[Congressional Record (Bound Edition), Volume 156 (2010), Part 4]
[Senate]
[Pages 5253-5254]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            FINANCIAL REFORM

  Mr. NELSON of Florida. Mr. President, after the extension of 
unemployment benefits is accomplished--and we will get it done--we will 
take on financial reform. Remember back, the failure of Lehman Brothers 
and the near collapse of our financial system and, as a result, the 
passage of $700 billion of taxpayer money to bail out Wall Street? Back 
in the fall of 2008, the break down in our financial system fueled one 
of the worst economic downturns since the early part of the last 
century. The stock market plunged. The credit and capital markets 
froze, and real economic activity took a nosedive.
  While we are seeing some slight improvement in both the markets and 
the economy as a whole, too many people remain unemployed and 
underemployed. In Florida, the unemployment rate has surpassed 12 
percent. The unemployment rate in Florida is now the sixth highest in 
the country. Since the crisis began in the fall of 2008, a lot has 
happened. We elected a new President. We passed an economic recovery 
bill. We passed health reform. We passed an enhanced home buyer tax 
credit. We passed several measures of tax relief for small businesses. 
But there is one thing we have yet to do that is at the top of the 
list; that is, to try to help clean up Wall Street and our excesses in 
the financial system. We owe it to taxpayers so they do not face 
another $700 billion bailout in the future. Never again should we use 
taxpayer money to bail out reckless and freewheeling Wall Street 
bankers.

[[Page 5254]]

  Our colleagues on the Banking Committee have put forth one proposal. 
It includes a new consumer financial watchdog. It also includes new 
rules for the regulation of derivatives--those things that have fancy 
names such as credit default swaps, which are insurance policies on 
losses that you would have in other investments. Listen to what one of 
the richest people in the world, the sage of Omaha, Warren Buffett, 
says. He refers to all of those very clever financial instruments as 
``financial weapons of mass destruction.'' That is Warren Buffett. If 
there is one lesson from the former Goliath insurance company, AIG, it 
is that we better get serious about regulating derivatives.
  The Banking Committee bill includes new rules for liquidating large 
financial institutions when they become insolvent. It tightens rules 
related to capital requirements, liquidity, and the use of leverage. 
But when the Banking Committee bill comes to the floor, we must 
strengthen and improve the legislation to rein in the greed that ran 
amok, that nearly brought down our entire financial system altogether. 
Of course, we can expect a vast army of lobbyists who will descend to 
protect various financial fiefdoms from these new transparency and 
accountability rules.
  I will offer a number of amendments on the floor. I want to mention 
one today, the Wall Street Compensation Reform Act. This bill I have 
already introduced, and which I will offer as an amendment, hopefully 
will restore some sanity and common sense to executive pay practices on 
Wall Street.
  The legislation is simple. It encourages large banks and financial 
institutions to adopt widely accepted compensation practices. Banks 
that fail to adopt those standards would lose the benefit of certain 
tax deductions. They could no longer deduct the large compensation 
payments they make to highly paid employees.
  I have read with astonishment the recent reports that Wall Street 
banks continue to pay outlandish bonuses to undeserving executives. 
Many of these institutions--and this is what gets your blood pressure 
going up--are still living on taxpayer-funded life support.
  In most business professions, executive pay will follow performance. 
Managers and executives usually are rewarded for creating lasting 
value. Unsuccessful managers and executives are shown the door. But 
apparently these basic commonsense principles have been lost on a lot 
of the Wall Street firms. This year, Wall Street bonuses were in the 
range of $150 billion. Eighteen months after the fall of Lehman 
Brothers, it is back to business as usual for the major banks.
  We have been here before. We had the same debate last spring when AIG 
paid those absurd bonuses to the financial traders who managed one 
major accomplishment: They drove their company into the ground. 
Although we had lots of legislation introduced, Congress again failed 
to act. The army of lobbyists descended to make sure that was the case, 
and here we are again.
  I daresay there is almost a unanimous recognition that poorly crafted 
executive pay practices at major financial institutions contributed to 
the near collapse of the financial system--what ultimately brought 
about the $700 billion taxpayer-funded bailout.
  The general counsel of the Federal Reserve Board has testified that 
compensation practices in the banking sector were a contributing cause 
to the crisis. In January, the Federal Deposit Insurance Corporation 
found that ``excessive and imprudent risk taking remains a contributing 
factor in financial institution failures and losses to the Deposit 
Insurance Fund.''
  Current pay practices encourage excessive risk taking because short-
term gains are heavily rewarded even if they are unsustainable. The 
negative consequences of severe losses in a company are often 
externalized and shifted to the shareholders or to the public.
  The Federal safety net for financial institutions encourages traders 
and executives to take unnecessary risks. The most obvious example is 
the $700 billion Wall Street bailout. Executives who should have left 
without their shirts instead left with golden parachutes.
  Real and meaningful financial reform must include changes to the 
existing compensation culture in the finance industry. And, oh, are we 
going to get resistance as we put forward this idea.
  Under the amendment I am going to offer, major banks and financial 
institutions could only deduct their large executive compensation 
payments if the pay complies with rules that focus on rewarding long-
term performance. The principles were developed by the Financial 
Stability Board, the council of major central banks. The Federal 
Reserve was instrumental in developing these compensation principles.
  Under the amendment I will offer, tax deductions for major banks and 
financial institutions are going to be conditioned on the following: 
compensation payments over $1 million must be performance based and at 
least half of the performance-based compensation must vest over an 
extended period of 5 years or more. This is going to tie compensation 
not only to performance but to long-term performance.
  Another part of this amendment requires that, for executives at 
public companies, at least half of the performance-based compensation 
must be paid in employer stock. Compensation agreements for top 
executives must include a claw-back provision that retracts the 
deferred compensation in the event of ethical misconduct. Also in the 
amendment, compensation agreements must prohibit employees from 
engaging in personal hedging strategies, such as compensation 
insurance, that undermine the very risk alignment principles we are 
creating.
  This amendment creates a new and meaningful executive compensation 
disclosure requirement in order to empower the company's shareholders 
and the company's investors to hold banks accountable for what they pay 
their senior executives.
  The special interests certainly are going to argue that Congress 
should not get involved in compensation decisions. They are going to 
say the private marketplace knows best. They are going to argue if 
Congress passes measures like this, Wall Street is going to pack up its 
bags and move to greener pastures abroad.
  Unfortunately, right now, what the market knows is that big, short-
term gains lead to big bonuses, and big losses lead to taxpayer-funded 
bailouts. Enough of this. We are going to have the opportunity to take 
real steps to reform compensation practices. It is my hope--perhaps 
naively so--that the Senate would unanimously approve this concept. It 
will not be unanimous, but I believe we can get 60 votes to break a 
filibuster, and I think we can pass it. The American taxpayers' funds 
are at stake.
  Mr. President, I yield the floor.
  I suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.


                           Moment of Silence

  Under the previous order, there will now be a moment of silence in 
solidarity with the people of West Virginia on the loss of the miners 
in the Massey Energy mine disaster last week.
  (Moment of silence.)
  Mr. REID. Mr. President, I suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. COBURN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.

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