[Congressional Record (Bound Edition), Volume 156 (2010), Part 5]
[Senate]
[Pages 6949-6962]
[From the U.S. Government Publishing Office, www.gpo.gov]




           RESTORING AMERICAN FINANCIAL STABILITY ACT OF 2010

  The ACTING PRESIDENT pro tempore. Under the previous order, the 
Senate will resume consideration of S. 3217, which the clerk will 
report.
  The bill clerk read as follows:

       A bill (S. 3217) to promote the financial stability of the 
     United States by improving accountability and transparency in 
     the financial system, to end ``too big to fail,'' to protect 
     the American taxpayer by ending bailouts, to protect 
     consumers from abusive financial services practices, and for 
     other purposes.

  Pending:

       Reid (for Dodd/Lincoln) amendment No. 3739, in the nature 
     of a substitute.
       Reid (for Boxer) amendment No. 3737 (to amendment No. 
     3739), to prohibit taxpayers from ever having to bail out the 
     financial sector.

  The ACTING PRESIDENT pro tempore. The Senator from Vermont.


                          Gulf Coast Disaster

  Mr. SANDERS. Mr. President, before I talk about financial reform, I 
did want to say a word about the disaster on the gulf coast now and the 
oil spillage there. Obviously, all of our hearts go out to the families 
of the 11 workers who lost their lives and to the thousands and 
thousands of employees in the region who are going to lose their jobs 
as this terrible contamination spreads all over the gulf coast.
  But I hope very much we comprehend, in the midst of the disaster, 
that when we are dealing with technologies such as offshore drilling 
or, in fact, nuclear energy, we cannot be 99.99 percent successful. 
Unfortunately, as human beings, 100 percent success is a goal we often 
do not reach. That is why, in my view, as someone who has long opposed 
offshore drilling, I think it is absolutely imperative we understand as 
a nation if we move aggressively to energy efficiency, if we move 
aggressively to such clean, sustainable energies as wind, solar, 
biomass, and geothermal, we can, in fact, break our dependence on 
foreign oil and on fossil fuel in general, and we can create millions 
of jobs as we become energy independent without having to deal with the 
calamities we are experiencing today.
  Mr. President, either tomorrow or shortly after--I hope tomorrow--I 
will be offering an amendment which deals with transparency at the Fed. 
I did want to say a few words about that.
  At a time when many Americans are dispirited by the intensity of the 
partisanship which they see in Congress, this amendment, demanding 
transparency at the Federal Reserve, does something which is quite 
unusual. It brings together some of the most progressive Members of the 
U.S. Congress--and I consider myself in that fold--with some of the 
most conservative. It also brings together some of the strongest 
grassroots progressive organizations in the country with some of the 
most conservative. So what we are seeing in this amendment is a coming 
together of millions of Americans who have very different political 
ideologies but who agree it is absolutely imperative we bring 
transparency to the Fed.
  This amendment is virtually identical to legislation I have offered 
on the subject that now has 33 cosponsors. In order to give an 
indication of the diversity of ideological position, let me read who 
they are. They are Senators Barrasso, Bennett, Boxer, Brownback, Burr, 
Cardin, Chambliss, Coburn, Cochran, Cornyn, Crapo, DeMint, Dorgan, 
Feingold, Graham, Grassley, Harkin, Hatch, Hutchison, Inhofe, Isakson, 
Landrieu, Leahy, Lincoln, McCain, Murkowski, Risch, Sanders, Thune, 
Vitter, Webb, Wicker, and Wyden. That is a very broad cross section of 
ideological opinion in the Senate.
  In the House of Representatives, a similar process has taken place, 
and this concept has been cosponsored by 320 Members of Congress. That 
is a lot. That very rarely happens. That legislation was authored by 
Republican Congressman Ron Paul and Democratic Congressman Alan 
Grayson.
  The amendment I will be bringing to the floor of the Senate has 15 
cosponsors--Republicans and Democrats alike--and I very much appreciate 
their support. This amendment is simple and it is straightforward. At a 
time when the Federal Reserve has provided over $2 trillion in zero or 
near zero interest loans to some of the largest financial institutions 
in this country, this amendment requires the Fed to tell the American 
people who got the money. I do not think that is a very radical 
concept.
  This amendment would simply do two things: No. 1, require the 
nonpartisan GAO, the Government Accountability Office, to conduct an 
independent and comprehensive audit of the Fed within 1 year; and, 
secondly, require the Federal Reserve to disclose the names of the 
financial institutions that received over $2 trillion in virtually zero 
interest loans since the start of this recession.
  In terms of progressive grassroots organizations, this amendment 
enjoys the strong support of Americans for Financial Reform, a 
coalition of over 250--250--consumer, employee, investor, community, 
and civil rights groups, including the AFL-CIO, which represents 
millions of American workers, and the AARP, which is the largest senior 
group in this country representing tens of millions of seniors. So what 
we are looking at are grassroots organizations representing a huge part 
of our population that say it is time for transparency at the Fed.
  There are also many conservative grassroots organizations that are 
supporting this amendment, including the Campaign for Liberty, the 
Rutherford Institute, the Eagle Forum, and many other groups.
  This amendment is not a radical idea. As part of the budget 
resolution debate in April of 2009, the Senate voted overwhelmingly in 
support of this concept by a vote of 59 to 39. That is a strong sign 
that this Senate wants transparency.
  In the House of Representatives, this concept passed the House 
Financial Services Committee by a vote of 43 to 28 and was incorporated 
into the House version of the Wall Street reform bill that was approved 
by the House last December. So a provision very similar to what I am 
offering is already in the House bill. So we are not talking about some 
kind of fringy idea. It has widespread support in the Senate. It is 
already, to a significant degree, incorporated into the House bill.
  This concept has the support of the Speaker of the House, Nancy 
Pelosi, who has said Congress should ask the Fed to put this 
information ``on the Internet like they've done with the recovery 
package and the budget.'' In other words, what she is saying is, if we 
look at the TARP bailout, we have all the information we want--from who 
received that money, how it was paid back, et cetera, et cetera--it is 
out there on the Internet of the Treasury Department. That is where it 
should be. We want to bring that same type of transparency to the Fed.
  This concept, interestingly enough, has already been supported by two 
Federal courts--two Federal courts--that have ordered the Fed to 
release all of the names and details of the recipients of more than $2 
trillion in Federal Reserve loans since the financial crisis started as 
a result of the Freedom of Information Act lawsuit filed by Bloomberg 
News.
  The Fed has argued in court that it should not have to release this 
information, citing, according to Reuters, ``an exemption that it said 
lets federal agencies keep secret various trade secrets and commercial 
or financial information.''
  However--this is important; this is not Bernie Sanders speaking, but 
this is a Federal court--the U.S. Appeals Court in New York disagreed 
with the Fed's assertion. Here is what a unanimous--underline 
``unanimous''--three-judge appeals court panel wrote in their opinion. 
I quote them:

       [T]o give the [Fed] power to deny disclosure because it 
     thinks it best to do so would undermine the basic policy that 
     disclosure, not secrecy, is the dominant objective. If the 
     Board--


[[Page 6950]]


  The Fed--

     believes such an exemption would better serve the national 
     interest it should ask Congress to amend the statute.

  That is what a three-judge U.S. appeals court panel unanimously said. 
This appeals court decision upheld an earlier ruling by the Southern 
Federal District Court of New York that also ordered the Fed to release 
this information.
  In other words, we now have 59 Senators, 320 Members of the House of 
Representatives, and 2 U.S. courts who have all told the Fed, in no 
uncertain terms: Give us transparency. Tell us what happened when you 
put at risk trillions of dollars of taxpayer money.
  Based on the kind of grassroots support that exists in support of my 
amendment, I think the overwhelming majority of the American people 
want that transparency, and it is our job to give it to them.
  I do understand this amendment will not be supported by every Member 
of the Senate. Some of them may come up and say: Well, it is not 
accurate, so I want to deal with this right now. They may state that 
this amendment would take away the independence of the Fed and put 
monetary policy into the hands of Congress. Every other day, there 
could be a great debate here about whether we raise interest rates and 
that we get involved in every detail of monetary policy. That is 
absolutely not what this amendment does, and the language in the 
amendment is very, very clear.
  This amendment does not take away the court-appointed independence of 
the Fed, and it does not put monetary policy into the hands of 
Congress. This amendment does not tell the Fed when to cut short-term 
interest rates or when to raise them. It does not tell the Fed what 
banks to lend money to and what banks not to lend money to. It does not 
tell the Fed which foreign central banks they can do business with and 
which ones they cannot do business with. It does not impose any new 
regulations on the Fed, nor does it take any regulatory authority away 
from the Fed. In fact, the amendment prohibits Congress and the GAO 
from interfering with or dictating the monetary policy decisionmaking 
at the Fed. We are very clear about this in the amendment. This 
amendment simply requires the GAO to conduct an independent audit of 
the Fed and requires the Fed to release the names of the recipients of 
more than $2 trillion in taxpayer-backed assistance.
  There is a lot more to say, and I look forward to saying it when the 
amendment gets to the floor. Let me conclude by saying this: I don't 
remember the exact date--perhaps a year or so ago--when, as a member of 
the Budget Committee, we were addressed by Ben Bernanke, the Chairman 
of the Fed. When he came before the committee, I asked Mr. Bernanke if 
he would release the names of the financial institutions that received 
trillions of dollars on near zero interest loans. He said he would not 
do that. On that day, I introduced the legislation which now has 33 
cosponsors.
  So I look forward to hopefully tomorrow bringing this amendment to 
the floor. I am proud of the kind of tripartisan support we have 
gotten. I am proud of the fact that we have people from every 
conceivable ideology who are fighting for transparency, and I hope we 
can win this amendment and let the American people get an understanding 
of who received trillions of dollars of their money during the bailout 
period.
  Mr. President, with that, I yield the floor and note the absence of a 
quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. KYL. 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.
  Mr. KYL. Mr. President, let me address the amendment which we are 
going to be taking up first, I gather, on the so-called financial 
regulatory reform bill, the Boxer amendment.
  The Boxer amendment, as I understand it, is a declarative statement 
that taxpayers will not be responsible for any Wall Street bailouts. My 
understanding is that it is not a provision that would enforce itself 
or would in any way be enforceable in the legislation, but it certainly 
expresses a sentiment I assume every Senator would share. The problem, 
however, is not just the fact that we are concerned that taxpayers will 
be responsible for bailouts but the fact that bailouts will exist in 
any event and how that might affect people who have invested in or lent 
to an institution, what authority it would give the U.S. Government, 
and whether such a provision would apply as well to perhaps the biggest 
miscreants here: Fannie and Freddie, the two government-sponsored 
enterprises that hold the vast majority of the mortgages that are 
unsound or on less than strong financial footing--I will put it that 
way. So the question is not so much whether taxpayers' dollars will be 
used--though this amendment, while expressing a good sentiment, doesn't 
operatively prevent that--but just as much whether Wall Street will 
still be bailed out but in a different way. Will the appropriate 
policies and institutions that should be in place to prevent this be 
amended into the legislation?
  If all we want to do is ensure failing institutions are liquidated, 
then of course we can have a bankruptcy regime, and many people believe 
that is the appropriate regime because it is a tradition of law. 
Everyone knows exactly how it works, where you stand, and it ordinarily 
has been successful in liquidating firms that cannot pay their 
obligations.
  After the Lehman bankruptcy and the contagion effects which 
surrounded that, some believe bankruptcy wasn't really well suited to 
these kinds of large financial institutions, and it may well be that 
traditional bankruptcy would have to be modified in some respects in 
order to easily apply to the liquidation of a financial institution 
that large.
  One of the things, though, we need to do in figuring out exactly what 
the right process should be is to make sure creditors aren't receiving 
special treatment--for example, the way they did when the auto 
companies were bailed out and when other firms were bailed out. 
Otherwise, we will actually be increasing moral hazard rather than 
decreasing it, which is, of course, part of the exercise here.
  A government-compelled fund that takes money from successful firms 
and transfers it to a failed firm, for example, regardless of how you 
seek to justify it--as an assessment or a recruitment or a tax or 
whatever you might call it--is still a bailout. Ultimately, the 
question is not only who will pay for it but also, how does it scramble 
the obligations and the prioritization of obligations compared to what 
bankruptcy would do?
  The people who bear the cost of propping up a failed firm, for 
example, have nothing to do with the fact that firm failed or with the 
poor decisions of that firm. So if, instead of the American people, you 
are going to make other entities in its area--for example, a bank 
begins to fail, so you are going to make the other banks prop that bank 
back up. How is that fair to the shareholders or investors in the bank 
that has to do the propping up, or the groups of banks? They didn't 
have anything to do with the poor decisions made by the management of 
the failed firm, whereas you can argue that the lenders to the failed 
firm, the people who invested in the failed firm, and certainly the 
managers of the failed firm all had something to do with the direction 
the failed firm took. Because of that fact, the bankruptcy laws have 
set out priorities as to who ends up bearing the risk of the failure of 
that firm. The lenders and the investors in failing companies lose 
control of the money they invested, and whatever resources remain are 
channeled by the bankruptcy court into productive endeavors or to pay 
the people who have lent the money to the firm. That is exactly the 
opposite of what a government-sponsored fund does in transferring 
resources from a productive to unproductive purpose. Here, if it is not 
the taxpayers who fund it, then it is

[[Page 6951]]

fellow banks, let's say, or fellow financial institutions--again, 
people who had nothing to do with the failure of the entity that is 
being acted upon.
  Fortunately, there is a process that can address the problem of 
failing firms, that does move resources into more productive areas and 
at the same time holds those directly responsible for the mistakes 
accountable. There are different names for this and it can take 
different forms. One of them is called speed bankruptcy--in other 
words, a form of bankruptcy that recognizes that in certain 
institutions you are going to need to quickly take hold of them and, in 
order to prevent contagion in the market, shore up their financial 
situation so they cannot infect others and therefore cause a larger 
failure than just relates to that particular company.
  We should describe bankruptcy, first of all, to appreciate what this 
does. A firm becomes insolvent when its liabilities--which could be 
payments to bondholders, it could be payments to suppliers, it could be 
repaying loans--are worth more than the assets the company has, assets 
such as land, capital, accounts, the value of intangibles, and even 
things like reputation.
  Over the last couple of years, we have seen the collapse or near 
collapse of several well-known firms--for example, the GM and Chrysler 
auto companies, as I mentioned, Bear Stearns, AIG, the big insurance 
companies. We have also seen Fannie Mae and Freddie Mac, which are 
projected to be dependent on government assistance for the foreseeable 
future--and by government assistance, of course, ultimately we mean the 
taxpayers of this country. In the examples I cited above, the 
government response was in effect to prop up the failed firm with 
taxpayer funds.
  This so-called speed bankruptcy and iterations of the idea would 
instead convert a portion of the existing longer term debt of the 
company into equity. There are a lot of benefits, as you can see, to 
such a proposal. For example, with a large, complex firm that is in 
financial trouble, a lengthy process could create the kind of 
uncertainty that would otherwise undermine the ability of the company 
to continue once it exits the resolution process and, as I said, could 
also infect others in these areas. A speed bankruptcy, on the other 
hand, would permit the firm to remain in operation, to keep running.
  There is a paper that has been written on this that I think is very 
interesting. Garret Jones at the George Mason University Mercatus 
Center writes that this kind of proposal actually leaves bondholders 
with something of value so they are not entirely wiped out and retain 
the potential to make up for some of their losses if the equity shares 
they receive in lieu of their bonds once again gain value. Here is what 
he writes in this recent paper:

       Friday's bondholders become Monday's new shareholders, and 
     the banking conglomerate can continue borrowing and lending 
     much as before, with little possibility of a short-run 
     crisis.

  It is a little bit like debt or possession financing in a bankruptcy, 
but it matters where you get the financing, and in this case creditors 
of one kind become creditors of a different kind, trading, in this 
case, bond for equity in the firm.
  Second, unlike government-sponsored bailouts, investors directly tied 
to the troubled firm bear the financial costs of the restructuring of 
the firm.
  Third, since many of the bonds are publicly traded and are therefore 
liquid, the process would be entirely transparent, and the reason the 
process could occur so quickly is because of that conversion.
  Fourth, a debt-to-equity conversion leaves deposits untouched, 
avoiding a potential run on the bank in the case of banks and financial 
institutions.
  What steps and operations would be necessary to make this work?
  First, an insolvent firm would be able to convert an amount of its 
long-term debt specified in advance into stock in order to recapitalize 
and strengthen the institution. Under such a proposal, regulators would 
first need to declare that the institution is the risk.
  Second, the firm would need to breach a certain specified capital 
level to actually trigger the conversion. Once this process occurred, 
the restructured firm would emerge healthier, with less debt, with more 
equity, without any taxpayer money being used and without any money 
being used from other banks or other financial institutions.
  For example, Pershing Square Capital Management released a proposal 
to convert $75 billion of Fannie Mae's $750 billion senior unsecured 
debt into equity. For every dollar of senior unsecured debt, the 
bondholder would receive 90 cents in new senior unsecured debt and 10 
cents in value of new, common equity. As a result, the new Fannie could 
take advantage of its new capital. It has a dollar to expand its 
underwriting. It can utilize increased cash flow to absorb expected 
losses and, in the future, once conditions improve, to reduce its 
balance sheet by gradually selling some of the mortgage assets on its 
books.
  John B. Taylor writes today in the Wall Street Journal how to avoid a 
bailout bill:

       You do not prevent bailouts by giving the government more 
     power to intervene in a discretionary manner. You prevent 
     bailouts by . . . making it possible for failing firms to go 
     through bankruptcy without causing disruption to the 
     financial system and the economy.

  Here is the summary of what I am saying. Most of us here do not want 
to see taxpayer bailouts of these firms that have made poor management 
decisions, have invested poorly, and have made mistakes for which 
taxpayers should not be responsible.
  That is the genesis of the Boxer amendment. But for the Boxer 
amendment to be effective, two things will have to be done, and perhaps 
we will have suggestions on how to change it. It would have to be 
operational and enforceable. As I said, the amendment is oratory 
language--taxpayer funds should not be used for bailouts. We know that 
a sense-of-the-Senate resolution is nothing more than that, a sense of 
the Senate. It needs to have operational and enforcement language to 
have meaning. It is my understanding that this language doesn't.
  Second, the real question is whether instead of a bailout, where 
government--I don't want to use the word bureaucrats--officials 
representing the U.S. Government in one, two, or three different 
entities could, on their own, with little direction in congressional 
legislation, determine that a firm now needs to be taken over or bailed 
out, and without very much legislative criteria to direct them as to 
how to do it, or the circumstances under which it should be done, could 
begin to unwind that firm, using taxpayer money that is later recouped 
or perhaps funding from a tax or an assessment on other banks, for 
example, to infuse capital to keep it from going out of business. This 
is a way in which bankruptcy would ordinarily work, except that 
bankruptcy works according to a set of rules and traditions that have 
been developed over a couple hundred years that everybody is familiar 
with, and which people took into account before they made investments 
in or lent money to a company in the first place. If they became a 
bondholder, they knew where the bondholders would be in the order of 
priority in the case of a bankruptcy. If it is secured, they would have 
one level of security, and if it is unsecured, they are going to be at 
the bottom of the totem pole when it comes to distributing the assets 
of the bankruptcy. Lending is predicated upon their understanding of 
these well-known rules and principles.
  Moreover, they understand that a judge will be in charge, and he will 
put people under oath and cause them to testify so that you know 
exactly what the assets are, and you can understand what it would take 
to keep the company running or, in the event it does have to be 
liquidated, how the funds would be disbursed. A trustee is appointed, 
who has a fiduciary responsibility, under the court rules, to manage 
how the company comes out of bankruptcy, or to ensure that the rules of 
bankruptcy and the judgment are carried out. That is the way a 
bankruptcy works. It is a proper way to unwind or liquidate most 
businesses in this country.
  I think those who say these financial institutions are different, we 
need a

[[Page 6952]]

different set of rules, first, have an obligation to tell us why. What 
is different about these entities that the bankruptcy laws simply don't 
work? What would cause them to have a different set of treatments? If 
there are some things--and I can think of a couple things that 
distinguish them--then how can we modify the bankruptcy rules in effect 
to take into account those differences? One deficit, one could posit, 
is the fact that a large financial firm could easily have an effect on 
others invested in or who they invest in and, therefore, in effect 
cause a domino effect in markets. That could happen very quickly. 
Therefore, when you see signs of a problem, you need to deal with that 
very quickly. That is where this idea of bankruptcy comes from. It 
doesn't take a government bureaucrat or a government entity set up for 
this purpose to figure out that is what needs to be done and how to do 
it. It can be done within the context of bankruptcy today or with 
relatively modest modifications in the Bankruptcy Code, we could make 
those changes.
  The fear a lot of us have is that the people who are not elected or 
constrained by any particular power, except the limitations Congress 
imposes upon them--and in this bill those limitations are very 
general--those people could make decisions and put somebody into this 
process to decide who gets paid how much, without any reference 
necessarily, for example, to the Bankruptcy Code, who gets privileged 
and who isn't, and with whose money.
  If you look at the example of the two auto companies, you find that 
labor unions were substantially privileged to the exclusion of other 
investors. A lot of people thought this was wrong. It was contrary to 
the way it would have evolved had they been in bankruptcy court. So 
what most folks would like to see is a process you can count on, that 
you have rules of law established over time in the bankruptcy law that 
enable you to rely upon them, and not some unspecified, unclear process 
that is run by some agency of the U.S. Government. While it is 
certainly a step forward to say that taxpayers should not be on the 
hook for this, it is not enough to say that, A, because that is not 
operational or enforced, but, B, because there are other ways to do it 
that represent a closer adherence to the rule of law that would be 
better at promoting investment or lending in the first instance, 
because of the clarity and predictability of the way the situation 
would be treated in the event of a bankruptcy; and finally, that people 
who are not responsible for the bad management decisions would not have 
any liability when that company is liquidated or comes out of 
bankruptcy operating again. Rather, the people who had been involved in 
the company in the first instance would bear that obligation.
  This is just one idea--one of many--as an alternative to the specific 
provisions in the legislation. It is my hope that as we continue debate 
about this portion of the bill, we can come together on a set of 
principles that would adhere more closely to the rule of law 
established in the Bankruptcy Code to the concept that those 
responsible should be the ones who end up bearing the burden and that, 
in any event, as it appears most of us would agree, taxpayers should 
not be responsible for the decisions made by the management of a 
failing firm.
  I wonder whether my colleagues want to speak. If not, I will suggest 
the absence of a quorum. The Senator from Illinois wishes to speak.
  The ACTING PRESIDENT pro tempore. The Senator from Illinois is 
recognized.
  Mr. DURBIN. Mr. President, let me basically set the stage on what we 
are doing in the Senate today and why it is so important.
  This bill, which Senator Dodd of Connecticut has worked on for months 
with his staff--1,407 pages--is basically a bill that has been designed 
to create financial stability in the United States. Even with this 
great economy we have and all of the financial institutions and 
businesses notwithstanding, this recession has brought us economic pain 
that many of us have never seen in our lifetimes and only remember 
vaguely from our parents and grandparents describing the Great 
Depression.
  What Senator Dodd and the Banking Committee set out to do was to 
basically change the law to establish more oversight of financial 
institutions to make sure we never get into this mess again. It took 
quite a few pages to do it. This week, we start considering amendments 
to the bill, efforts to improve it, change it, and delete sections. It 
is the Senate in its historic role as a deliberative body.
  Today, there are no votes and that is why there are few Members on 
the floor. Amendments will be offered and the votes will start maybe as 
soon as tomorrow if Senator Dodd and Senator Shelby can reach an 
agreement. It is worth a moment's reflection to understand why we are 
here with a bill of this importance and magnitude, which may take a 
week or more--probably more--before it is completed. The Pew Financial 
Reform Project recently summarized what we have been through in this 
recession. It is a painful reminder, but it is worth noting as we start 
this debate. This is what they estimate to be the devastation caused by 
the recession we are in: $100,000, the cost to the typical American 
family in combined losses from declining stock and home values; $360 
billion, the estimated loss in wages due to slow economic growth, in 
October 2008 through 2009, and that is a loss in wages of over $3,250 
for the average U.S. family because of the recession; $3.4 trillion, 
the total loss in real estate wealth from July 2008 until March 2009, 
so roughly, on average, every household in America who owns a home lost 
$30,300 in value; 5.5 million, the number of additional jobs lost due 
to slow economic growth, and some 8 million Americans are unemployed, 
and another 6 million are discouraged and not looking for work; 
500,000, additional number of homes foreclosed upon during the most 
acute phase of the crisis; $7.4 trillion, total loss in stock wealth 
from July 2008 through March 2009. That is more than $66,000 per 
household, and it was usually felt in retirement accounts and savings 
accounts of families all across America.
  These are indications of what we have been through and, to some 
extent, are still going through. We are emerging from this recession, 
but it was a devastating loss to families and businesses across 
America, and a loss many are still trying to recover from. Senator Dodd 
took on the unenviable task of looking at the laws we have on the books 
and asking: How can we strengthen them to avoid this from happening 
again?
  Of course, there are several things that stand out. Why did the 
United States get in the business of stepping up and saying we are 
going to take taxpayer dollars to save private businesses? That is what 
we did. AIG, the largest insurance company in the world--initially, the 
Federal Reserve came in with some $85 billion when they were about to 
fail. If I am not mistaken, over the course of time, they added another 
$100 billion given to this one entity to keep it afloat. Why? Because 
they had basically guaranteed with insurance policies business 
contracts at every level in the American economy, and they were about 
to fail. They didn't keep an adequate reserve. So as these contracts 
started to fail, this insurance company couldn't pay off its promise. 
The feeling was that the whole economy would collapse on itself if we 
didn't prop up AIG to keep it in business.
  The same was true for major financial institutions--institutions that 
dreamed up securities which had never existed before. They decided to 
start packaging mortgages. So the mortgage I entered into in 
Springfield, IL, with my local bank could have been sold off to another 
bank, and then to some other financial institution, and then chopped 
and diced into pieces, those pieces each going to a separate security; 
and people were investing in them, guessing whether my wife and I were 
going to make our mortgage payments.
  As they went along, these rating agencies that are supposed to look 
at these securities and decide whether they are good or bad were giving 
them

[[Page 6953]]

sky-high AAA ratings, as good as a government security. Why? Because 
there weren't many defaults in real estate mortgages and, historically, 
real estate values went up. So they said this is a safe investment. 
Meanwhile, there were people looking at derivatives, saying we think 
this may be too optimistic, and we think maybe people are being loaned 
money for mortgages who might not be able to pay.
  As we got into it deeper, that is exactly what happened. Banks and 
financial institutions were offering mortgages to people under no-doc 
loans, no document loans, which basically meant if you said, I am 
making $100,000 and my wife is making $100,000 and we have maybe 
$50,000 in debt, they would say: That is all we need to know; let's go 
to closing.
  But where were the income tax returns and the documents to prove it? 
They weren't worried about that because they would get the mortgage and 
quickly sell it off to somebody else. That created this house of cards 
that eventually tumbled.
  What Senator Dodd and the Banking Committee are trying to do is make 
sure we never get in the position where American taxpayers never have 
to be called on to prop up banks, financial institutions, and insurance 
companies which, if they failed, would bring down the economy.
  The first amendment we have is from Senator Boxer of California. It 
has been referred to by the minority whip, Senator Kyl, in his opening 
remarks. He referred to it and described it as kind of a sense-of-the-
Senate offering. For those not familiar with how the Senate works, at 
the end of the day, we have a long list of resolutions that we offer 
for winning basketball teams and for national dairy ice cream dairy 
month, and fair play for Paraguay, and all sorts of things. These are 
sense-of-the-Senate resolutions, where we express our warm feelings for 
the good things happening in this country.
  This offering by Senator Boxer is not a sense-of-the-Senate 
resolution. It is an amendment to the bill. It is so short and direct 
that I want to read it. It consists of three sentences. Listen to them 
in clear, plain English, and you will understand why Senator Boxer's 
amendment is the right one for us to start with:
  First:

       All financial companies put into receivership under this 
     title shall be liquidated. No taxpayer funds shall be used to 
     prevent the liquidation of any financial company under this 
     title.

  Second paragraph:

       All funds expended in the liquidation of a financial 
     company under this title shall be recovered from the 
     disposition of assets of such financial company, or shall be 
     the responsibility of the financial sector, through 
     assessments.

  Third:

       Taxpayers shall bear no losses from the exercise of any 
     authority under this title.

  This is not a greeting card. This would be a law with teeth 
prohibiting the taxpayers of America from ever being left holding the 
bag again when a bank makes stupid decisions and faces liquidation. 
That is not a sense-of-the-Senate resolution. It would be a law and 
should be the first thing we pass.
  Senator Boxer listened to the debate back and forth about taxpayer 
bailout. She said to me and others: I am going to make this clear. I am 
going to put it in as clear language as I can think of to make sure 
that at the end of the day, we never go through this again. Her 
leadership on this amendment--it is right to be the first subject to be 
brought up. Those on the other side who dismiss this as not being 
powerful enough need to take the 2 or 3 minutes it would take to read 
it. If they read it, they will understand it is powerful, direct, and 
understandable language that says we are never going to let the 
taxpayers face this kind of obligation.
  It is not the only provision in this bill. There are many others that 
have been worked on for a long time. Senator Dodd negotiated with the 
other side literally for months trying to reach a bipartisan agreement. 
I know he tried. He tried hard with Senator Shelby, the ranking 
Republican, with Senator Corker, a member of the committee, also a 
Republican. At a committee hearing he held, the Republicans offered 400 
amendments, something of that nature. When the time came to call the 
amendments so there would be an open debate and the bill could be 
changed one way or the other, they made a decision not to call any 
amendments, not to offer any changes to the bill.
  I say on behalf of Senator Dodd, he has shown a good-faith effort to 
try to make this a strong bipartisan effort. It is not too late. As we 
start the debate this week, we have a chance to reach, I hope, some 
agreement and make this a strong bipartisan bill at the end.
  But when I listen to Senator Kyl of Arizona talking about the goals 
of this bill and what we want to achieve, I am worried. You see, the 
Republicans issued their summary of their substitute bill, the bill 
they want to offer to replace this bill. Within that summary, there is 
one thing that stands out: There is not a single provision in the Dodd 
bill which the Republican substitute would strengthen. There is no 
language we could find in their summary where they say: We are going to 
make sure we protect families and businesses and consumers more. Each 
and every section of their substitute weakens this bill, strengthens 
the banks, and removes the oversight and transparency requirements in 
so many different areas.
  When we take a look at the powers that the Dodd bill provides to the 
Federal Reserve, unfortunately this Republican substitute does not even 
give those same powers so that the Federal Reserve which could require, 
for example, more leverage requirements so that a bank would have more 
money in the bank to back up investments they would make, liquidity 
requirements, those are all weakened by the Republican substitute. Time 
and again their approach to this bill to avoid an economic disaster is 
to water it down.
  Last week, they had a different strategy. The strategy was a 
filibuster strategy to stop us from even coming to this bill. When they 
could not sink the bill, they decided they would let us move forward 
and try to water it down. I don't think that is a move in the right 
direction for the American economy. I hope we will stand against 
amendments which weaken this bill.
  It is estimated that the financial industry is spending over $100,000 
a day in Washington on lobbyists who are trying to get us to weaken or 
defeat this bill. One may not see them as one walks around Capitol 
Hill. Believe me, they are busy at work--on the telephones and visiting 
the offices--asking Members to weaken this bill.
  I hope we have the fortitude to say no because this is something that 
needs to be done. This bill needs to be passed. If anything, we need to 
strengthen provisions of it.
  There is one section that means a lot to me on consumer financial 
protection. I offered a separate bill on the subject before it came up. 
Historically, we gave consumer financial protection to a lot of 
different agencies. Sadly, none of them took it too seriously.
  I can recall when the Chairman of the Federal Reserve, Ben Bernanke, 
was up for reconfirmation just a few months ago. I talked with him in 
my office. He said: Over the years, the Federal Reserve was given 
powers to protect consumers. He said: What happened was we never used 
them. Recently we have started to, but historically we did not use this 
authority.
  We had a situation that when it came to the safety and soundness of 
banks, they were doing their job, trying to make sure the banks had 
enough in reserve, that their practices were meeting the law. But when 
it came to protecting the people, the customers of the banks, they did 
not really apply themselves to that situation. That was repeated in 
several other agencies.
  What Senator Dodd has done is to create the strongest consumer 
financial protection law in the history of the United States of 
America. He is not creating a massive bureaucracy as his critics say. 
Rather, he is saying we will have one agency with its own funding and 
its own authority which will be able to look at legal documents that 
Americans, families, and businesses deal with every day to protect us 
from the tricks and traps into which we can run.

[[Page 6954]]

  There will be more complete disclosure when it comes to signing an 
important document--such as a mortgage, credit card agreement, a 
student loan, an automobile loan, a retirement plan--so that 
individuals will be empowered across America to look at the facts and 
make the choice that is best for them.
  We are not going to create any kind of guardian angel society. People 
may still make a bad decision, but they will do it with their eyes wide 
open instead of being lured into a document which has a secret clause 
that ends up exploding and hurting them financially.
  It happened not that long ago. My colleagues may remember if any of 
them have been to real estate closings, sitting down in that bank 
office at a table with your spouse, with two ballpoint pens in hand as 
they turned the corners of the documents and you signed away for about 
20 or 25 minutes. About halfway through you say: What is this again? 
Oh, don't worry, it is standard boilerplate, just required by the 
government; been through it all; done it a thousand times. Off you go.
  At the end, you put the ballpoint pen down, stand up, shake hands, 
hand a check, get the keys, go to the new house. But you never know 
until a later time whether there is a clause or provision in one of 
those agreements that can come back to haunt you. Let me give an 
illustration.
  In the days of subprime mortgages, people used to be lured in to take 
a mortgage on a house because the payments were so low: In the first 
couple of years you mean my monthly payment is going to be half of what 
I was paying, and I can have this big house? It's a deal. In the third 
year, there is going to be a change, but the home is going to go up in 
value. And off you go and sign up.
  Some people did not seriously take into consideration that things 
might go bad for them personally, such as losing a job or the value of 
the home may not go up as promised or the interest rate may go sky high 
and they cannot handle it.
  In the early mortgages, they had a prepayment penalty. That one 
clause, that one sentence meant those people at that moment in time 
would face the worst economic situation of their lives because instead 
of being able to renegotiate a different mortgage with a different bank 
with affordable terms, there was a penalty built into their original 
mortgage that cost them tens of thousands of dollars they could not 
pay, and they ended up in foreclosure and ended up losing their homes 
and lost their downpayments. Many of them lost their life savings 
because of one sentence in that stack of closing documents.
  The purpose of this consumer financial protection agency is to make 
sure we shine a light on those provisions so that people know when they 
make a decision what that decision means.
  Now come the Republicans, and they have come up with a substitute, at 
least their leadership has. I don't know if it speaks to all the 
Republicans. They may not agree with it.
  In their summary, it appears they start carving out different groups 
that will not be covered by consumer financial protection. We have them 
in my hometown of Springfield, IL, and you may have them in yours too. 
These pay-day loans, title loans, where you come in and hand the title 
of your car over and they give you a basic loan and say: We are not 
going to take your car away.
  The next thing you know, interest rates are going up, you refinance 
the loan, and pretty soon you may lose your car. It appears in the 
Republican substitute those folks in their business ventures should not 
be covered by the Financial Consumer Protection Act. Go figure. Some of 
the shabbiest credit operations in America are going to be exempt under 
the Republican approach to this bill. I don't think it makes much 
sense.
  They also, when it comes to check cashers, currency exchanges, debt 
collectors, some of the used car dealers, start cutting out exemptions, 
these lobbyist loopholes that are carving out different financial 
institutions which will not be subject to this kind of consumer 
protection.
  That is a step in the wrong direction. We ought to make sure 
everybody is onboard. Groups have come to me from Illinois and said: 
Could you just acknowledge the fact that our operation has been clean, 
everybody loves us, we are good neighbors? No, everybody should play by 
the same basic rules of disclosure and honesty. Good businesses can 
live with that standard. Those that are not so good, maybe they should 
not be in business.
  When it comes to the attorneys general in the States across America, 
the Republican substitute says they cannot enforce the provisions we 
are putting in here. That is a step in the wrong direction. That 
weakens this good bill. I hope we do not succumb to that proposal.
  There are a number of other things in here. I will not go through it 
in detail. One of the staff refers to it as a ``term paper.'' It goes 
on page after page summarizing what the Republican substitute will do.
  It basically weakens the credit rating agencies I mentioned earlier. 
Remember the ones that gave AAA ratings to bad securities? Senator Dodd 
starts addressing these with review of their practices, and the 
Republican substitute weakens that. How can that be any good, to weaken 
that after the experience we have been through?
  That is the debate we are going to face. I hope my colleagues, during 
the course of this week, will have the opportunity to take this good 
bill, this strong bill, and make it stronger. I will offer a few 
amendments along those lines. If those on the other side of the aisle 
want to join in that effort, I welcome them to see what they have to 
offer. But if those who come to the floor to offer amendments to weaken 
this bill, to weaken the oversight, to have less transparency and less 
security, they are virtually eliminating a cop on the beat that we need 
on Wall Street to make sure we never, ever experience the kind of 
economic crisis we are currently experiencing across America.
  Mr. President, I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Connecticut.
  Mr. DODD. Mr. President, first, I thank our colleague from Illinois 
for his predictable eloquence. He is not a member of the Banking 
Committee, but I began to think he was listening to him talk. He has a 
wonderful awareness and knowledge of the legislation, and I appreciate 
that very much. It is a complicated area of law. The fact that he has 
spent as much time analyzing what is in the bill and the important work 
that has been done over the many months we have been involved in this 
debate is something I appreciate very much. I thank him.
  I know my friend from Kentucky is here as well. I will not take long, 
I say to Senator Bunning.
  I am one who is supportive of the Boxer amendment. It is 
straightforward. The Senator from Illinois read the amendment. What I 
think is important is in the very first line it says, ``At the end of 
title II, add the following.'' That is the resolution title.
  As the Senator from Illinois said, this is not a sense-of-the-Senate 
resolution. Title II of the resolution title is a title the Presiding 
Officer, Senator Warner of Virginia, and Senator Corker of Tennessee 
were the principal authors of on a bipartisan basis in November or 
December. I asked a number of my colleagues if they were interested in 
working on various sections of the bill. Senator Warner and Senator 
Corker had a strong interest in the resolution sections of title I and 
title II of the proposed legislation, the too-big-to-fail concept, 
something which I believe every Member of this Chamber endorses.
  None of us wants to ever again be put in the situation that unfolded 
in the fall of 2008 when we saw a check for $700 billion being written 
out to stabilize a number of large financial institutions in the 
country.
  The good news is that at the end of all of that, we are getting money 
back. But, obviously, it was traumatic to go through all of that, to 
watch institutions that should have been far more cognizant of the 
difficulty they were getting into, and when they got into

[[Page 6955]]

deep trouble, in order to stabilize the economy or have what the 
Chairman of the Federal Reserve and the Secretary of the Treasury 
warned that had we not stepped in could have caused the entire 
financial system of this country of ours to melt down, to use their 
words exactly, in the fall of the 2008. All of us here collectively 
started with how do we write a piece of legislation that would minimize 
the events that unfolded over the last several years.
  Once again, the statistics get repeated frequently on this floor, but 
they are deserving of being repeated. Mr. President, 8.5 million jobs 
have been lost, 7 million homes went into foreclosure, a 20-percent 
decline in retirement incomes, a 30-percent decline in home values, the 
$11 trillion to $13 trillion--that is with a ``T,'' trillion dollars--
in loss of household wealth. Senator Durbin enumerated a number of 
those statistics more on an individual basis or a family basis.
  So we are determined, as we begin this process, that we begin with 
titles I and II. The titles of the bill don't always reflect 
priorities, but in this case they do. There is nothing more important 
we do in this bill than to end the too-big-to-fail concept--the notion 
there is an implicit guarantee that if you get in trouble as a 
financial institution, whatever it may be, that the Federal Government 
will bail you out when that happens. So we have worked very hard, over 
many months, to craft the language that will actually bring us to that 
conclusion; in the rare case, resolution; in most cases, bankruptcy or 
receivership, where management gets fired under our legislation or 
where creditors lose, shareholders lose their market value or the value 
of their shares, there is a tremendous decline there. This is a very 
painful process to go through but a necessary one.
  What Senator Boxer has crafted is merely, in a sense, restating what 
we have in the legislation, in title I and title II, but to make it 
more clear and more emphatic, using all the tools we have written--and 
that is a significant section of this bill--with a tremendous amount of 
input from people whose knowledge and background in this area was 
critically important.
  I wish to thank my colleague from Vermont, Senator Leahy, chairman of 
the Judiciary Committee, because our colleague from Arizona is correct, 
there were issues involving bankruptcy that we had to work on in this 
legislation. With the cooperation of the Judiciary Committee as well, 
we were able to fashion what we have in this bill to end too big to 
fail. Senator Boxer's amendment emphasizes that point.
  When she says in her amendment, very clearly, that all financial 
companies put into receivership--which is what the language of titles I 
and II does--under this title shall be liquidated. Shall be liquidated. 
Not maybe or we hope you are or wouldn't it be a nice thing if you were 
but you shall be liquidated. What words do my friends not understand in 
that sentence?
  No taxpayer funds. The second sentence. No taxpayer funds shall--
again, for those who know the English language, that is not may--be 
used to prevent the liquidation of any financial company under this 
title. I don't know how much more clear you can be. Again, I commend 
her for the language because I think it is the kind of language that 
anyone ought to be able to understand.
  All funds expended in the liquidation of a financial company under 
this title shall be recovered from the disposition of assets of such 
financial company or shall be the responsibility of the financial 
sector through assessments. In other words, they shall pay, not the 
taxpayers. Again, I don't know how much more clearly you could write 
the language.
  What we did through page after page and chapter after chapter and 
title after title, if you will, was to legally tell you how we do this. 
But Senator Boxer has then put an exclamation point on it by telling 
you this is what all this means, in case anyone fails to understand it.
  Then, in the third sentence, taxpayers shall--again--bear no losses 
from the exercise of any authority under this title of the bill.
  So I applaud and thank my colleague from California for the language. 
Again, we think we have done it. But, look, anyone who tells you they 
have written the perfect bill, be careful of them. I have been around 
here long enough to know there is no such thing as the perfect bill. 
Senator Shelby, my partner, the ranking Republican and the former 
chairman of the committee, and I are working on additional language 
that some have raised as a way to tighten this down even further, 
should there be any doubts. My hope is, shortly, maybe even as early as 
tomorrow, we will be able to present a united front on how we do that 
to further allay the fears some have that titles I and II don't quite 
complete what they were designed toward achieving in this legislation. 
So I look forward to that.
  I am a supporter of the Boxer amendment when it comes up. The other 
parts of this bill, again, we have talked a lot about. Senator Kyl 
talked about various other ways of dealing with bankruptcy. He is 
correct; it is complicated. It is not a straight, normal bankruptcy 
because there are counterparties; that is, other people, other 
institutions that may be in very good shape, not in danger at all of 
coming undone, that could be adversely affected by the financial 
collapse of another firm. So we want to be careful, as we begin that 
process of liquidation, that we don't put the country at greater risk 
than would be the case with the single company or the single 
institution going into receivership.
  So there are aspects that have required a very thoughtful process 
and, again, the Presiding Officer--and I commend him for it--along with 
Senator Corker and others, has been very involved and has been able to 
work on it over these many months. This is not a bill that was drafted 
over the weekend or in a few days. There has been a tremendous amount 
of work that has gone into it. Again, my hope is, as we gather in the 
coming days on this bill, that we will be talking about what is in this 
bill and how it works, rather than people listening to some talking 
points out of a political document about what they hope might be or 
might not be in the bill in order to arrive at some political judgment. 
This issue is far too serious. If we fail in this effort over the 
coming days, then we will leave this country of ours so exposed to the 
exact situation we saw in the fall of 2008.
  We know in the world in which we live today, it isn't just a matter 
of what happens in our own country--all the headlines we have read 
about now over the last several weeks of a small country in the 
Mediterranean--Greece--going through great economic difficult has all 
of a sudden put Europe at risk financially. The Euro has declined in 
value, the debt instruments have lost their value. Now the IMF has 
jumped in, and the Europeans apparently may have jumped in, but let it 
be a warning to people that we are not living in a world any longer 
where an American institution, an American bank or some financial 
institution gets in trouble; we are now talking about a world where 
what happens in Shanghai, what happens in Europe, what happens in small 
countries can affect all of us.
  We need to recognize that in this 21st century, the rules we are 
operating on basically were written 100 years ago or more and we need 
to update those rules and regulations to make it possible for us to 
manage the next crisis when it comes, and it will come, certainly. When 
it does occur, will we be able to deal with it effectively, early on, 
so as not to watch it explode across this country and cause as much 
devastation as the present events over the last 2 years have?
  That is what this effort is all about. It is not more complicated 
than that, although the answers can be complicated as we try to fashion 
them in a way that makes sense. I pray this will not become an 
ideological or political debate. We bear far too great a responsibility 
to our fellow citizens not to give our best judgment on how to resolve 
these matters. It ought not to be a question of who wins and who loses 
6 months from tomorrow when it will be election day--6 months tomorrow, 
on November 4. I know there is a great

[[Page 6956]]

preoccupation with that. I don't deny that. But our efforts on this 
bill ought not to be wrapped around that conclusion. We ought to be 
trying to do our very best to fashion the steps, the rules that will 
allow us to minimize the effects of another economic crisis.
  I can't imagine walking away from this session of Congress, after all 
the effort that has been made to bring us to this point, not to sit 
down and resolve these matters in a way that allows us to move forward. 
So I intend to be supportive of the Boxer amendment. I hope and believe 
Senator Shelby and I can agree on a second set of ideas to present to 
our fellow colleagues tomorrow. I have listened over the weekend. We 
have worked very hard with all our colleagues, both Democrats and 
Republicans, who have come up With additional ideas they would like to 
incorporate as a part of this bill, and we are working with them. My 
hope is we can lay those out in the next 2 or 3 days to reach agreement 
on some of those matters.
  There will be some matters which we probably can't resolve, despite 
our good efforts. If that is the case, then we should have a good, 
healthy debate for an hour or two, then vote in this Chamber and decide 
whether to accept or reject various ideas. That is the way this 
institution was designed to work. So in the coming days, I intend to be 
standing at this very spot, acting as the manager of this bill, along 
with Senator Shelby, and again the members of the committee who spent 
so much time and effort over the last number of months will be a part 
of this discussion. They offered their intelligence, their background, 
and their information that I think will enlighten and inform not only 
the membership but the country as well to what we are trying to 
achieve.
  I look forward to that debate, when we begin in the next 24 hours, 
and hope that over the next week or so we can conclude that debate; 
that we will have that good kind of civil conversation, partisan at 
various points, as I am sure it is apt to be, but remind each other 
that we bear a joint responsibility to get this right before we adjourn 
this Congress and to see to it that the American people have a good 
answer, at least the best answer we can give them under the 
circumstances, as to how to minimize the effects that have caused so 
much harm to our country over the last 2 years.
  With that, I thank my colleague from Kentucky, and I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Kentucky.
  Mr. BUNNING. Mr. President, I come to the floor to speak about 
financial reform and the bill the Senate is considering right now. I 
have made no secret of my desire to pass a strong financial reform bill 
and rein in excesses of our largest financial companies. No Senator in 
the Banking Committee or in this Chamber has been a stronger voice 
against the financial industry enablers at the Fed than I have been. I 
have fought every bailout that has come through this Congress as well 
as the bailouts that the Federal Reserve and both the Bush and Obama 
administrations put in place without the approval of the Congress. I 
wish to pass a bill that ends bailouts and puts strong restrictions on 
reckless activities in our financial sector. Unfortunately, the bill 
before the Senate not only fails to end bailouts, it does the opposite 
and makes them permanent. This bill will also lead to future financial 
disasters because it ignores the root causes of the crisis and thus 
fails to put the necessary handcuffs on key parts of the financial 
system.
  The primary goal of this bill should be to end bailouts and the idea 
of too big to fail. Instead, the bill makes too big to fail a permanent 
feature of our financial system. It concentrates regulations of the 
largest financial institutions at the Federal Reserve and removes only 
small banks from Fed supervision. The Feds failed as a regulator 
leading up to the crisis and should not be the regulator of any banks, 
but now Federal regulation will be a sign that a firm is too big to 
fail. On top of the new Fed seal of approval for our largest financial 
companies, this bill creates a new stability council that will 
designate other firms for the Fed to regulate and, thus, too big to 
fail.
  Federal regulation of the largest financial firms is not the only way 
this bill makes too big to fail and bailouts permanent. The largest 
bank holding companies and other financial firms will now be subject to 
a new resolution process. Any resolution process is, by definition, a 
bailout because the whole point is to allow some creditors to get paid 
more than they would in bankruptcy. Even if the financial company is 
closed down at the end of the process, the fact that the creditors are 
protected against the losses they would normally take will undermine 
market discipline and encourage more risky behavior. That will lead to 
more Bear Stearns, Lehman Brothers, and AIGs, not less.
  The bailouts in this bill come with a cost beyond the moral hazard 
created by protecting creditors. Despite claims that the financial 
industry will pay for the bailouts, payments into the bailout fund are 
tax deductible, which means taxpayers are directly subsidizing the 
bailouts.
  The bailout fund is not the only way this bill keeps taxpayers on the 
hook for future bailouts. First, the bill does not shut off the Federal 
Reserve's bailout powers. While some limits are placed on the Fed, the 
bill still lets it create bailout programs to buy up assets and pump 
money into struggling firms through ``broad-based'' programs. Second, 
the bill creates an unlimited new debt guarantee program at the FDIC 
that can be used to prop up firms instead of closing them down. Both of 
these bailout powers put taxpayers directly at risk and make bailouts a 
permanent part of the financial system.
  Instead of putting all these bailout powers into law, we should be 
putting failing companies into bankruptcy. Bankruptcy provides 
certainty and fairness, and protects taxpayers. Under bankruptcy, 
similar creditors are treated the same, which.prevents the government 
from picking winners and losers in bailouts. Shareholders and creditors 
also know up front what losses they are facing and will exercise 
caution when dealing with financial companies. Later this week I will 
join several other Senators in offering an amendment that will update 
our bankruptcy laws to deal with modern financial firms and permanently 
end bailouts.
  If this bill is not going to take away government protection for 
financial companies and send those that fail through bankruptcy, then 
it should make them small enough to fail. Decades of combination have 
allowed a handful of banks to dominate the financial landscape. The 
four largest financial companies have assets totaling over 50 percent 
of our annual gross domestic product, and the six largest have assets 
of more than 60 percent. The four largest banks control approximately 
one-third of all deposits in the country. This concentration has come 
about because creditors would rather deal with firms seen as too big to 
fail, knowing that the government will protect them from losses. I 
would rather take away the taxpayer protection for creditors of large 
firms and let the market determine their size. But if that is not going 
to happen we should place hard limits on the size of financial 
companies and limit the activities of banks with insured deposits. Any 
financial companies that are over those size limits must be forced to 
shrink. This will lead to a more competitive banking sector, reduce the 
influence of the largest firms, and prevent a handful of them from 
holding our economy and government hostage ever again.
  Along with not solving too big to fail, this bill does not address 
the housing finance problems that were at the center of the crisis. 
First, there is nothing in this bill that will stop unsafe mortgage 
underwriting practices such as zero downpayment and interest-only 
mortgages. There is a lot of talk of making financial companies have 
skin in the game, but when it comes to mortgages, the skin in the game 
that matters is the borrower's. Second, the bill ignores the role of 
government housing policy and Fannie Mae and Freddie Mac, which have 
received more bailout money than anyone else. The bill does not put an 
end

[[Page 6957]]

to the GSE's taxpayer guarantees and subsidies or stop the taxpayers 
from having to foot the bill for their irresponsible actions over the 
past decade. On Friday the Wall Street Journal reported that over 96 
percent of all mortgages written in the first quarter were backed by 
some type of government guarantee. Until we resolve the future of the 
GSEs, the private mortgage market will not return and the risk to the 
taxpayers will continue to increase.
  This bill also does nothing to address the biggest single factor in 
the current financial crisis and most other crises in the past--flawed 
Federal Reserve monetary policy. Nothing in this bill will stop the 
next bubble or collapse if the Fed continues with its easy money 
policies. Cheap money will always distort prices and lead to dangerous 
behavior; no amount of regulation can contain it.
  As I mentioned earlier, the bill concentrates regulation of the 
largest financial firms at the Federal Reserve, despite the Fed's long 
history of failed regulation. Leading up to the crisis the Fed already 
favored the interests of the large banks, and by only removing its 
supervision of small banks the Fed will become even more of a 
cheerleader for Wall Street. In an earlier version of this bill, bank 
and consumer protection regulation were removed from the Fed and placed 
in a new bank regulator. Unfortunately, that was undone in the current 
version and the Fed gets more power for both jobs.
  No one has criticized the Fed more than I have, for its failure to 
use its consumer protection powers to regulate mortgages. But I just 
cannot understand keeping consumer protection inside the same Fed that 
ignored that job for decades. This bill takes a dangerous approach to 
consumer protection by separating it from the safety and soundness of 
financial companies. It also goes even further by letting the Fed reach 
into businesses that had nothing to do with the financial crisis.
  Finally, I want to mention the credit rating agency portion of the 
bill. Our goal should be to reduce investors' reliance on the agencies. 
Instead, the bill will give investors a false sense of security by 
setting new standards to get certified by the government. Also, 
allowing the rating agencies to be sued will discourage new agencies 
from entering the market and further concentrate power in the hands of 
the largest agencies that have performed the worst.
  I have many other concerns about the bill that I will not mention on 
the floor today, but they are explained in detail in the minority views 
section of the committee report. As the bill stands today, it will not 
solve the problems in our financial system. It is regulation without 
reform. But I hope we can work together to get a bipartisan bill that 
will put an end to too big to fail forever.
  The ACTING PRESIDENT pro tempore. The Senator from Delaware.
  Mr. KAUFMAN. Mr. President, I rise to discuss Wall Street reform, 
because we must get this bill right if we are to prevent another 
financial crisis like the last one, which almost destroyed our country. 
The newspapers are filled with reasons why this is so important: In 
Europe, because a sovereign debt crisis is threatening to become a 
full-blown bank crisis, the governments of the EU are using taxpayer 
funds to bail out Greece.
  The hearings before Chairman Levin's Permanent Subcommittee on 
Investigations have riveted the Nation on fraud at the heart of the 
financial crisis; the widespread use of fraudulent stated-income loans 
by Washington Mutual; the abject failures of the bank regulatory 
agencies; the willful neglect of the credit rating agencies; and, 
finally, the hopelessly conflicted practices of Goldman Sachs, which 
put its own trading activities above any sense of duty to its 
customers.
  In particular, over the past few weeks, much has been spoken and 
written about solving the problem of banks that are ``too big to 
fail.'' As many of my colleagues know, Senator Brown and I, along with 
Senators Casey, Merkley, Whitehouse, and Harkin, introduced a bill to 
place strict limits on the size and leverage used by systemically 
significant banks and non-banks alike. We are now offering this 
legislation as an amendment to the financial reform bill, because we 
believe that Congress must reduce these megabanks to a manageable size 
and cap the leverage they may use in order to limit the risk they pose 
to our economy. We should never again have banks that are too big to 
fail.
  As the recent investigations by Chairman Levin, the Financial Crisis 
Inquiry Commission and others have shown: Even the best-intentioned 
regulators are no match for gigantic financial institutions, which are 
structurally complex, functionally opaque, and global in scope. Just as 
importantly, these financial institutions purposely operate to evade 
regulatory oversight by means of regulatory arbitrage, accounting and 
reporting practices that frustrate transparency, and so-called 
financial innovation that regulators have no chance of fully grasping 
in real time.
  To surrender our Nation's economic security to unelected and mostly 
unconfirmed regulators is both unwise and undemocratic. It is also a 
gamble. For those of my colleague who do trust the current set of 
regulators and have faith in them,--I am sure of those. I trust our 
regulators.--I would ask: Who will be the next president? Which 
regulators will he or she name to oversee the largest banks? What will 
be their regulatory philosophy? And how much determination and 
enthusiasm will they bring to the task of forecasting bank risk and 
risk to the U.S. economy? I submit, no can answer those questions.
  And while resolution authority is necessary, why would we believe 
that it will work for a $2 trillion megabank with operations in more 
than 100 countries? And as we saw just months ago, such banks do not 
simply fail on their own. The very problems that affect one megabank, 
such as a fall in the value of widely held assets like mortgage-backed 
securities, will affect every other big bank at the same time. That is 
what is happening in Europe today. The EU has decided to bail out 
Greece, before the panic spreads to Portugal, Ireland and Spain.
  That is why to me the choice is clear. We must do more to act 
preventively.
  Making the largest banks smaller is a necessary, but not sufficient, 
proposal. It is a complementary idea to the regulatory solutions 
contained in the current bill, which is a good bill.
  In the 1930s, this body had the courage and foresight to pass laws 
that maintained U.S. financial stability for generations. But a decade 
ago, too many forgot the wisdom of those laws. That is our challenge 
today in the Senate. We can either do nothing, which would be dangerous 
and irresponsible. Or we can direct the regulators to do a better job, 
which may work for a time. Or we can build a strong, clear safeguard to 
secure the American economy and to protect the American people from 
ever having to bail out megabanks again.
  The current bill has many provisions that I support, but, as Moody's 
reports, ``the proposed regulatory framework doesn't appear to be 
significantly different from what exists today.'' We must go farther.
  The Brown/Kaufman amendment is not as dramatic as it seems nor is it, 
I believe, fraught with unintended consequences. Very large banks will 
still exist under this bill. But they will not be so big that they are 
``too big to manage and too big to regulate,'' as former FDIC Chairman 
Bill Isaac has said. And the leverage they use, the ratio of capital to 
assets, which is the very basis for how risky they become, will be 
statutorily capped.
  In fact, the extra layer of protection provided by this legislation 
is the least we should do. Under Brown-Kaufman, big financial 
conglomerates like Bank of America and Citigroup will still have 
balance sheets that exceed $1 trillion, about half of their current 
size. In other words, Citigroup would be about the size that it was in 
2002, when it was still very competitive in the U.S. and overseas. The 
balance sheet of an investment bank like Goldman Sachs would be scaled 
down from $850 billion to a more reasonable level of just above $300 
billion, or around $450 billion if Goldman exits the bank holding

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company structure. Lest anyone think that this is punitive: Goldman 
Sachs's assets didn't exceed $100 billion until 2003. That means under 
the worst case of this bill, their assets will be three times as big as 
they were in 2003. The firm is currently well over 10 times the size it 
was when it went public just over 10 years ago.
  A recent report by Andrew Haldane, the executive director of 
Financial Stability at the Bank of England, has two charts depicting 
the incredible growth and concentration that occurred within our 
financial system over the last 10 to 15 years.
  The first chart shows how the averse size of a commercial bank 
relative to GDP has tripled over the 15 years. By the way, this looks 
very much like the chart we had on housing process right before the big 
crash. Look at that exponential growth. If you want to see what 
happened, 1999 was when we repealed Glass-Stegall. Of course, this 
increase was driven by the growth of the megabanks, not by the growth 
of community or regional banks.
  The second chart shows how concentrated the U.S. banking system has 
become in just 10 years. The top three banks represented approximately 
20 percent of overall bank assets in 1999, the time of the repeal of 
the Glass-Steagall Act. In fewer than 10 years, this percentage has 
doubled, with these top three banks now representing more than 41 
percent of total bank assets.
  And the government's response to the financial meltdown has only made 
the financial industry bigger? None of this includes what happened in 
the meltdown: JP Morgan swallowed Bear Stearns and Washington Mutual; 
Bank of America absorbed Merrill Lynch; and Wells Fargo bought 
Wachovia.
  Why would we want financial institutions this gigantic? And people 
are telling me how do you unravel this? First thing we are going to do 
is now that the finance is set, undo these things we did during the 
financial crisis. That is not for me to decide. What we should do is 
put the limits up there and let people decide how they are going to 
reach the limits. The last 2 years proved beyond dispute that 
management and risk committees at America's most prestigious firms were 
unable to effectively track, measure, and mitigate their exposures.
  As Andrew Haldane recently noted: ``risk and counterparty 
relationships outstripped banks' ability to manage them. . . . Large 
banks grew to comprise several thousand distinct legal entities. When 
Lehman Brothers failed, it had 1 million open derivatives contracts.''
  Former Treasury Secretary Robert Rubin recently admitted: ``There 
isn't a way for an institution with hundreds of thousands of 
transactions a day involving something over a trillion dollar that you 
are going to know what's in those position books.'' That is Robert 
Rubin one of the smallest men I have ever met on finance and also on 
the Government's approach to finance. If leaders of these massive 
financial institutions have no idea regarding their systemic risk, what 
hope do regulators have?
  The truth is that these financial institutions have become so large 
and complex that regulators rely upon the banks and the markets to 
self-regulate. Under the Basel II Capital Accord, determinations on 
capital adequacy became dependent on the judgments of rating agencies 
and, increasingly, the banks' own internal models. Modeling is fine, so 
lone aa the banks stay between bright lines which should be drawn by 
Congress. Otherwise, if regulators issue rules governing capital 
requirements that depend on the banks to use their own models to 
determine adequacy of their capital and liquidity, then as a practical 
matter such regulation becomes meaningless, and is no longer 
regulation.
  Indeed, regulators have long had all the tools they need to increase 
capital and restrict banks from engaging in activities that pose a 
serious risk to the safety, soundness or stability of a bank holding 
company. But they failed to do it.
  The regulators failed for many reasons, but they failed in part 
because so much of the risk is hidden and difficult to understand. 
Institutions like Lehman and Citigroup brazenly engaged in accounting 
gimmicks to evade regulations that were imposed on them. Lehman 
implemented ``Repo 105'' to hide the true extent of its liabilities at 
the end of each reporting quarter. At the end of each reporting 
quarter, they came up with something so that they could take 
liabilities off the balance sheets so regulators and even shareholders 
did not know what their true economic position was. In the second 
quarter of 2008 alone, it moved $50 billion temporarily off of its 
balance sheets without telling regulators, ratings agencies, or even 
its own board or shareholders. SEC and Federal Reserve regulators 
stationed at Lehman Brothers never caught on. And the Lehman CEO 
claimed he never knew about it. Is it not amazing, a CEO of a 
corporation, all of the money he is making, $50 billion each quarter 
off the balance sheet being hidden, and he never knew anything about 
it. At the same time, Citigroup and others held more than a trillion 
dollars in off-balance-sheet vehicles to avoid capital requirements for 
lending. When market conditions soured, tens of billions of dollars in 
liabilities suddenly appeared back on their balance sheets to the 
surprise of regulators and shareholders alike.
  Some argue that it is the quality of those regulatory standards that 
must be improved, and that they must be finely tuned and calibrated if 
they are to affect the behavior of the large banks.
  Assistant Treasury Secretary Michael Barr recently noted, markets 
will ``undoubtedly evolve'' beyond what any law says. But, he said, 
regulators are now pushing for new global capital standards that will 
be ``more robust, higher and better quality, less pro-cyclical, and 
include global agreement on a leverage ratio.''
  That will be very helpful, but it is not a solution. The history of 
financial regulation has proven that strong and sweeping statutory 
standards are far tougher to evade than technical regulations that 
prescriptively set requirements. The Financial Times reported recently 
that banks are already developing new ways to arbitrage the global 
capital standards to which Secretary Barr refers. In other words, they 
are finding ways around the rules before they are even finalized.
  That is why we need statutory standards on the leverage and size of 
these megabanks, as provided in the Brown-Kaufman SAFE Banking Act. 
While some technocrats may say that they are blunt tools, I say that 
that is precisely the point: the amendment provides a clear line that 
banks can not evade and regulators can not ignore, thereby making both 
accountable.
  The Federal Government cannot continue to subsidize these mega-banks 
and permit them to grow by taking on ever greater risk and speculation. 
Dean Baker and Travis McArthur of the Center for Economic and Policy 
Research compared the borrowing costs of the 18 largest banks, all of 
which have over $100 billion in assets, to smaller ones. They estimated 
that the effective government subsidy because of the implicit guarantee 
that they are too big to fail results in a 70-80 basis point borrowing 
advantage over smaller banks, resulting in lower borrowing costs equal 
to approximately $34 billion. We are not saying they are too big to 
fail, what the market is saying, if you are a bank that is big enough 
so it looks like it is too big to fail, you can borrow for 70-80 basis 
points less than smaller banks. Fed Chairman Bernanke has noted that 
this is unfair competition to smaller banks. I agree. I wish I would 
hear more from smaller banks. As a result, less money flows to local 
communities, and small businesses have trouble getting affordable 
loans.
  Nonetheless, there are still those who argue that we need megabanks, 
that there are economies of scale that allow $2 trillion banks to 
better service large U.S. global corporations and help us compete 
globally. They offer no evidence to support this claim, however, 
because there is none. At least I have not been able to find any.
  There are no academic studies proving that in banking, bigger is 
better and more efficient beyond $100 billion in assets. While big 
corporations on

[[Page 6959]]

some occasions need to access particularly large amounts of capital, 
Wall Street banks typically form syndicates to spread the risk. And 
while megabanks have large balance sheets that might allow them to take 
on a large amount of underwriting risk, it is not clear whether this is 
good for the customer or the financial system as a whole. By having 
lots of smaller institutions participate in an underwriting, the 
corporate customer is apt to get better pricing because it will be 
accessing a wider variety of retail and institutional distribution 
channels. The financial system is also safer by not having large 
concentrations of proprietary positions in loans and securities, or 
even worse, by having these institutions ``hedge'' those large 
exposures with esoteric products that no one understands and that are 
often hidden off balance sheet.
  Nor is there research that demonstrates that the U.S. needs large 
banks in order to ``compete'' with massive foreign banks.
  It is true that only 6 of the 50 largest banks in the world are based 
in the U.S. Many banks on that list have a history of government 
involvement, some were even owned by their governments. Virtually all 
of these batiks benefit from implicit or explicit government 
guarantees. Many, including the largest bank on the list, the Royal 
Bank of Scotland, have been recipients of massive bailouts.
  Ireland is in the midst of a painful process of bailing out its 
largest banks. Switzerland put together an approximately $60 billion 
bailout package for one of its largest banks, UBS. The U.K.'s bailout 
support for its banks exceeds $1 trillion. The case of Iceland provides 
a cautionary tale for all nations on how a government can be completely 
overwhelmed by the collapse of its largest financial institutions.
  And while French and German banks have enjoyed only modest, direct 
bailouts, through the EU and IMF debt relief provided to Greece, these 
banks have received a massive, indirect government bailout. The Wall 
Street Journal reports that German and French banks carry a combined 
$119 billion in exposure to Greek borrowers and more than $900 billion 
to Greece and other vulnerable Euro countries, including Ireland, 
Portugal and Spain. French banks have almost $80 billion in exposures 
to Greece, while German banks have $45 billion in exposures to the 
country.
  Given these circumstances, other countries face just as urgent a need 
to break apart their megabanks.
  What about Canada, many ask? Its large banks did well during the last 
crisis. But there are significant differences in our two countries. 
First, there was no wave of financial deregulation in Canada. Canadian 
banks are subjected to tight mortgage origination standards and tough 
leverage limits, something U.S. financial institutions and their 
regulators completely ignored for the last decade. Second, in Canada 
the government insures the most risky mortgages, and I don't think we 
want to go back to doing that. Finally, not one of Canada's largest 
banks is near the size of any of the five largest U.S. banks. In fact, 
the largest Canadian bank is not even a third of the size of the 
largest U.S. bank. What's more, under the limits of the Brown-Kaufman 
Act, our megabanks would continue to be much larger than the largest 
Canadian banks.
  Some officials have argued that ``most observers'' think that 
breaking up the big banks would lead to more risk, not less; that 
bigger banks are more diversified and therefore less risky than smaller 
banks. That makes no sense to me. As the governor of the Bank of 
England, Mervyn King, recently observed, ``Banks who think they can do 
everything for everyone all over the world are a recipe for 
concentrating risk.'' That is one of the reasons why he, too, favors 
breaking up the megabanks as the solution to ``too big to fail.''
  I believe the view of most observers is best summarized in the review 
of the literature in ``13 Bankers,'' the book by Simon Johnson and 
James Kwak. Breaking up the banks is not a populist idea in the 
pejorative sense of that word. It is supported by smart, informed 
people outside the Washington-Wall Street corridor who understand what 
is happening, including three presidents of the Federal Reserve Board 
and a host of economists and academics.
  Even Alan Greenspan, in his recent speech at the Brookings Institute 
looking back on ``The Crisis,'' stated clearly: ``For years the Federal 
Reserve had been concerned about the ever larger size of our financial 
institutions. Federal Reserve research had been unable to find 
economies of scale in banking beyond a modest-sized institution. A 
decade ago, citing such evidence, I noted that `megabanks being formed 
by growth and consolidation are increasingly complex entities that 
create the potential for unusually large systemic risks in the national 
and international economy should they fail.' Regrettably, we did little 
to address the problem.''
  Anyone can come up with reasons for maintaining the status quo, for 
allowing oversized megabanks to continue to be too big to fail. But 
given the recent economic disaster, the burden of proof should fall on 
those who want to retain our currently dangerous concentration of 
financial power. Repeating the mantra of U.S. competitiveness and the 
idea that ``this is not about size but about risk and 
interconnectedness'' are only excuses for an unjustified failure to 
act.
  The question is what must we do to ensure that a financial crisis 
like the great recession, which continues to cause millions of people 
to be out of work and lose their homes, never happens again? The Brown-
Kaufman amendment would add another layer of protection to our 
financial sector, and would make it much less likely that U.S. 
taxpayers will ever be asked to bail out Wall Street again.
  Brown-Kaufman is a modest, even conservative, proposal to restore the 
size of banks to where they were a decade ago. It will also impose a 
statutory leverage limit to prevent megabanks from taking on too much 
risk--a fact about our amendment that is often overlooked.
  Sometimes, the buck must stop with Congress. We can take strong steps 
to undo the harm of the last decade, or we can punt responsibility to 
the very regulators who failed us in the first place. Either way, the 
American people will hold us responsible. So let us act responsibly and 
protect them from further harm.
  I yield the floor and suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. WARNER. I ask unanimous consent that the order for the quorum 
call be rescinded.
  The PRESIDING OFFICER (Mr. Kaufman). Without objection, it is so 
ordered.
  Mr. WARNER. Mr. President, I wasn't planning on speaking today, but I 
have had the opportunity to preside for the last couple of hours. I 
heard my friend from Arizona earlier today make some comments about the 
financial reform bill. I rise to address them.
  Before doing so, I commend the Presiding Officer for his comments 
this afternoon, comments with which I may not fully agree, but he makes 
a very persuasive and interesting case about how we get this right. 
Clearly, we have to make sure our goal is setting rules and regulations 
that will stand the test of time. We have to make sure we end the 
notion of too big to fail.
  I know the approach of the Presiding Officer is to look at size. I 
think the committee's approach, which I share, is to look at 
interconnectedness, to give regulators the ability to unwind 
organizations if they can't prove they have a rational way to be 
unwound through a bankruptcy process.
  Reasonable people can disagree, but we absolutely agree on the goal: 
making sure the American taxpayer never has to hear ``too big to 
fail,'' particularly too big to fail where the American taxpayer has to 
pay the bill.
  I thank the Presiding Officer for his comments. I know the debate 
will continue.
  Earlier today, my friend, the Senator from Arizona, spoke on the 
bill. As

[[Page 6960]]

somebody who has been involved in portions of this bill for a number of 
months, the Senator from Arizona and I share common goals. We want to 
make sure that taxpayers are not exposed, that we end bailouts, and 
that we put rules of the road in place for the 21st century for the 
financial system. My hope is that in some of the workings between 
Chairman Dodd and Senator Shelby, they will find common agreement on 
titles Senator Corker and I worked on, where they might improve the 
initial draft.
  What I hear time and again from all of our colleagues is a 
commonality of goals. My hope is that at the end of the day we will 
have legislation that has broad bipartisan support.
  Let me go back to my colleague from Arizona. He had a strong 
preference for bankruptcy. His concern was that bankruptcy in every 
case can take care of every financial institution's unwinding, that 
bankruptcy provided predictability. He mentioned in passing a new 
concept called speedy bankruptcy and cited certain scholarly articles 
on it, speedy bankruptcy that had some portion of a certain aspect of 
the capital structure that would convert certain debt into equity in 
the event of this process. He made the comment that even having 
resolution in the process would always lead to bailouts. I respectfully 
disagree and want to take a moment to further explicate what Chairman 
Dodd's bill does in terms of how he approached these same issues in a 
bipartisan way.
  First, we believe the default option should always be bankruptcy. 
Bankruptcy is a clear and established set of rules. It gives creditors, 
equity holders a predictability about what happens in the event of a 
firm getting into trouble, getting into potential insolvency, and gives 
a path toward going out of business. But what we have seen at least to 
date is that bankruptcy sometimes is neither speedy nor, at least in 
its current form, always able to take care of enormously large, complex 
financial institutions.
  I believe it was at the end of last week that there was a story in 
either the New York Times or the Wall Street Journal that pointed out 
that the Lehmann bankruptcy process is still ongoing, with fees in 
excess of $400 or $500 million being charged to try to unwind this 
firm.
  One of the things I have heard is, if a firm goes into bankruptcy, 
there are these dollars that will still be needed to unwind the firm in 
an orderly process. Those of us who drafted the bill said that this 
unwinding process, if we are going to use resolution instead of 
bankruptcy, should be prefunded by the financial industry itself, which 
would benefit. My colleagues believe that perhaps it would be better if 
the Treasury or some other institution borrows money that then is 
repaid from the financial industry itself. Again, reasonable people can 
disagree whether we prefund or postfund, but the facts remain. The 
unwinding of any firm takes time and resources. At the end of the day, 
we have to make sure the taxpayer is protected. That is Point No. 1.
  Point No. 2. I agree with my colleague from Arizona when he says that 
a new tool we could use for these large, systemically important firms 
to make sure there was a price for them getting too large and there was 
an ability to make sure they could be unwound in a regular process 
would be the creation of a new form of debt in the capital structure, 
debt that, in the event of a crisis, would convert into equity, dilute 
existing shareholders--be, in effect, a check on management because 
they would also be diluted in this event.
  I urge my colleague from Arizona to recognize that we have put that 
into the bill already. We have created a convertible debt component 
that all of the systemically important firms would have to build into 
their capital structure and, in effect, would allow this to be 
triggered even prior to a crisis point. So rather than being used only 
at the moment of crisis, it could actually be used as a speed bump in 
advance as one of the early signs of a crisis coming.
  Again, it is one of the reasons why we have created a Systemic Risk 
Council that allows for higher capital requirements, focused on 
leverage, focused on better risk management plans, putting this new 
contingent debt structure within the overall capital structure of the 
institution. And there are the funeral plans, or the plans where we are 
asking, again, for these large institutions to outline how they will 
unwind themselves through a bankruptcy process.
  That process has to be approved by the regulators. It is a process 
whereby if the regulators do not approve it, they could actually come 
to the conclusion that there is no way to unwind this firm during 
bankruptcy and, consequently, they could actually do what the Presiding 
Officer requires and say: This firm then, consequently, has to be 
downsized--or certainly their international operations have to be split 
off or spun off because there is no appropriate way to unwind this firm 
in the event of a bankruptcy process. So again, I think the goal of my 
colleague from Arizona of making sure there is an orderly, planned 
approach through bankruptcy to unwind these large firms is in place. So 
we agree there.
  The fact that there is the creation of this new debt structure within 
these large firms--that would be debt that would convert to equity--
that is in the bill, and actually it is even better than what my 
friend, the Senator from Arizona, has proposed because it could be 
triggered even before a crisis.
  Where I guess I differ from my colleague, the Senator from Arizona, 
is that while he and I strongly believe in the bankruptcy process and 
the preference toward bankruptcy, we believe that in certain 
extraordinary cases--and if we have done our job, hopefully, 
extraordinary cases that rarely, if ever, may happen--you still have to 
have an ability to have a resolution authority.
  Why is this the case? Well, as we saw in the crisis in 2008, there 
were times when perhaps the balance of the industry realized that the 
firm was rapidly falling into insolvency, but as the firm went down 
this path toward insolvency, the management of the firm refused to 
recognize that, consequently potentially putting not only the firm in 
jeopardy but because of the fact that if that firm, in effect, fell 
fully insolvent, it could actually threaten the whole safety of the 
system.
  So after conversations with folks from across the political spectrum, 
we thought in these extraordinary times there needs to be this kind of 
trigger of last resort in terms of using a resolution process. It is a 
resolution process to put appropriate guardians in place, requiring the 
Treasury, the head of the FDIC, the head of the Fed, to all act in 
concert, to put a judicial check in place so, again, no future 
administration might overuse this power.
  As Senator Boxer's amendment will further reaffirm, resolution will 
mean the firm will go out of business, that equity will be toast, 
management will be toast, the unsecured creditors will be toast. This 
will be an effective death panel for a financial institution.
  As my colleague, the Senator from Arizona, has pointed out, at least 
if a firm chooses bankruptcy, they may emerge on the other side, out of 
the bankruptcy process, at least semiwhole. If you go into resolution, 
you are not coming out the other end. This will be like: Once you check 
in, you never check out. Your firm is going out of business. There may 
be parts of that firm, because they are systemically important--a 
clearing process, or some other systemically important part of this 
institution--that may have to be redeposited elsewhere. And it has to 
be done in an orderly process. But the firm, as it was priorly 
construed, will no longer exist. Never again will we do what we did in 
2008, where the American taxpayer came in and shored up these firms in 
their current status. Resolution will never be chosen by any rational 
management team or any rational group of shareholders.
  I hope my friends, who want to make sure we end bailouts, who want to 
make sure we have an orderly process, will, again, recognize--and there 
may be ways to improve upon it--we have put together a bill that has a 
strong preference toward bankruptcy, that puts in place the requirement 
that the

[[Page 6961]]

regulators have to bless this bankruptcy plan, no matter how complex 
you are, and if you cannot get that blessing then maybe parts of your 
institution need to be spun off in advance. We have already adopted the 
component of contingent debt that would convert into equity. Again, 
that threat of converting even in advance of a crisis will be a check 
on a management team that wants to take undue risk.
  There will be no existing shareholders who will want to be faced with 
what could be significant dilution even in advance of a crisis if the 
Systemic Risk Council said: Hold on here, you have now gone over that 
tripwire. You are going to get converted. You are going to get diluted. 
Again, it is another check on the management team.
  I do believe we have created a strong framework. But to ignore the 
fact that, as we saw in 2008, there may be times when either a 
management team fails to read the handwriting on the wall and declare 
bankruptcy or the crisis comes perhaps because of not even management 
malfeasance but because of a coordinated cyberattack or some other kind 
of catastrophic event that puts in jeopardy the system--to say never, 
ever could there be a time when we need an orderly resolution process 
to maintain the safety and soundness of the overall financial system, I 
believe, would be shortsighted.
  I look forward to continuing to work with colleagues on both sides of 
the aisle to try to get this right in the coming weeks. I commend the 
chairman and the ranking member, Senator Shelby. I hope they are having 
those conversations even as we speak. I look forward to continuing the 
conversation with the Presiding Officer on how we, again, can prevent 
these kinds of actions from even taking place in the first place. How 
do we deal with his approach of actually downsizing these institutions 
with bright-line rules or our approach that tries to look, perhaps, 
more at the interconnectedness but still grants that ability to the 
Systemic Risk Council if there is no way for an institution to 
demonstrate how it will unwind itself through bankruptcy?
  Again, reasonable folks can disagree. But none of us should disagree 
with the ultimate goal: ending too big to fail, making sure we no 
longer have even the potential of taxpayer exposure, trying to bring 
more transparency and fairness to this financial system, and, again, as 
the Presiding Officer and I have talked about before, making sure 
whatever comes out of this Chamber can stand the test of time so we can 
give the market the predictability it craves but also the security to 
the American people that we built ``financial rules of the road'' for 
the 21st century that will truly work.
  With that, Mr. President, I yield the floor.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. ALEXANDER. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. ALEXANDER. Mr. President, I ask unanimous consent to speak as in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                        Thousand-year Rain Event

  Mr. ALEXANDER. Mr. President, Nashville and middle Tennessee have 
been hit with what the Corps of Engineers officials tell us is a 
thousand-year rain event--in a thousand years, we wouldn't expect to 
have this much rain--and it is providing enormous hardship to the 
people not just of Nashville and Davidson County but counties in and 
around Nashville. I wish to give a brief report on what we know about 
that, what Senator Corker and I and Congressman Cooper and the other 
Members of Congress from that region are doing, working together, so 
the people of our area can know what to expect.
  There is a telephone number to call, and I would like to give it. It 
is 615-862-8574. It is a telephone number for people in the Nashville-
middle Tennessee area who are concerned about what to do, who have an 
emergency, and who want information about what help may be available to 
them--615-862-8574.
  The Cumberland River and the Harpeth River are the two rivers that 
are causing most of the problem, and we have been waiting all day for 
the Cumberland River, which runs through Nashville on up to 
Clarksville, to crest. That crest hasn't happened yet, and the latest 
predictions are, it might happen around 7 o'clock. It may be later.
  In the meantime, the Corps of Engineers, with whom we are working, is 
trying hard to minimize the damage from the lakes they are responsible 
for. There are three major lakes in the middle Tennessee region: Old 
Hickory, Percy Priest, and Center Hill. These lakes hold the water, of 
course. If the Corps of Engineers releases water from the overflow of 
these lakes, that puts more water into the Cumberland River and that 
floods Nashville more.
  This is the latest report on those three lakes. The Corps is 
currently not releasing water from Percy Priest Lake, and they have 
told us they will not release water from Percy Priest Lake until the 
river crests. This is important information for people in downtown 
Nashville. First Avenue, Second Avenue both have a lot of water. Some 
of the big buildings, the Pinnacle Building, has a lot of water. The 
fact that the Corps is not releasing water from Percy Priest Lake until 
the river crests is an important piece of information.
  The water level, on the other hand, at Old Hickory Lake is at 
historic levels, and the Corps is releasing water from Old Hickory Lake 
but only when absolutely necessary to maintain the stability of the Old 
Hickory Dam. Fortunately, the Corps is not having to release water from 
the third lake, the Center Hill Lake. It has some room to spare.
  This is an example of Congress and the Federal Government doing 
something right because, over the last several years, we have added 
funds to the appropriations bills--I have and others as well--in order 
to improve the safety of Center Hill Dam. Because up until the last 
couple years, the water level had to be lowered because the dam was 
weak. If the dam was as weak as it was 2 or 3 years ago, the Corps of 
Engineers would have had to be releasing a lot more water from Center 
Hill Lake into the Cumberland River, causing more flooding in 
Nashville.
  Over the weekend, we have been in touch with Governor Bredesen's 
office and Mayor Dean's office and they are doing a first-rate job. 
Part of my responsibility is to work with Governor Bredesen, and over 
the last several years, on disasters as they occur, such as the tornado 
in Macon County, near Nashville, the tornadoes in Jackson and Madison 
County. The Governor and the Tennessee Emergency Management Agency--I 
used to be in charge of that agency when I was Governor--have a first-
rate operation there, and they have been working hard ever since the 
rains hit.
  The Federal Emergency Management Agency has a liaison stationed at 
the TEMA--the Tennessee Emergency Management Agency--office, and they 
are working well together. What those people are doing is using every 
available resource in support of State and local efforts to try to 
rescue people, to make life easier, to get the water plant running 
again, and to begin to assess what the damage is, which is where the 
Federal Government generally can help.
  As I mentioned, this is not just Nashville that is involved. Macon 
County, Williamson County, Montgomery County, Cheatham County--all the 
counties right around Nashville up to Clarksville are involved. My 
chief of staff from Washington has been onsite in Nashville since last 
night, my State field director has been onsite since last night as 
well, and they are busy dealing with the local officials. I am prepared 
to go whenever it would be helpful, but there is no need for me to go 
and get in the way if there is nothing for me to do. Right now, the 
best thing for me to do, along with Senator Corker and Congressman 
Cooper, is to stay in touch with the Governor's office and the Mayor's 
office and be

[[Page 6962]]

ready to help with a disaster request when it is made.
  When the Governor makes a disaster request, the procedure is, we then 
go to work to help persuade the President--and I am sure he will act as 
promptly as he can--to approve that disaster. There are two or three 
kinds of help that may be forthcoming. One would be public assistance 
for debris removal, to repair public buildings that are damaged, water 
or sewer facilities or infrastructure. For example, one of the major 
water treatment plants is down, and the mayor has asked Nashvillians to 
conserve water. That may be an area where Federal support will be 
available to help.
  Then there is the matter of private assistance. Temporary housing may 
be available. There may be loans available to businesses that are hurt 
and other forms of assistance to individuals and households.
  This is a major event in our city. The Opryland Hotel--one of the 
biggest hotels anywhere in America--has had to empty itself, and it has 
1,500 residents who are staying in a high school. We are told it may be 
several months before the Opryland Hotel is able to function again. We 
hope not because its tax revenues provide 25 percent of all the hotel-
motel tax revenues for the city, and that would come at a difficult 
time.
  So my purpose on the floor today is simply to express my concern to 
the residents of the city where we live--in Nashville, TN--and to all 
others who might be affected in the middle Tennessee area and to let 
them know I believe Governor Bredesen and the mayor are doing a first-
rate job in responding to the immediate requests, that the Federal and 
State management agencies are hard at work, that there is a telephone 
number that individual Tennesseans who have questions can call--it is 
615-862-8574--and that after getting themselves and their families in 
order, the best thing to do is to document your losses so when the 
Governor makes his request for emergency disaster assistance and the 
President approves it, those losses can be proven and that help can 
come more quickly.
  The Governor will move as swiftly as he can on this. Our experience 
is, it is better to be complete than quick because we want to make 
sure, when the request comes in, that it involves everybody, that it 
involves all the claims, that they are properly documented. That has 
been our experience before. So that is my report to the people of 
middle Tennessee. I want them to know I care about it, that I am on the 
phone about it, we have staff members on site, and I believe the 
Governor and the mayor and the Federal and State emergency agencies are 
doing all they can and we can hope for the best as the Cumberland River 
crests, we hope sooner rather than later.
  I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. DURBIN. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mrs. Shaheen). Without objection, it is so 
ordered.

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