[Congressional Record (Bound Edition), Volume 156 (2010), Part 4]
[House]
[Pages 5843-5850]
[From the U.S. Government Publishing Office, www.gpo.gov]




                THE GREAT SCAM AND FRAUD OF THE CENTURY

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 6, 2009, the gentleman from California (Mr. Garamendi) is 
recognized for 60 minutes as the designee of the majority leader.
  Mr. GARAMENDI. Mr. Speaker, I request permission to engage in a 
colloquy with my colleagues.
  Mr. Speaker, tonight I would like to focus on the great trauma and 
pain that Americans are suffering from. We

[[Page 5844]]

could start with it looking like that, but, really, you turn this 
around and you can see what's happened over the last 2 years. Americans 
are in a world of hurt.
  I recall so clearly in California, the area I represented--actually, 
the entire State as I would travel around--we would talk to people who 
were saying that they were in the real estate business; they were 
buying houses. And my wife and I, as we would drive to work, she would 
often say, How could it be? They don't have any money? What is going 
on?
  What was going on was the great scam and the great fraud of this 
century, and the result is seen so clearly on this chart.
  Beginning in the year of December of 2007, there was actually a 
little uptick in jobs during that Bush administration year, and then 
came the crash and things came down around all America. And we see the 
falloff in jobs over the years from December 2007 until the change of 
administrations in 2009. Some 700,000 jobs were lost in December and 
January of 2008--and January of 2009.
  And then we have a new administration, and we begin to turn things 
around. And joining me tonight are Members of Congress who were here 
during that period of time, who were engaged in the key pieces of 
legislation.
  The financial institutions literally were on the verge of collapse. 
And so in November and December of 2008, the Troubled Asset Program, 
the TARP program, was put in place. The result of that was ultimately a 
stabilization. Nearly $400 billion was transferred to the banks, the 
big Wall Street banks. Some $200 billion, or nearly $200 billion, is 
still there. And to this day, those banks have neglected Main Street. 
They have taken care of themselves.
  But even so, we've seen, as a result of the Democratic Party's 
legislation and the work of my colleagues, we've seen a gradual and 
steady improvement. The job losses began to tail off, and ultimately 
now in 2010 and February and March we've actually seen an increase in 
the number of jobs and no longer the decline that has so paralyzed this 
Nation.
  Why did it happen? What was it all about, and what can we do about 
it?
  Joining me tonight, as we discuss this issue, are five legislators, 
Members of Congress who have played key roles in the passage of 
legislation that has set things straight and has reined in Wall Street.
  Let me introduce first my colleague from the great State of New 
Jersey (Mr. Andrews). Please share with us your experiences and the 
legislation that you and your colleagues are so much involved in.
  Mr. ANDREWS. I thank my colleague for yielding.
  Mr. Speaker, I know that tonight many Americans are going to put 
their head on the pillow and have a very restless and maybe sleepless 
night again because tomorrow's going to be another day of trudging 
around with a resume that no one seems to want. Maybe they're concerned 
that tomorrow will be the day that the final foreclosure notice arrives 
in the mail. Tomorrow may be the day that they have to pull the plug on 
their small business that they struggled so hard to sustain.
  This problem began to metastasize, this cancer began to grow in this 
country in the summer of 2007 when the days of irresponsibly cheap 
credit and easy credit came to an end and the bubble began to burst. In 
the part of the country that I represent, between Labor Day of 2007 and 
Labor Day of 2009, we lost about 36,000 jobs, just evaporated, the way 
eight million jobs evaporated around this country.

                              {time}  2015

  Now, the President took office in January of 2009, inherited what I 
believe was the worst economic crisis since the Great Depression, and 
we decided to act to try to take advantage of it, put some people back 
to work building highways and roads and bridges, cut taxes for small 
businesses to buy a laptop or a truck or a piece of equipment. We had a 
substantial tax cut for just about every family in the country; 98.5 
percent of American families had a credit so people could buy a home 
and get a substantial down payment to buy a home. And these steps, 
although I believe they were in the right direction, opposed 
unanimously by the other side of the aisle, have taken us in the better 
direction; but they are not enough.
  In my area of those 36,000 jobs we have lost between Labor Day of 
2007 and Labor Day of 2009, we have gotten about 16,000 of those jobs 
back since Labor Day of 2009. So between September of 2007 and 
September of 2009 we lost 36,000 jobs. From Labor Day of 2009 to the 
present we have gained about 16,000 of them back.
  I worry, Mr. Speaker, tonight, and I say to my colleague as well, 
that one of the reasons we haven't gotten enough of those jobs back 
soon enough is the credit crunch in this economy. I hear from 
entrepreneurs large and small, people running stores and factories and 
software companies, that they are profitable, they have collateral, 
they have a track record of paying their bills on time, but they cannot 
get credit. They cannot get the loans that they need to make their 
businesses grow.
  This lack of credit is rooted in a lack of trust, and this lack of 
trust is rooted in a lack of confidence, and this lack of confidence, 
without a doubt, is rooted in the failure of the regulatory system to 
properly regulate the financial system and assure the investor and the 
American people they are getting a fair deal.
  Now, this House late last year passed legislation that would fix that 
problem, that would have some even-handed regulators look at whether 
the system was once again teetering on the brink of collapse, that 
would say that if you lend money, you have to have some skin in the 
game. You can't have one industry that makes a profit by originating 
loans but doesn't collect any of them, and another industry that's 
solely responsible for collecting the loans but doesn't originate them.
  The legislation also said that if these steps to prevent another 
catastrophe failed, the next time there has to be a bailout of the 
failure; it won't be paid by real estate agents and teachers and truck 
drivers. It will be paid by the people who created the mess in the 
first place.
  Now, a version of this legislation is being considered by the other 
body, and I know that the rules do not permit us to comment on the 
affairs of the other body, so I will not. I will simply offer this 
generic observation. When the health care bill was in its final stages 
of debate, our friends on the Republican side of the aisle loudly 
insisted, I think correctly insisted, that there be an up-down vote on 
all aspects of the health care bill, and there was. It was an up-down 
vote on the underlying text of the Senate bill, and there was an up-
down vote on the fixed bill that occurred. That's the right way to do 
things.
  When there is a major question before the country, that will be an 
up-down vote. I would hope that the other body adheres to that 
principle. With an issue this significant, with the stakes being so 
high, I think the American people not only have a right to demand that 
the problem be fixed. I think they have a right to demand they know 
that their Representatives go on record and say yes or no. Mr. 
Garamendi, we say ``yes'' to responsible regulation, we say ``yes'' to 
getting credit flowing again in this economy and we would say ``no'' to 
those who would block a vote to block the will of the American people.
  Mr. GARAMENDI. Well, the question really is, whose side are you on? 
Are you on the side of average Americans out there, the middle class, 
the men and women that are trying to get a job, the men and women that 
are working, or are you on the side of Wall Street? You raised a very 
interesting point about loans.
  Let's put it this way: the American taxpayer gave to the bank some 
$400 billion to stabilize that financial industry, and it was 
necessary. No one is doubting the necessity of it. Every other 
industrialized country in the world also shored up their financial 
institutions, and it worked. We want that money back, but it's not 
coming back to the businesses that are in our communities.

[[Page 5845]]

  And then we look here, in 2009, the total lending by U.S. banks fell 
7.4 percent, the steepest drop since the outset of World War II in 
1942. At the same time, there were enormous profits, and we will come 
to the profits of Wall Street where many of those profits are a direct 
result of the money that the American people used to stabilize Wall 
Street.
  We want that back, and we want to make it very, very clear: we are on 
the side of the working men and women out there, the middle class, the 
small businesses, Main Street. That's where we stand. It's interesting 
that when the bill came up, and you spoke to this a moment ago, our 
colleagues on the Republican side voted ``no.'' When it came time to 
rein in Wall Street, they voted ``no.''
  Mr. ANDREWS. That certainly is my recollection as well that there was 
virtually unanimous opposition to these new rules of the road, to the 
people who drove the economy into a ditch.
  But I will say this, that at least there was a vote, wasn't there, 
that the American people got a chance to see where each of their 
elected Representatives stood on the question of new rules of the road 
for the financial industry. The gentleman from California has served in 
a lot of levels of public service. I believe he served in the 
California legislature and he served in a lot of other governing 
bodies. Is it correct that usually when you are trying to solve a 
problem you put it up for a vote? Is that usually what happens?
  Mr. GARAMENDI. At least that's the American way. If you have an 
issue, a policy issue, you take it to the legislative body, and it 
comes up for a vote, yes.
  Mr. ANDREWS. Has the gentleman ever been in a situation where the 
body sees a serious problem and says, look, we have a plan to fix it, 
but let's not take a yes-no vote on it because let's let a small number 
of people decide, because they have some interest persuading them not 
to support it, that we shouldn't even put it up for a vote? Is that the 
understanding the gentleman has the way government works in this 
country?
  Mr. GARAMENDI. Well, I have seen some of that here recently in 
Washington. Apparently one person can stop legislation, and I think 
it's happened some 50 times in a certain legislative body that we are 
not supposed to--
  Mr. ANDREWS. It's ironic that this Congress funds what are called 
institutions for democracy that help to teach fledgling nations around 
the world how to build democratic institutions, and I am glad we do. I 
think it's good for the country to do that.
  It's kind of ironic that in the context of doing that we have had 
fiascoes where on two occasions one person has said that extending 
unemployment benefits to people in grave need can't even be voted on. 
And now we have a situation where a minority, one would theorize, is 
going to take a position that says we can't vote on this very important 
establishment of fair rules to protect the American consumer.
  I thank the gentleman for calling this to the body's attention, and I 
am honored to serve in a body where we do take votes, and we do have 
majority rule and we do get on with the business of the country.
  Mr. GARAMENDI. It's been a great pleasure for me to serve in the 
House with you, Mr. Andrews, and also to be able to deal with these 
fundamental issues.
  We were just talking a moment ago about the lending to small 
businesses and the fact that the big U.S. banks have reduced it, but 
also if we look at the 22 Wall Street firms that got the most of the 
bailout, they have reduced their small business lending by some $12 
billion last year in 2009.
  I have now been joined by our colleague from the great State of 
Vermont, Mr. Peter Welch.
  Mr. WELCH. Thank you, I appreciate very much, and I think all of us 
do, you having this hour to talk about Wall Street. You know, there are 
a couple of things about it that are obvious to everybody on both sides 
of the aisle.
  The salaries are totally out of control; $145 billion in bonus pool 
to the banks after they have been bailed out by the taxpayer is not 
acceptable. Everybody, I think on both sides of the aisle, is concerned 
about greed being too much a part of the culture on Wall Street. On 
that we agree. But the threat in the long term, as lamentable as the 
greed is, as not acceptable as $145 million in bonus money is, what 
Goldman Sachs and others are doing is destroying what banks are about.
  Our American economy needs a financial sector that's strong and 
vibrant but that lends money to entrepreneurs, to businesses that are 
going to create new products, that are going to allow for manufacturing 
to occur in this country, to families that are trying to buy homes. 
This recent case about the filing of an SEC lawsuit of civil fraud 
against Goldman Sachs highlights that they have gone from being an 
agency, an entity that lends money to a gambling casino.
  And let's just talk about the structure of this abacus deal that is 
the subject of the SEC litigation for civil fraud charges against 
Goldman Sachs. This is a situation where a hedge fund investor figured 
that the housing market was going to go south and not only put his own 
bets against the housing market but he asked Goldman Sachs to create an 
investment vehicle that was not distributing mortgages, it was not 
originating mortgages, it was just creating a pool where one side of 
the transaction bet that the underlying securities would go down in 
value and then other parties bet that they would go up in value.
  You know, you might say, well, they are just betting. And you know 
what? That's true, but what they are not doing is investing. What they 
are not doing is lending.
  And then as these collateralized debt obligations accelerate out from 
one buyer, one seller, one buyer, one seller, at the end of the day, or 
the end of the month or at the end of the year, when the music stops 
and somebody doesn't have a chair to sit in, it's the taxpayer that's 
left holding the bag. There is a vast acceleration of risk with no 
investment in any productive activity. Not a single mortgage was 
created by the abacus deal.
  Not a single new business deal was financed by the abacus deal. Not a 
single new company got seed capital or venture capital. There was no 
banking done. Why is it--what is the social purpose that is achieved by 
allowing this type of casino gambling to occur with the sanction of law 
and ultimately with the backstop of the taxpayer?
  So what this whole challenge to us is is not just about the personal 
habits in overreaching on greedy salaries that many of those folks have 
on Wall Street, and it is even more than about getting our taxpayer 
money back, which we want to. It's about are we going to have a banking 
system that's going to be there to lend money to folks and to 
businesses and to entrepreneurs that need it, and are about creating 
jobs.
  I want to contrast the Goldman approach with the banks in Vermont. We 
have got community banks, and I know you do in California as well, I 
know Mrs. Dahlkemper does in Pennsylvania, Ms. Speier in California as 
well.
  There is one in St. Albans, Vermont, where when you go into that big 
lobby of the old-style banks, and there are the teller windows and 
there are some desks for loan officers, there is a desk that's slightly 
bigger than the others. It's the president of the bank. He is sitting 
right in the front hall.
  And anybody at St. Albans who wants to talk to him about a car loan, 
about service, about their checking account, they can go talk to him 
right away. At the end of the day he feels good if his bank has made a 
loan to a farmer, to a family, to a small business.
  And you know what? That's the culture that I value that I think 
Americans value. The Goldman culture is whatever it takes, as much as 
they can get.
  Mr. GARAMENDI. Thank you. It seems to be profit before people, profit 
before business. And for those of us in the Congress, it's really a 
question where do you stand. Do you stand with that community bank in 
Vermont, or do you stand with the big Wall Street banks?

[[Page 5846]]



                              {time}  2030

  It was very, very clear, I had been here 3 weeks when this House took 
up the Wall Street reform. And I was really surprised. I thought, well, 
everybody must understand the necessity to rewrite the reform package, 
to rewrite the rules of the road so we don't have another collapse. I 
know that this side of the House, the Democratic side of the House, 
voted for those reforms, and on the Republican side of the House, very, 
very few voted for those reforms. So the question was answered to me, 
where do you stand? We were standing with reform, we were standing with 
reining in Wall Street, and our Republican colleagues did not want to 
go there.
  So what does it mean for western Pennsylvania? Let me call upon the 
gentlewoman from Pennsylvania (Ms. Dahlkemper). You were here. How did 
this transpire? What took place?
  Mrs. DAHLKEMPER. I thank the gentleman from California for yielding.
  I just arrived back in Washington today after a few days back in the 
district. I actually spent a lot of time with my dairy farmers and 
actually many of my different members of the agriculture community. And 
our colleague from Vermont and those of you from California, you have 
many dairy farmers in your States also. And they are struggling, they 
are struggling. They are struggling to get the loans that they need. 
They've had a double whammy. They have had a decrease in milk prices 
that have a lot of other factors. But when they go to the banks, the 
banks' hands are often tied, and the banks' hands have been tied 
because of what happened on Wall Street.
  Now, we talk about financial reform protecting Main Street from 
really the greed and recklessness--and I don't think we use that word 
enough, the greed that happened on Wall Street; it's not only Main 
Street, it's the country road. We need to protect our farmers and our 
small businesses and our entrepreneurs from that greed of Wall Street.
  I was here, obviously, when we voted for that piece of legislation, 
the Wall Street reform, the Consumer Protection Act. Actually, 
unanimously our colleagues on the other side of the aisle voted against 
that bill and yet it is something that really is going to ensure the 
protection of our farmers and, as we said, our small business owners. 
I'm a small business owner. Our company every year depends on that line 
of credit from our community bank. And we have a very good 
relationship, as our colleague from Vermont talked about, that 
relationship that our community banks, our hometown banks, they're 
doing the job that we expect them to do, but on Wall Street it was 
different. And then they get the bailouts. And these figures on your 
graph right there are fairly shocking in terms of Wall Street paying 
billions when my farmers are getting up at 4:30 in the morning to milk 
cows knowing that they're actually losing money every day. They are 
just trying to find a way to stay afloat, and yet these other 
individuals on Wall Street are making billions.
  So what we need to do is enforce rules that will keep these big banks 
from making bad decisions and really betting against our country, 
betting against individuals, betting against homeowners in our country, 
and ensure that taxpayers never again have to pay for these bailouts 
for these financial institutions that were really too big to fail and 
we had to do what we had to do to keep them solvent and to keep our 
financial system rolling. But the future is what we're looking at here.
  So we've got, as you've got up there now, the Wall Street squeeze, 
these small businesses who are still struggling, as has been already 
mentioned, to find those loans to, first of all, keep their businesses 
afloat, whether it's a farmer or manufacturer or someone who owns a 
retail store, or whether to add on; maybe they want to increase their 
business right now but they can't find that loan. This all goes back to 
what happened on Wall Street, a system that really benefited the 
special interests, the lobbyists, and the big banks on Wall Street.
  I was very proud to vote for that piece of legislation. We need to 
get that piece of legislation voted on in the other body and get it out 
so that we can protect those in Pennsylvania's Third District, those in 
California, Vermont, and across this country who are just out there 
working hard every day trying to make a living, trying to provide for 
their families.
  So financial accountability, that's what we are looking for here. And 
I appreciate the gentleman bringing this forward tonight.
  Mr. GARAMENDI. Thank you very much for that perspective on 
agriculture. I have been in agriculture all of my life. I run a ranch. 
I know that the men and women that are in agriculture in California, 
they need to be able to finance their operations. These are not easy 
times, they need to extend their credit. They are going to come back, 
they have in the past, but they really need that credit.
  But what we have seen very, very clearly in the last year is that 
Wall Street is interested in their profits. I put this one up, but 
here's the one that makes me mad. This is what really upsets me. We're 
looking at 2007, the $137 billion of bonuses for Wall Street 
executives. 2008, that was in the midst of the great crash, it came 
down to zero. After they had caused this crisis, after they had lost 
trillions of dollars of retirement funds, the value of homes 
collapsing, they still rewarded themselves with $123 billion of 
bonuses. And then 2009, as we began to come out of this, instead of 
lending $145 billion to your farmers, to your dairy men, to the men and 
women that want to manufacture and create jobs, no, no, they gave it to 
themselves, $145 billion of bonuses.
  How did they manage to do this? Well, they took the Troubled Asset 
Relief money and turned it around, stabilized the companies--which was 
all to our benefit--but then, instead of using that money to restart 
the American economy, instead of using that money to make loans to the 
small businesses and others across America and to help people who are 
losing their homes with their mortgages upside down, no, no, they 
decided that they needed $145 billion of bonuses.
  Mr. Welch, who was here a few moments ago, had the right idea; he 
said tax these bonuses and send that money to Main Street. That is 
where I'm coming from and I think that's where the America people are. 
On the other hand, our friends on the other side of the aisle, no, no, 
they don't want to do that.
  The question for Americans is this: Where do you stand? Who are you 
fighting for? For Main Street, for working men and women of America; or 
are you fighting for Wall Street? It's very clear since I've been here 
that the Democratic side of the aisle is fighting for Main Street and 
for the men and women that are working.


                             General Leave

  Mr. GARAMENDI. I'd like now to ask unanimous consent that all Members 
may have 5 legislative days in which to revise and extend their remarks 
and include extraneous material on this subject matter.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from California?
  There was no objection.
  Mr. GARAMENDI. Now I'd like to turn to a colleague of mine whom I've 
had the pleasure of working with for many, many years. She was the 
chairperson of the California State Senate Banking and Finance 
Committee and now serves on the Financial Institutions Committee here 
in the United States Congress, the gentlewoman from the great State of 
California, Jackie Speier.
  Ms. SPEIER. Thank you. I thank the gentleman from the great State of 
California.
  You know, today we had a hearing in the Financial Services Committee 
in which we looked at sort of an autopsy of Lehman Brothers. Lehman 
Brothers is particularly problematic for California, but also for many 
other States and local jurisdictions because so many of these local 
jurisdictions had money invested in what were investment-grade 
instruments at Lehman, and when Lehman went belly up, they lost 
everything. So in San Mateo County, for instance, $150 million just 
gone,

[[Page 5847]]

even though it was prudently invested in investment-grade instruments 
at Lehman's. And many people lost their jobs, many classrooms weren't 
built, many developments that were supposed to take place didn't 
happen. It was interesting today because Mr. Fuld, who was the former 
CEO, said that Lehman Brothers was risk averse; ironic when a company 
had $20, $30 billion that basically just evaporated overnight.
  I think it's really important as we discuss this issue, though, to 
take us back to how did we get to where we are today? How did we get to 
a place where everything came crashing down? I would like to just point 
to the cracks in Wall Street, which I think explains really well what 
actually happened. If you recall--this is way before our time, 
certainly--but in the thirties, the Glass-Steagall Act was passed by 
this very Congress after a horrendous meltdown on Wall Street when we 
were in the throes of the Great Depression. The Glass-Steagall Act said 
never again is this going to happen because we are going to keep the 
banks and the insurance companies and the securities firms all 
separate, that there was going to be a wall that separated them. That 
worked perfectly for almost 60 years, and then all of a sudden, in 
1996, Wall Street firms came a calling, and they came a calling with, 
oh, please, let us just get involved a little bit, let us just become 
financial supermarkets. And so in 1996, the Federal Reserve 
reinterpreted the Glass-Steagall Act several times, eventually allowing 
bank holding companies to earn up to 25 percent of their revenues in 
investment banking.
  But you know what? Greed is something that is never enough. That 
wasn't enough. So in 1999 they came a calling to Congress again. This 
time they said, take down those walls; take down those walls so that we 
can become these financial supermarkets so we can be able to compete in 
Europe and across the continents, so that we can be as effective as 
they are in making money. So in 1999, the Gramm-Leach-Bliley Act was 
passed by Congress, signed by then-President Bill Clinton. It was 
promoted by the Chair of the Fed, Greenspan, by Treasury Secretary 
Rubin, and by Lawrence Summers. And what that bill did, very simply, 
was repeal the Glass-Steagall Act; all those 60 years of protection 
down the drain.
  Then we move forward to 2000. We had a very smart person who was the 
head of the Commodity Futures Trading Commission at the time. Her name 
was Brooksley Born. She had worked for a law firm here in Washington 
for many years and she knew all about derivatives. All of a sudden, she 
saw the derivative market just escalate. So she suggested that maybe we 
should just look at this, maybe there should be some basic form of 
regulation. Oh, no, Wall Street would have nothing to do with that. So 
she leaves the CFTC. And then immediately they come a calling again, 
and this time Congress passes a bill that becomes law that says, 
Congress is prohibited--do you believe this--Congress is prohibited 
from regulating derivatives. Still not enough.
  Then, in 2004, it became obvious that Europe was getting a little 
nervous. And they basically said if these bank holding companies 
weren't going to be regulated by their countries, then they would be 
subject to European regulation. Well, our investment banks wanted none 
of that, so they came a calling this time to the SEC, and by regulation 
the SEC passed on their own accord--not with congressional support or 
evaluation--a voluntary regulation to which all of the investment banks 
would be subject for regulation purposes called the CSE, the 
Consolidated Supervised Entities Program. Besides giving them the 
benefit of having a regulator here in the United States so they 
wouldn't be subject to more scrutiny in Europe, it also did something 
that was quite frightening when we look back at it. It lifted the 
leverage cap that was 12-1. It didn't just lift it to 15-1 or 20-1, it 
raised it to whatever. It took away the leverage cap completely. So, no 
surprise that when all of these various investment banks became 
troubled--like Lehman, like Goldman Sachs--they were at 30-1 and even 
higher in terms of leverage. So there you have what I believe is a 
pretty clear crack, as you see, in Wall Street that shows precisely 
what happened.
  Now, that crack actually got deeper because there was one more. It 
was a very simple one basically by the SEC and the courts that said 
that these investment banks were not fiduciaries, that even though they 
were selling all of these instruments, that since they were taking a 
percentage and not a fee, that they were not fiduciaries. And by doing 
that, they had no legal obligation, no legal obligation to say to 
anyone that they were shorting the very products they were selling, 
that they had side deals, that they did the very things that now we 
look at and we think, oh, my God, how did we allow this to happen?
  So I think that as we bring back this bill--and hopefully that it 
doesn't get diluted in what was actually passed by the House--we're 
going to have something we can show the American people that is going 
to close all those cracks on Wall Street, that we're going to pave it 
over so that indeed the American people do have the kinds of 
protections they deserve.

                              {time}  2045

  Mr. GARAMENDI. Thank you very, very much for that description of the 
history. If the gentlewoman from California would care to engage in a 
colloquy with me, I'd like to discuss some of our history.
  When you were chairperson of the California Senate Banking and 
Insurance Committee, I recall that there was legislation. I was then 
the insurance commissioner. We were trying to hold insurance agents 
accountable for their actions, that they owed to their customers their 
best good faith effort and that they would always deal in the interest 
of their customers, not in their own personal interests--not in the 
interest of the insurance companies but, rather, in the interest of 
their customers.
  That is one of the fundamental things that you described which was 
taken away in the mid-2000s. As you were saying, the financial 
institutions no longer had any obligation to their customers but, 
rather, to their bottom line. Is that the case?
  Ms. SPEIER. That's correct.
  So you have your broker at any one of the brokerage firms, and you 
think he is actually there, trying to find good deals for you to invest 
in. What you don't know is that many of them are captive, much like in 
the insurance industry, where they only sell certain products so you're 
not getting the panoply of opportunities that you deserve. Furthermore, 
you don't know what fees they're getting. They might be getting more 
fees if they sell this particular product, so they promote that product 
and not other ones that may be safer and that may be more inclined to 
provide you with the kind of security that you're looking for.
  Mr. GARAMENDI. There ought to be a law.
  Ms. SPEIER. There ought to be a law. You are absolutely right.
  Mr. GARAMENDI. There ought to be a law that holds these banks to the 
highest possible standard, which is that they owe to their customers 
their best knowledge and information and that they don't double deal. 
It's the double dealing that's going on. That's the current SEC lawsuit 
against Goldman Sachs. It's about double dealing. On the one hand, 
they're here; on the other hand, they're there. They're playing both 
sides. That cannot be allowed.
  The cracks that you talked about there, particularly the Glass-
Steagall repeal in 1991, really opened the door to not only the kinds 
of terrible meltdowns in the housing market and in the collateralized 
mortgage obligations but also in the loss of trillions of dollars of 
value that people held in their assets--in their portfolios, in their 
401(k)s, which we know as 201(k)s, and in their homes. We lost 8 
million jobs as a direct result of Wall Street's double dealing, of 
their excesses, of their extraordinary greed. Eight million jobs were 
lost, and 2.8 million homes were foreclosed. Pensions fell by $28 
billion, and trillions of dollars of assets, of

[[Page 5848]]

value, that families needed for their retirements and for their ongoing 
businesses were all blown away.
  It is time for us--it is time for America--to reestablish the 
fundamental rules of the road that we had, as you said, since the 
1930s, since the Great Depression. Clear laws were established which 
said, if you're an investment banker, all right; if you're a banker, 
all right; and if you're an insurance company, all right, but you 
cannot be all three. We've got to get back to those kinds of very 
strict regulations; otherwise, this is going to happen again. We cannot 
depend on the market to discipline itself.
  Ms. SPEIER. If the gentleman will yield, in many respects, it's worse 
because, 10 years ago, there were probably 60 big banks. Today, there 
are only five. Because of this financial meltdown and because of the 
purchase by many of these banks of other banks, they are now too big to 
fail unless we take steps to make sure that they are contributing to a 
resolution trust fund and that there is a basis by which, if a 
systemically risky enterprise is deemed to be so by a council of 
advisers, that that particular entity can, in fact, be made smaller. 
Right now, we can't say that nothing is too big to fail for they are 
all too big to fail right now.
  Mr. GARAMENDI. That's exactly right.
  Clearly, the American financial institutions have worked themselves 
into a situation that will continue the risk that nearly brought down 
the world's financial institutions and that brought the world into one 
of its most dangerous economic times since the Great Depression. So we 
need to move legislation.
  I know that you're a member of the Financial Services Committee here 
and that you worked long and hard throughout the summer and fall of 
last year to put together comprehensive reform of the financial 
institutions, reform that would rein in the excesses, reform that would 
create transparency, reform that would create a Consumer Protection 
Agency.
  Could you describe some of the work, some of the dealings, some of 
the things that were going on in the background? Where were, for 
example, the Wall Street firms? Were they supporting the reregulation 
of the industry? Where were the consumers in all of this?
  From your perspective, give us a little bit of history.
  Ms. SPEIER. Well, I guess the best way to give you a little history 
is to tell you that the financial services industry is spending $1.4 
million a day, right here in Congress, trying to convince Members not 
to support the regulation reform measure.
  Mr. GARAMENDI. Excuse me.
  If I might interrupt, are you telling me that the Wall Street banks, 
the financial industry, is spending $1.4 million a day lobbying 
Congress and the Senate to stop financial reform and the reregulation 
of Wall Street?
  Ms. SPEIER. That's correct.
  So, to answer your question ``are they supportive of it?'' you bet 
they're not, because they want the status quo to continue as they 
continue to reap the benefits of the status quo with billions of 
dollars in bonuses and salaries that they get to take home.
  Mr. GARAMENDI. Pretty simple, isn't it?
  Ms. SPEIER. Follow the money.
  Mr. GARAMENDI. Greed. Greed. Greed. Greed is not good for America. 
Greed is not good for Wall Street in the long run because it really 
brought down this Nation to its knees in 2007-2008. Here is the greed. 
Here is what we are talking about.
  We are talking about extraordinary bonuses for Wall Street. This is 
money that should be going to Main Street, not to Wall Street bonuses. 
There were $145 billion of bonuses in 2009. People in your district and 
in my district are losing their homes; foreclosures are going on; banks 
are not making loans to small businesses; we have 20 percent 
unemployment in the construction industry; we have 12 percent 
unemployment in the State of California, and they want these kinds of 
bonuses. At the same time, they're not making loans to businesses. This 
has got to stop. That's what this is about.
  This is about: Whose side are you on? Are you on the side of the 
working men and women, of the small businesses out there, of the local 
bankers, of the opportunity for this Nation to come back or are you on 
the side of Wall Street?
  I know where you are.
  Ms. SPEIER. I know where you are.
  Mr. GARAMENDI. Well, we have got some things to do, don't we? We have 
some work ahead of us. We hope that we'll get a bill back from the 
other House shortly and get a conference committee going.
  Could you put that thing back up on The Cracks in Wall Street. This 
is a street that needs a repair. This is a street that needs a serious 
repair.
  We need to go back. I would love to see the Glass-Steagall Act back 
in place. I was insurance commissioner for 8 years in California, and I 
know how that industry operates. If they're able to play games, if the 
banks are able to play games by moving money back and forth from one 
side to the other, there is going to be another crash coming in the 
days ahead.
  Ms. SPEIER. If the gentleman would yield, in the discussion today in 
the Financial Services Committee on Lehman's--now, mind you, this is an 
examiner who has been appointed by the court to go through 5 million e-
mails and documents, and his report has been presented to the court and 
to Congress. It was just unbelievable.
  Repo 105s are short for what Lehman was doing. At the end of a 
quarter, they were selling off their liabilities to a third party, 
paying interest on it so that it looked like they were not leveraged as 
highly. Then, after the quarter was over, they were buying back those 
liabilities. Those are called repo 105s. Now, believe it or not, they 
did that over and over again, and the SEC knew about it and took no 
action.
  Mr. GARAMENDI. When did that happen? In what years?
  Ms. SPEIER. It happened in 2004, 2005, 2006, and 2007. It was during 
the time that the SEC had reduced the number of enforcement actions in 
this country by 80 percent--now, I said 80 percent--and the number of 
disgorgement actions by some 60 percent. The SEC was asleep at the 
switch.
  Mr. GARAMENDI. If you would yield for a moment, my recollection is 
that the Chairman of the Board of the Federal Reserve was saying that 
the market would regulate itself. Wasn't that what Mr. Greenspan was 
saying, that the market would regulate itself and that there was no 
need for government enforcement? Apparently, he was wrong.
  I recollect that he came before a congressional committee and said 
he'd made a mistake. He certainly did. Lehman Brothers was able to cook 
the books, and that's exactly what it is--cook the books. As the 
regulator of the insurance industry for 8 years, if a company would 
have come to me and if I would have seen that they were shifting their 
liabilities over to the asset column on the last day of the quarter and 
then shifting them back on the first day of the next quarter, that 
company should have been in deep trouble and would have been, but 
apparently, the SEC was a lapdog for Wall Street.
  Ms. SPEIER. Well, if the gentleman would yield, those statistics make 
the case better than anything we could say or do.
  Under Christopher Cox, who was then the SEC Chairman and a former 
Member of this very body who was appointed during the Bush 
administration, during those years of 2003-2007, to have that kind of 
reduction in their actions, whether they're disgorgement or enforcement 
actions, and furthermore to only have 24 employees in that division 
responsible for the CSEs that were created in 2004, you can understand 
they were overworked and that, clearly, there was no intention to 
provide the kinds of safeguards that we needed.
  Mr. GARAMENDI. It's hard to believe that the regulatory system for 
the financial underpinnings of this Nation was completely on the 
sidelines while Wall Street was playing these games.
  In the case of Lehman Brothers, what I would call it is flat out 
cooking your books. If that wasn't a fraud, I don't

[[Page 5849]]

know what is a fraud. They should have been slapped down. That should 
have stopped. It didn't happen because the total regulatory process of 
this Nation was on the sidelines. There were 24 people looking over 
this entire industry, and the SEC, under Chairman Cox, who was 
appointed by George W. Bush, simply didn't do its job.
  Now, where are we going to go today?
  We passed out of this House--I find it a great privilege and honor to 
have been here to vote on the financial reform bill that was moved from 
Congress over to the other House on Democratic votes--very few--and I 
do not recall really any members of the Republican caucus voting for 
that financial reform. I know where we stood. We stood for regulating 
Wall Street, for reining in Wall Street. We want those profits to go to 
Main Street, not to the bigwigs on Wall Street.
  So where do we go from here?
  We await the action of the other House, which hopefully will come. I 
know the President will be speaking on this matter, I think, tomorrow, 
Thursday, to Wall Street. He is going to go up there and say, Give us 
the reforms. We need these reforms to set in place the proper 
guidelines for Wall Street, for the financial industry.
  Will it happen? What's your guess?
  Ms. SPEIER. If the American people speak up, it will happen, much 
like anything else in this country, but we've got to make sure that the 
American people are educated about what is really at stake here. I mean 
it is our kids' futures. It is whether or not there is going to be the 
kinds of funds in California that are going to allow our kids to go to 
college because now there has been such a shrinkage in the number of 
slots available because there is just no money. With a $60 billion 
shortfall in the State, with so many people unemployed and with the 
revenues not coming in to States, I mean it becomes a death spiral, and 
we cannot allow that to happen again.
  Mr. GARAMENDI. People talk about the partisanship in Congress and in 
Washington, D.C., and I really have seen it. I saw it on the financial 
reform bill--the Democrats voting to rein in Wall Street, Republicans 
voting ``no.'' We saw it on an issue just raised about kids being able 
to go to school. Two weeks ago--3 weeks ago now, we voted on a major 
reform of the educational loans for American students.
  Ms. SPEIER. Who was protecting whom? Would you yield?
  Mr. GARAMENDI. I yield.
  Ms. SPEIER. If you go back to the student aid issue, what we had was 
an opportunity to take the $60 billion that was being given, for all 
intents and purposes, to middlemen, the banks, and say, you know, We 
don't need to spend that anymore. We're going to spend that kind of 
money on loans to students and not have those middlemen and just have 
the banks servicing these loans, and you would have thought that 
everyone would have been supportive of that. Not true.

                              {time}  2100

  Mr. GARAMENDI. Not true. I know that we had no votes from the other 
side of the aisle on taking $60 billion back from the big banks and 
giving it to students.
  We also just a week before that vote we had another vote up on the 
insurance industry, which you are so familiar with, and I know that I 
am. The health care reform was a major reform of the health insurance 
industry practices. No more discrimination against women, no more 
discrimination against people with preexisting conditions, and the 
freedom from fear of losing your job, losing your health insurance, and 
losing your life and your life savings. Those major insurance reforms 
were voted out of this House without one Republican vote--excuse me, 
there was one. One Republican voted for those reforms of the insurance 
practices to end health care discrimination.
  It's really interesting, bipartisanship not on the major issues where 
you are helping Main Street, not on the major issues of helping 
students, not on the issues of reforming the health insurance 
practices. On those kinds of things it's very, very clear where we 
stand on the Democratic side of the aisle. We stand for reform, reining 
in Wall Street, bringing into play serious restrictions on the ability 
of insurance companies, health insurance companies to discriminate 
against women and children and those with preexisting conditions.
  I know you have been there for many of these fights. And it's been a 
great pleasure to work with you on those. Perhaps it's time for us to 
wrap this up. And if you would like to kind of close, and then we will 
go on our way.
  Ms. SPEIER. Thank you for yielding. I think the important message 
that we are trying to drive home tonight is if you really want to see 
reform, then follow the money. Follow the $1.4 million a day that's 
being spent by Wall Street trying to lobby to keep the status quo. 
Follow the bonuses and the salaries. Follow how the money was moved 
from one account to another. Follow the shorting that went on in the 
industry, where they were selling the same products that they were 
shorting because it was all about making money. We want to make sure 
that the average American is protected. And that's why it's important 
to reform the system.
  Mr. GARAMENDI. Thank you so very much for your good work on it. This 
is a very, very clear dichotomy about where we stand. Our friends in 
the Republican caucus opposed the job bills that were put forward last 
year, the stimulus bill. They opposed it. They opposed the unemployment 
insurance programs that would keep people with enough money to be able 
to continue to keep their home and provide food for people. They 
opposed efforts to curtail the excessive Wall Street bonuses; opposed 
creating a new consumer protection agency to rein in Wall Street; 
opposed the tax cuts for small businesses and working families; and 
opposed regulating Wall Street to prevent foreclosures.
  On the other side of the aisle, I proudly say that the Democrats in 
this House supported the jobs bill last year that created thousands of 
jobs, hundreds of thousands of jobs. We support the unemployment 
insurance extensions. We support the efforts to curtail excessive Wall 
Street bonuses. And we support creating a new consumer protection 
agency to watch over the excesses of Wall Street. And we supported the 
tax cuts for small businesses and for working families. And, finally, 
we support regulating Wall Street and preventing further foreclosures 
and meltdown of the economy.
  It's been a challenge. And it's been a very, very important time in 
America. We have seen the worst of it. We have seen things getting 
better. We have also seen greed to the excess. And that greed, 
unfortunately, is going to continue unless we get a strong financial 
regulation bill to the President. And I know that my Democratic 
colleagues and I want to see that happen, and we will do everything we 
possibly can.
  Ms. SLAUGHTER. Mr. Speaker, as the Senate moves closer to voting on 
Financial Regulatory Reform, it is necessary to remind Members of 
Congress and the American people why this legislation is urgently 
needed. The global financial system was pushed to the brink of collapse 
in the fall of 2008 by the excessive risk taking and overleveraging of 
large scale banks and financial institutions. As a direct result, the 
U.S. economy was faced with the worst economic crisis since the Great 
Depression. 8 million Americans lost their jobs, pensions fell by $28.4 
billion, 2.8 million homes were foreclosed on, and trillions of dollars 
of savings and wealth were wiped out almost overnight. Only after an 
unprecedented intervention by the federal government at the expense of 
American Taxpayers did our financial system return to stability.
  The failure of Wall Street Banks to police themselves and act in the 
best interests of the public demonstrates the need for tough new 
federal regulations. The proposed financial reforms in the Senate bill 
will address the fundamental failures of the financial system that 
allowed reckless individuals and firms to threaten the collective 
economic security of our nation. These reforms, in short, will:
  Create a consumer financial protection agency (CFPA) to monitor 
consumer banking products and ensure the full and fair disclosure of 
every personal banking product to all Americans.
  Eliminate the possibility of future bailouts by discouraging the 
formation of ``too big to fail'' firms that pose systemic risks to the 
security of the financial system.

[[Page 5850]]

  Finally eliminate loopholes that allow complex and high risk 
investment vehicles such as over-the-counter derivatives and asset 
backed securities to escape the oversight of regulators
  Provide shareholders of banks with influence on matters relating to 
executive compensation
  Provide tough new rules for transparency and accountability for 
credit rating agencies to protect investors and businesses.
  And Enforce existing regulations and allow regulators to aggressively 
pursue misconduct and fraud
  These regulations will help ensure that the failures of the banking 
system that occurred during the financial crisis of 2008 never again 
threaten the collective economic security of our nation.
  Following on the heels of the Consumer Financial Protection Agency 
and efforts to ensure fair and full disclosure of financial products to 
all Americans, I introduced a bill with my colleague Congressman John 
Tierney to curb the abusive lending practices of credit card companies. 
H.R. 4300 the Restoring America's Commitment to Consumers Act would:
  Create a National Credit Card Usury Rate at 16 percent to prevent 
banks from charging unreasonably high interest rates
  Limit unreasonable fees including certain ``up-front'' fees 
associated with the extension of credit, such as membership fees and 
annual fees under the 16 percent usury cap. All other fees not included 
in the cap, such as late fees or insufficient funds fees are capped at 
$15.00 per fee.
  As the economic situation continues to remain fragile for millions of 
Americans and costs continue to rise, our constituents face tough 
choices when determining how to allocate their monthly income. Many are 
forced to put everyday expenses such as their utility, grocery or 
medical bills on their credit cards just to make ends meet. Far from 
helping struggling consumers, credit card companies appear to be 
exploiting this debt cycle by increasing interest rates to as much as 
30 percent and piling on fees. A December 2009 Associated Press story 
revealed a credit card interest rates as a high as 79.99 percent with a 
minimum of $256 in fees in the first year for a credit line of $250. 
Although the Credit Card Accountability Responsibility and Disclosure 
(CARD) Act of 2009 capped such fees at 25 percent of a card's credit 
line, the bill did nothing to cap unreasonably high interest rates and 
the 79.99 percent rate remained in place.
  With respect to the impact of the financial crisis on the health of 
the economy, it should be noted that New York State has shouldered a 
large share of the burden. The state has lost some 112,700 non-farm 
jobs since March 2009 while the private sector has lost 86,500 jobs. 
Statewide, the seasonally adjusted jobless rate in March was 8.6 
percent, compared with 8.8 percent in February, 7.8 percent a year ago 
and as low as 4.6 percent in October of 2007. Some 831,800 people were 
unemployed statewide last month. The role Wall Street played in leading 
to the great recession cannot be downplayed or ignored.
  It should be clear that reform of the financial services industry is 
necessary to protect the interests of our citizens. Following a long 
period of economic distress and at a time when the recovery of our 
economy is tenuous, the reform of abusive practices within the 
financial industry that both caused and exacerbated the suffering of 
millions of Americans is desperately needed. Congress must act now to 
address the fundamental weaknesses of the financial system and prevent 
history from repeating itself.

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