ``60 
     Minutes'' on CBS on Sunday night, said: ``Of all the events 
     and all of the things we've done in the last 18 months, the 
     single one that makes me the angriest, that gives me the most 
     angst, is the intervention with A.I.G.''
       He went on: ``Here was a company that made all kinds of 
     unconscionable bets. Then, when those bets went wrong, they 
     had a--we had a situation where the failure of that company 
     would have brought down the financial system.''
       In deciding to. rescue A.I.G., The government worried that 
     if it did not bail out the company, its collapse could lead 
     to a cascading chain reaction of losses, jeopardizing the 
     stability of the worldwide financial system.
       The list released by A.I.G. on Sunday, detailing payments 
     made between September and December of last year, could 
     bolster that justification by illustrating the breadth of 
     losses that might have occurred had A.I.G. been allowed to 
     fail. Some of the companies, like Goldman Sachs and Societe 
     Generale, had exposure mainly through A.I.G.'s derivatives 
     program. Others, though, like Barclays

[[Page 7636]]

     and Citigroup, stood to lose mainly because they were 
     customers of A.I.G.'s securities-lending program, which does 
     not involve derivatives.
       But taxpayers may have a hard time accepting that so many 
     marquee financial companies--including some American banks 
     that received separate government help and others based 
     overseas--benefiting from government money.
       The outrage that has been aimed at A.I.G. could complicate 
     the Obama administration's ability to persuade Congress to 
     authorize future bailouts.
       Patience with the company's silence began to run out this 
     month after it disclosed the largest loss in United States 
     history and had to get a new round of government support. 
     Members of Congress demanded in two hearings to know who was 
     benefiting from the bailout and threatened to vote against 
     future bailouts for anybody if they did not get the 
     information.
       ``A.I.G.'s trading partners were not innocent victims 
     here,'' said Senator Christopher J. Dodd, the Connecticut 
     Democrat who presided over one recent hearing. ``They were 
     sophisticated investors who took enormous, irresponsible 
     risks.''
       The anger peaked over the weekend when correspondence 
     surfaced showing that A.I.G. was on the brink of paying rich 
     bonuses to executives who had dealt in the derivative 
     contracts at the center of A.I.G's troubles.
       Representative Barney Frank, Democrat of Massachusetts and 
     chairman of the House Financial Services Committee, 
     implicitly questioned the Treasury Department's judgment 
     about the whether the bonuses were binding.
       ``We need to find out whether these bonuses are legally 
     recoverable,'' Mr. Frank said in an interview Sunday on Fox 
     News.
       Many of the institutions that received the Fed payments 
     were owed money by A.I.G. because they had bought its credit 
     derivatives--in essence, a type of insurance intended to 
     protect buyers should their investments turn sour.
       As it turned out, many of their investments did sour, 
     because they were linked to subprime mortgages and other 
     shaky loans. But A.I.G. was suddenly unable to honor its 
     promises last fall, leaving its trading partners exposed to 
     potentially big losses.
       When A.I.G. received its first rescue loan of $85 billion 
     from the Fed, in September, it forwarded about $22 billion to 
     the companies holding its shakiest derivatives contracts. 
     Those contracts required large collateral payments if 
     A.I.G.'s credit was downgraded, as it was that month.
       Among the beneficiaries of the government rescue were Wall 
     Street firms, like Goldman Sachs, JPMorgan and Merrill Lynch 
     that had argued in the past that derivatives were valuable 
     risk-management tools that skilled investors could use wisely 
     without any intervention from federal regulators. Initiatives 
     to regulate financial derivatives were beaten back during the 
     administrations of Presidents Bill Clinton and George W. 
     Bush.
       Goldman Sachs had said in the past that its exposure to 
     A.I.G.'s financial trouble was ``immaterial.'' A Goldman 
     Sachs representative was not reachable on Sunday to address 
     whether that characterization still held. When asked about 
     its exposure to A.I.G. in the past, Goldman Sachs has said 
     that it used hedging strategies with other investments to 
     reduce its exposure.
       Until last fall's liquidity squeeze; A.I.G. officials also 
     dismissed those who questioned its derivatives operation, 
     saying losses were out of the question.

                       Beneficiaries of a Rescue

       The American International Group on Sunday released the 
     names of financial institutions that benefited last fall when 
     the Federal Reserve saved it from collapse with an $85 
     billion rescue loan. The Fed paid A.I.G.'s obligations to the 
     following companies, among others:

------------------------------------------------------------------------
                                                           Amount (in
                      Institution                           billions)
------------------------------------------------------------------------
Goldman Sachs.........................................             $12.9
Societe Generale......................................              11.9
Deutsche Bank.........................................              11.8
Barclays..............................................               8.5
Merrill Lynch.........................................               6.8
Bank of America.......................................               5.2
UBS...................................................               5.0
BNP Paribas...........................................               4.9
HSBC..................................................               3.5
Citigroup.............................................               2.3
Calyon................................................               2.3
Dresdner Kleinwort....................................               2.2
Wachovia..............................................               1.5
ING...................................................               1.5
Morgan Stanley........................................               1.2
Bank of Montreal......................................               1.1
------------------------------------------------------------------------

  But it's very interesting which firms get special treatment. Several 
of the AIG infusions of money that came from the U.S. taxpayers are 
foreign based. Societe Generale of France, $12 billion; Deutsche Bank 
of Germany, $12 billion; Barclays of Britain, $8.5 billion; UBS of 
Switzerland, $5 billion; Dresdner, $2.2 billion; foreign banks paid 
with U.S. taxpayer dollars?
  The American taxpayers are becoming the insurance company for Wall 
Street and global banks. Think about that one.
  There is simply no way for us to pay our way out of this, because 
without mark-to-market accounting being engaged, that is destroying 
more capital inside these banks than we can possibly make up for with 
the debt we are assuming as the risk is passed on to the American 
people.

                              {time}  1800

  Besides Goldman Sachs in our country, Merrill Lynch got $6.8 billion 
through AIG; Bank of America, $5.2 billion; Citigroup, $2.3 billion; 
Wachovia, $12.5 billion. All banks are receiving TARP funds, too. So 
it's almost like double dipping into taxpayer dollars. Oh, my, is it 
time for major reform.
  Mr. Speaker, this past week Congress took some steps forward toward 
real reform, and I'd like to highlight a couple of them and thank those 
who made them possible. I'd like to begin by thanking House Financial 
Services Committee Chairman Barney Frank for not only permitting, but 
attending the Subcommittee on Capital Markets, Insurance, and 
Government Sponsored Enterprises hearing on mark-to-market accounting. 
This is the bullseye at the center of the target.
  In addition, I wish to extend my gratitude for his leadership to the 
chairman of that Committee, Representative Paul Kanjorski, and the 
ranking member, Representative Scott Garrett, whose opposition to the 
Wall Street bailout is as strong as mine, for allowing me to 
participate in that hearing although I am not on that subcommittee.
  I'd also like to congratulate the staff on the subcommittee for a job 
well done. This hearing was informative on many levels. It is clear 
that reform of the mark-to-market system is a bipartisan issue. 
Congress surely would prefer that the industry itself privately, 
through the Federal Accounting Standards Board, make the necessary 
changes to properly account for and subsequently protect institutions. 
But that appears to be log jammed.
  Though not an easy task, time and time again in the hearing the 
Federal Accounting Standards Board, the Securities and Exchange 
Commission, and the Office of the Comptroller of the Currency in the 
Department of the Treasury were told to take action or Congress would 
take action. I hope that they listen, too, because I know my colleagues 
can take action, and they surely must.
  Three weeks was given as the timeline for FASB and its collaborators 
to take action. Chairman Kanjorski already has a hearing date blocked 
out for the week we return from our April break to follow up as 
necessary. I thank him for that.
  Congress is, for now, expecting and hoping that those who are in 
charge of regulation will do so, so we do not have to. They, together, 
are the experts, and should see to the necessity for making these 
improvements.
  All in all, his hearing was a very good one. I commend it to those 
who are listening to look at that Record. We heard excellent testimony 
from not one, but two panels of experts and people in the field. Yet, 
for me, and some other Members, the day's work was not complete yet, 
even though the last votes of the week had been cast.
  This takes me to my second round of thank-you's. After Representative 
Kanjorski's hearing ended, multiple members attended an informational 
briefing in the Capitol with the two former Chairmen of the Federal 
Deposit Insurance Corporation who helped America dig out from that big 
hole of the 1980s and that last banking crisis so we could learn from 
their experience.
  These crises were far larger than what we faced at the beginning of 
this one, but this one has been mishandled, and every day it gets 
worse. So we have much to learn from them. Yet, lack of appropriate 
resolution to date in our current situation made their appearance even 
more important.
  I wish to thank Majority Leader Steny Hoyer for his interest in this 
discussion, and I wish to thank Mr. William Seidman and Mr. William 
Isaac for traveling here to the Capitol to share their experiences, 
these two amazing Americans who have so much to say, and we thank them 
for their records as senior statesmen and as successful regulators who 
actually did

[[Page 7637]]

something right to stabilize our ship of State when it was so 
desperately needed. We need to hear their voices more.
  Tonight, however, I am moderated in my optimism because of those 
meetings last week and because of Treasury's actions toward AIG. And I 
want to place on the record some of the following. AIG was the largest 
insurance company in our country. It collapsed last September due to 
its mega involvement in insuring mortgage-backed securities.
  Prudent lending has been thrown out the window for a very long time, 
and basically the system that has been set up has taken the individual 
mortgage loan--let's say this is your mortgage that was arranged at 
your local lending institution--and what happened across our country in 
the past was that when you would go to a bank and you would get a 
mortgage locally, you might have deposits in that bank, and the bank 
could only loan 10 times more than the level of deposits in that 
institution.
  A system was set up in our country where, when you took the loan out, 
that loan was purchased. Usually it went to the Federal Housing 
Administration or the Federal National Mortgage Association here. But 
it had never really been taken into the international market.
  What they did under this new system was rather than having the 10 to 
1 lending ratio to capital deposit, what Wall Street did is it had a 
ratio of 1 to 100. It took $1 and it turned it into $100--10 times more 
than ever had been done in history--terribly imprudent, terribly 
irresponsible, terribly high risk--and they leveraged the whole 
Republic.
  Mortgage firms will tell you that often the value of your mortgage, 
the underlying value of your home, was really too small for their 
tastes. If your house was only worth $50,000 or $100,000, or even 
$250,000 for them that is small potatoes. And what they wanted to do 
was figure out a system where they could take lots of mortgage loans. 
And what they did was they took them from all around the country, 
hundreds and hundreds and hundreds of loans, and then they figured out 
what they will do is they will take this mortgage loan, all these 
mortgage loans, and what they did was they sold them together.
  So what they did was they created these instruments where they 
literally put these loans together and then they sent them up the line 
of command, and what Wall Street did, they said, Well, let's see. What 
is that worth? Let's take the risk out of this.
  So what they did was they took all these loans and they cut them up 
into pieces. What they did was they broke the mortgage up into little 
pieces and then they took all of those pieces and they packaged them--
they mixed them all up and they packaged them into a security. Can you 
find your loan?
  All of a sudden, your loan lost its individual character. It's sort 
of like the walnut shell game. Where is your mortgage in here?
  Wall Street cannot unwind the securities that it has now even sold 
into the international market. That's why what's happening is so hard 
to unwind. They bundled some really bad loans where they had poor 
underwriting and poor appraisal practices with very good loans. But 
when they cut them all up, who knows where your loan really is, and the 
prudent oversight at the local level, since your local bank no longer 
really had that loan and you started sending your mortgage check to 
places far away from home, most of which ended up on Wall Street or in 
one of these money center banks. Well, you get the picture.
  Just to make it more interesting, what AIG did was took all those 
cut-up securities and they sold insurance that they called credit-
default swaps on those mortgage-backed securities, and they had to pay 
out on that insurance that was sold as our housing market started to 
deteriorate and mortgages began to fail. But, you know what? They did 
it through an office in London. This just gets more interesting--where 
the meltdown of AIG actually began.
  You see, the insurance market is regulated, but what they did with 
it, with credit-default swaps, that isn't regulated. Nobody was really 
in charge of that. So they hid a lot of this. They hid a lot of what 
was going on and they created almost like a Ponzi scheme. And I have 
been saying to homeowners across the country, If you get a foreclosure 
notice, don't leave your property. Get a lawyer. Because until you 
actually get your own note back, until they piece it back together and 
you get your original loan, how do you know that you have signed a 
legal note?
  What if you have a widow's loan and they cheated you? What if you had 
a predatory loan? Make sure you can get your entire note back, and you 
need legal representation through your Fair Housing offices in order to 
do that.
  The castle that Wall Street built--and which it is defending now at 
all costs because it has made an enormous amount of money. Some people 
have made an enormous amount of money. Some of those houses that 
securitized these loans, half of their profit went to the executives in 
those companies.
  What they have done has been at great price to our Republic. The 
situation we face can right itself if the new President and if the 
leaders of this Congress listen to those Americans who have actually 
resolved serious banking crises before.
  To date, those voices have not been allowed to rise because, in my 
opinion, Wall Street has too much power and they can block, just like 
in football, there's somebody that is the quarterback. They can carry 
that ball right down the field. But not without the blockers being 
there. What is happening is some of these important voices are being 
blocked by those who have enormous power.
  Members of Congress must also remember that we represent our 
constituents and our communities. Their votes got us here and their 
votes can return us or not return us. Congress needs to get in and get 
dirty in solving this problem, just like our predecessors did, and find 
the truth, whatever it takes.
  We saw this begin last week at Representative Kanjorski's hearing. 
Congress needs to do what is right and not what is easy. Congress 
doesn't need to be cowardly. Our Nation and our citizens expect no less 
than what Daniel Webster's quote says right up on that wall, and that 
is ``to do something in our time and generation worthy to be 
remembered.''
  It is far overdue for real banking reform in this country and the 
return of financial power back to the American people.
  Mr. Speaker, I yield back my remaining time.

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