[Congressional Record (Bound Edition), Volume 156 (2010), Part 1]
[SENA]
[Pages 861-864]
[From the U.S. Government Publishing Office, www.gpo.gov]




                          BERNANKE NOMINATION

  Ms. CANTWELL. Madam President, I rise to speak on the vote we had 
earlier on the nomination of Ben Bernanke to be the Federal Reserve 
Chairman. While I did not support Mr. Bernanke's reconfirmation to that 
post, I would like to take the time now to talk about that vote and my 
concerns and the challenges I think our country faces moving forward.
  When I look at this issue, I know that not one administration or not 
one Fed Chairman got us into the mess we are in. In fact, it is not 
even to be blamed on one party. What this is about is how we move 
forward with complete transparency and the proper regulation to give 
certainty and predictability to our financial markets. I will do my 
best to represent my constituents with the proper level of oversight on 
these issues, but I heard loudly and clearly from my constituents in 
December that they are, as small business owners, at the end of their 
rope without access to capital and that community banks are not 
lending. So that is where I am spending my time and focus now, in 
urging both the Fed and Treasury to act, without passing legislation 
but act now to get recovery programs specifically working for community 
banks that need access to capital and for those small businesses that 
are the engine of economic growth for our economy.
  While I know many of my colleagues think programs that came out of 
the TARP funding, such as the original TALF Program or even the 
Treasury Secretary's announced program in December, are things that 
have been in the works, I can tell my colleagues that my constituents 
started this debate in earnest with credit default swaps and the 
concern about large banks but are having a hard time, as I am, 
understanding the logic and the strategy that one day closes one of the 
largest banks in America and one of the largest banks in our State, 
Washington Mutual, wiping out 30,000 creditors and basically putting in 
jeopardy the retirement of many employees, and then 4 days later we 
pass a TARP bill. I believe the government picking winners and losers 
at that point in time was the wrong approach, and I advocated for an 
equity program.
  But today my constituents want to know why it is that it was easy to 
figure out how, with loans and assets and the credit activity of the 
Fed, over $1 trillion could be pumped into AIG at 100 cents on the 
dollar and yet small business owners in the State of Washington--and my 
guess is around the country--basically had capital cut from right under 
them.
  When I think about what happened, it breaks my heart. To think about 
a company such as Vancouver's Columbia Gem, where the Bank of Clark 
County was shut down and assets moved over to another bank across the 
river, Umpqua Bank, that received TARP funds. But where was the help 
for the small businesses that had performing lines of credit at that 
bank? What happened to them? I will tell you what happened to them. 
Even though they had performing lines of credit, their funds were cut 
out right from under them. In fact, it forced the owner of that company 
to try to fund the operation of that business out of his own pocket.
  Another business in that area, Beaches Restaurant, immediately their 
line of credit was frozen after the takeover.
  Vancouver Iron and Steel was current on all its loans and even eked 
out a small profit in 2008 and never missed a bank payment. But 
Vancouver Iron immediately lost its $1.5 million line of credit after 
the FDIC took over.
  How is it we can act immediately to save the AIGs but we can't act 
immediately to save companies such as Vancouver Iron and Steel? I 
guarantee Vancouver Iron and Steel was not cooking up dark market 
derivatives, creating credit default swaps that destabilized our 
economy. Nor is Vancouver Iron and Steel continuing to operate 
derivatives in dark markets. No, they have nothing to do with that. 
They are manufacturing product for America and abroad and producing 
jobs. The fact that we continue to make it hard for them to get access 
to capital is one of the reasons why I voted against Mr. Bernanke. The 
Fed Chairman has to realize the urgency with which the big banks have 
been bailed out and saved. That urgency has to be applied to Main 
Street. I know they are trying. I applaud the President for last night 
saying he is going to put forth $30 billion to help with access to 
capital for community banks. I urge him to do that within the 
administration.
  While I am sure my colleagues could give input, to basically spend 
another 2 or 3 months waiting for small businesses to get access 
through community banks, more and more business bankruptcies will 
happen. While that is a program to get right, it is very clear to 
Americans that when we want to act with urgency, this government can 
act and the Fed can act and the Treasury can act to solve these 
problems.
  I urge the Fed now and the Treasury to give consideration to making 
this their No. 1 priority, to get capital to these community banks as 
urgently as possible through an equity program that gives them the 
infusion it will take to get capital back to Main Street.
  There are other reasons why I did not support Mr. Bernanke. As I 
said, this is not one Fed Chairman's problem or one administration's 
problem. This has been caused by policies over the last several 
decades, prior to the repeal of Glass-Steagall, in which we continued 
to say deregulation of these markets was unimportant. The policies at 
the Commodity Futures Trading Commission and other policies that 
allowed for this kind of dark market activity of derivatives to grow 
into an international $56 trillion industry are the policies that have 
brought us to this point. We now have to have the urgency and the 
leadership of everyone involved to think creatively about the urgency 
of getting capital to community banks and small businesses and the 
reforms that must be put in place now, not to check a box, not to say 
we did reform, not to say we are responding to something that has 
happened recently but to move our economy forward with the transparency 
and proper regulation that will provide for international stability.
  When I see from some of the well-known economists and investors 
across the globe that another bubble is forming, that this problem we 
think somehow we have corrected by passing TARP and doing other things 
is going to be alleviated, these individuals are signalling that 
another bubble in the exact same situation could happen again, I want 
to see the Fed and Treasury advocate on the Hill the policies that will 
give us complete transparency and regulation to assure Americans and 
those participating in financial markets around the world that they 
will function with certainty and predictability, that they are not 
going to be inflated with something that has no real value behind it 
such as the credit default schemes or, should I say, naked credit 
default schemes that we are trying to outlaw on the Senate floor.
  I know what has happened with the regulatory reform legislation so 
far that has come through Congress. There have been many attempts to 
water it down. I am not blind to what I think the challenges will be to 
pass this legislation when it comes to the Senate. That is why I want 
to see a Fed Chairman and a Treasury Secretary who are leading the 
charge for the principles of regulatory reform that will correct these 
problems with the markets, not to be for a few policies that might 
sound good, such as: Let's reduce systemic risk--I am for reducing 
systemic risk--or not to say: We want a consumer group. I am for a 
consumer

[[Page 862]]

group. But the heart of this issue is whether we are going to properly 
regulate derivatives, whether we are going to pass a law that says: 
Manipulative devices or contrivances of these markets are a Federal 
crime. Not only will you pay a penalty, you will go to jail.
  I get that many in the markets believe there is no way we can 
possibly control all the new tools and all the new financial terms 
people can come up with to deviate from the standards that are set. But 
I know this: Setting a statute in place and going back to Glass-
Steagall can separate the risk to the taxpayer of having their money 
and their capital used to continue to prop up dark market activities. I 
certainly believe we have to have derivatives regulation. But the 
tactic of now saying we can have that by definition, by saying no 
proprietary trading on these companies, I guarantee you we will be 
debating the meaning of the words ``proprietary trading.'' The 
consequence will be there will be lots of money flowing into dark 
markets.
  I believe in the financial wherewithal to raise capital in America. 
It is one of the greatest things about our country. It is one of the 
greatest things that makes us competitive, the fact that we can create 
capital in such an inspiring way and that we can have, in an 
information age, the kind of public financing of ideas and creativity 
that continues to have us lead the way. But I ask my colleagues to look 
at how many IPOs have been created lately. I ask them to look at how 
much money has gone into the small businesses and community banks 
loaning to small business juxtaposed to the amount of money that has 
gone into derivatives. The truth is, you make more money on 
derivatives. So why would you put your money into investing in IPOs? 
Why would you put your money into the small businesses?
  What is happening is more and more concentration into the large banks 
that then thwart the opportunities for small community banks to truly 
be competitive with them. Then what happens? Less and less capital, 
less and less opportunities for small business or, as I saw recently, 
even the fact that some of the small business newspapers in this 
country haven't been able to get access to capital. They are going to 
end up in the hands of bankers. I don't know if those are big banks or 
small banks, but I know this: Small businesses deserve to have a choice 
of lenders, a diversity of market-size banks, and a Fed chairman who 
will pay attention to that issue. We live in a unique time, created by 
at least two decades of deregulation of markets that are now going to 
create another bubble.
  My vote against the Fed Chairman has to do not with the past but with 
the future, the future prevention of another bubble, of more 
bankruptcies of small businesses, of getting our regulatory policies 
and our transparency of markets in place so the United States can get 
back to both the innovation and job creation but financial markets that 
the United States leads in around the world, that we are not 10 years 
from now seeing the kind of dark market activity around the globe that 
has transpired here. Instead, the United States, as the President says, 
learns from a teachable moment and leads the rest of the world on the 
types of markets and transparency we expect.
  I hope the Fed Chairman will embrace this task of a more robust 
leadership on the policies and regulation that need to be put into 
place to prevent another bubble and to helping immediately small 
businesses. I don't want to leave the American people with the thought 
that somehow Wall Street is more important than Main Street. That is 
not what sent me to Washington, and it is not what sent my colleagues. 
I hope we will work in earnest, as Republicans and Democrats, to urge 
the administration and the Fed to immediately adopt and implement a 
program to give community banks and small businesses access to capital.
  One of the people I met with is a small businessman whom I used to 
see while eating in his restaurant many times, particularly working 
late at night, when I worked for a software company. When I was home in 
December, I found that after 55 years he was going out of business. 
After 55 years in his family, they were going out of business. The 
downturn definitely took its toll. He wasn't getting access to capital. 
He held on for an entire year, not laying off one employee, keeping 
everybody he could instead of cutting them. The end result, after that 
year, without any more resources, without any more access to capital, 
he had to close that business. Not only that, because he mortgaged his 
house, he was probably going to lose his house. He put his restaurant 
up for auction. He told me, if he was lucky, he would probably get 
$10,000 for it. Fifty-five years in business, weathering several 
downturns, not laying off any employees, he wanted to know where his 
lifeline was during this crisis.
  I am going to devote my time and energy, along with working with the 
President on his commitment, to making sure this program for community 
banks and small businesses gets implemented as soon as possible.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from North Dakota.
  Mr. DORGAN. Madam President, let me thank my colleague from the State 
of Washington. She has been tireless in trying to address these issues, 
both in legislation and on the floor of the Senate during debate, and 
it is so important.
  I, too, voted against Mr. Bernanke's nomination today, and I wish to 
explain why. It is certainly not that I believe Mr. Bernanke is a bad 
guy. He is not. He is a well-respected economist. But I wish to talk a 
little about the issues that persuade me we need a change--a change in 
culture, a change in personnel--in some respects.
  If ever there now is a bright line in America between those who are 
too big to fail and those who are too small to matter;--that is, the 
too big to fail are the biggest financial institutions in the country 
that have been making a lot of money, paying large bonuses, and living 
high off the hog. The too small to matter are the folks on Main Street 
who sink everything their family has into a business trying to run a 
grocery store, maybe a drugstore, a gas station, a barbershop, a 
restaurant, and then they discover they cannot make a go of it because 
things turn against them, and they are told: Do you know what. That was 
your risk. If you can't make a go of it, that is your problem. What you 
do is you lock the door, somebody sells the inventory, and you are out 
of business.
  By contrast, the biggest financial institutions that were engaged in 
wholesale gambling--everything but the Keno tables and the craps tables 
and the blackjack tables in their lobby, everything but that; it was 
the same thing--and ran their company and their country into the 
ground, they were told: Well, do you know what. You are so big, we 
can't possibly let you fail, so we are going to give you a bailout. So 
that is the too big to fail versus the too small to matter. Is it any 
wonder people are furious in this country about that kind of 
assessment, that kind of value system?
  Well, Mr. Bernanke is a nice guy. So is my Uncle Harold, by the way. 
Mr. Bernanke is an economist. My Uncle Harold is not. Mr. Bernanke has 
now been the Chair of the Fed for a while. Before that, he was part of 
the economics team in the previous administration that turned, by the 
way, a big budget surplus in the year 2000--the first budget surplus 
for the Federal Government in a long, long time. The new administration 
came in and turned that into the biggest deficits in history up until 
now. So I am not impressed with the whole scheme of a fiscal policy 
that turns the country from big budget surpluses to big budget 
deficits.
  But with respect to the Federal Reserve Board itself, the Federal 
Reserve Board has had responsibilities. Those responsibilities, first 
by Alan Greenspan at the Fed--and by the way, while Alan Greenspan was 
at the Fed, Mr. Bernanke was at the Fed as well during part of that 
time, and now it has been Mr. Bernanke's tenure at the Fed--the 
responsibilities are to supervise the banks, to deal with predatory 
lending, to address some of the scandalous behavior of some of the 
brokers in the subprime market. Yet they did nothing. All of this went 
on under their

[[Page 863]]

noses. The question for me in dealing with Mr. Bernanke and others is, 
How many times do we have to learn the same lesson?
  I have been here at a time when the savings and loans collapsed in 
this country. The S&L collapse--it was not surprising why they 
collapsed because we had a bunch of folks who used the savings and loan 
like a big piggy bank. They were parking junk bonds at the savings and 
loans organizations. The savings and loans were actually gathering 
deposits from around the country, and they were like Roman candles, 
just taking a small, little, sleepy savings and loan and turning it 
into a big institution with lots of deposits overnight. Then guys like 
Mr. Milken were parking junk bonds in the S&Ls, insured by the Federal 
Government; that is, the American taxpayers, and things collapsed, and 
it cost hundreds and hundreds of billions of dollars.
  The most perverse result was the American taxpayer got stuck with 
junk bonds in the Taj Mahal Casino in Atlantic City. Think of that. How 
did that happen? Well, Donald Trump builds a casino, and whoever it is 
decides to take the junk bonds from the casino and park them in a 
savings and loan. The savings and loan is guaranteed by the American 
taxpayer. The savings and loan goes bankrupt. So the junk bonds in the 
savings and loan are now at the Resolution Trust Corporation, and the 
American people end up with junk bonds in a casino. Isn't that 
unbelievable? Do we have to learn that lesson again? Well, we did then.
  We learned it a second time after the S&L collapse. We learned it 
with the Enron Corporation, which in part was a criminal enterprise. 
They were manipulating wholesale electric markets on the west coast--
schemes such as Get Shorty, Fat Boy, just to name a couple--and then 
having people, in addition to these schemes, shut off and turn on 
powerplants in order to manipulate supply so they could fleece 
taxpayers and fleece ratepayers on the west coast out of billions of 
dollars. It was one of the greatest robberies in the history of our 
country. I led the hearings. I chaired the hearings over in the 
Commerce Committee. Ken Lay came and raised his hand. We swore him in. 
He took the fifth amendment. He is now dead. But he was on his way to 
prison. Mr. Jeff Skilling from Enron Corporation came and just talked 
and talked and talked. It turns out none of it was accurate. He is now 
in prison.
  So we had to learn a second time about the fleecing of America--the 
big S&L scandal that cost the American taxpayers an unbelievable amount 
of money; then the Enron scandal--a corporation that does not now exist 
that became, in part, as I said, a criminal enterprise; and now this 
financial house of cards that collapsed on this country. It is not 
surprising why it collapsed. What happened was we had some of the 
biggest financial entrepreneurs in this country--some of the biggest 
operators, I should call them, not entrepreneurs--some of the biggest 
financial operators in this country who were engaged in full-scale 
gambling with their company money, the biggest financial companies in 
this country.
  My colleague talked about credit default swaps and CDOs and so on. We 
had synthetic derivatives. Do you know what synthetic derivatives are? 
At least a derivative is something you can reasonably explain because 
it has some value. It is connected to some value on each side of the 
trade. Synthetic derivatives are simply an artificial device that 
allows you to place a wager on whether something will happen, unrelated 
to value on either side of the trade. It is as if to say: Take the 
biggest investment banks in America and put a craps table in their 
lobbies and let them gamble from 8 a.m. until 5 p.m. and let the 
American taxpayer pay their losses. That is exactly what has happened.
  Now, what is happening today? Well, this is Bloomberg News:

       Wall Street is marketing derivatives last seen before 
     credit markets froze in 2007. . . .

  Actually, I have it on a bigger chart here.

       Wall Street is [now back] marketing derivatives last seen 
     before credit markets froze in 2007, as the record bond rally 
     prompts investors to take more risks to boost returns.
       Bank of America Corp. and Morgan Stanley are encouraging 
     clients to buy swaps that pay higher yields for speculating 
     on the extent of losses in corporate defaults.

  And again:

       Banks Reviving Synthetic Bets as [Paul] Volcker Blasts 
     Default Swaps.

  Bloomberg. So here we are. The financial system collapsed, steered 
this economy right into a ditch. Millions and millions of Americans 
lost their jobs, lost their homes, lost hope, and are still struggling. 
The biggest interests got bailed out and made whole and now are making 
record profits again and are prepared to pay $140 billion, I am told, 
in bonuses. And now we see they are back to trading synthetic 
derivatives--the very same firms.
  How often do we have to learn this lesson--once, twice, three times, 
or ten times--before the Congress will decide: No more of it.
  My point is, just like with kids, you say: Do you know what. You 
better hope your kids are running around in a good crowd. That is the 
success, isn't it, having them run around in a good crowd as opposed to 
a bad crowd? As I take a look at all these nominations and 
appointments, the question for me is, What kind of crowd do they run 
around in? And do you know what. There is a kind of insular crowd that 
all comes from the same locations, and they all believe the same thing, 
and the fact is none of them have the stomach or the interest or the 
courage to decide to shut down what is essentially gambling on Wall 
Street and firms that are too big to fail, which means it is no-fault 
capitalism and the American people will pay the consequences. None of 
them have the courage to do that. In fact, they have now been given a 
year to organize to try to stop anything that is done here in the U.S. 
Congress.
  I will say once again, it was 10 years ago when I stood on the floor 
of the U.S. Senate and was one of eight Senators to vote against the 
piece of legislation that created these big holding companies--the 
Financial Services Modernization Act, it was called--to repeal the 
protections that were put in place after the Great Depression.
  I said, 10 years ago, I think that is going to set this country up 
for massive taxpayer bailouts. No, I do not have a crystal ball, and I 
do not necessarily prognosticate very well. But I knew that if we 
allowed those who wanted to do one-stop financial shopping--putting 
together securities with banking, investment banking with FDIC-insured 
banking--we were headed directly toward a cliff. And 10 years later, it 
is the biggest financial scandal in the history of this country, and 
this economy barely survived it. The American people lost $15 trillion 
in value as a result of this economic collapse--$15 trillion.
  So who is accountable? Well, there have never been the kinds of 
hearings I think there should have been developing a master narrative 
of what happened and who was responsible and who was accountable and 
where the buck ought to stop. But we know some of it. We know who had 
some responsibility: the Federal Reserve Board.
  Mr. Greenspan has since come to Congress and apologized because he 
said he was mistaken. He thought self-regulation would be just fine. 
Well, that is not why we have regulators. We have regulators because we 
know self-regulation does not work. The free market system is 
wonderful, but you need effective regulators who take a look at what is 
going on and call the fouls and blow the whistle when they see the 
fouls.
  We went through a period where it was, ``Katy, bar the door,'' do 
anything you like, and that is what happened. The big banks took 
leverage from 10 times capital to 30 times capital. They began selling 
derivatives and credit default swaps and, pretty soon, synthetic 
derivatives, which were just instruments of gaming, and nobody seemed 
to care.
  At the same time, in another area of financial enterprise, we began 
to see the development of this new, aggressive orgy in mortgage scams 
to say to people: If you can't afford to buy a home, we have a mortgage 
for you. If

[[Page 864]]

you have bad credit, we have a mortgage for you. If you have been 
bankrupt--slow pay, no pay--come to us; we will help you buy a home. By 
the way, everybody was getting big fees. They wrapped it into a 
security, sold the security from the mortgage bank to a hedge fund, to 
an investment bank, and everybody knew better. Pretty soon, the whole 
thing collapsed, and the American people were told: Now you pay the 
cost. You pay the cost to clean up this mess.
  Well, at every step along the way, the Federal Reserve Board had a 
responsibility. Bad behavior by brokers, bad behavior by mortgage 
banks--they had a responsibility to oversee those things. And today we 
read that synthetic derivatives are now being pushed by Bank of America 
and Morgan Stanley. So what is the Federal Reserve Board doing about 
that? What about that buildup of additional bubbles of risk? Does 
anybody care? Is there anybody who is going to do anything about that?
  Mr. Bernanke is a good guy, but the fact is, he is part of the crowd 
that I think helped cause these problems. I think--and I have said 
candidly--during the darkest period, where there was the question of 
whether this economy would completely collapse, Mr. Bernanke made some 
fine decisions. I do not think he is a bad person at all. But I do not 
think he--by the way, this would apply to some others in areas of 
responsibility--I do not think he comes from the culture to say that 
this whole set of activities has to change and change now and change 
aggressively.
  Let me complete my thought by simply saying that I understand how 
important banking is. I understand how important investment banking is. 
I understand the financing system of our country is important and needs 
to be strong. I am not suggesting that somehow you can finance all the 
things we want to do in our country out of somebody's garage. That is 
not my point. My point is, however, there is the right way and the 
wrong way to construct a system of financing.
  We have, over 200 years, seen this back-and-forth between those who 
produce and those who finance production. Sometimes one has the edge in 
terms of strength and power, and sometimes the other does. In the last 
20 or 30 years, in my judgment, those who finance production have 
really been pulling the strings in this country as opposed to those who 
produce. That is why we have fewer good jobs in this country, and it is 
why we see more and more of the profits and more and more of the gross 
incomes that swell the paychecks of a lot of people at the top coming 
from investment banking and some of the biggest financial firms in the 
country. I do not think that is healthy for the country, as a matter of 
fact.
  So I voted against Mr. Bernanke. I voted for cloture because I am not 
somebody who wanted to prevent a vote on it. But I did decide long ago 
that I was not going to be supportive.
  Let me make one final point. That is this: Mr. Bernanke, during the 
height of the crisis, opened, for the first time in history, the 
Federal Reserve Board to give direct loans to investment banks--the 
first time ever they have given direct loans to commercial banks but 
never before to investment banks. He opened the window to say we are 
going to give direct loans to investment banks. My guess is trillions 
of dollars went out in direct loans. In my judgment, the American 
people and the Congress have a responsibility to know who got those 
loans, how much, and what were the terms. We have written to the 
Chairman of the Federal Reserve Board--myself, Senator Grassley, and 
eight others--to say: You now have a responsibility to tell us who got 
that money and what were the terms. His answer to us was: I have no 
intention of telling you.
  That is not acceptable to me and should not be acceptable to the 
Congress or to the American people, and that is another reason that I 
would not advance this nomination.
  Madam President, I yield the floor, and I make a point of order that 
a quorum is not present.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. CARDIN. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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