[Congressional Record (Bound Edition), Volume 162 (2016), Part 11]
[Senate]
[Page 14774]
[From the U.S. Government Publishing Office, www.gpo.gov]




                     DONALD TRUMP'S FINANCIAL PLANS

  Ms. WARREN. Mr. President, I ask unanimous consent that the following 
statement by former Representative Barney Frank entitled ``Trump's 
financial plans promise another Great Recession'' be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                 [From the Boston Globe, Nov. 28, 2016]

        Trump's Financial Plans Promise Another Great Recession

                           (By Barney Frank)

       Apparently, one aspect of American greatness that Donald 
     Trump seeks to recreate is the Great Recession of 2008. He 
     calls for a complete repeal of all the rules that were 
     adopted to govern the financial industry in response to that 
     crisis, restoring to it the freedom to create unlimited debt 
     throughout the economy, with no requirement that serious 
     attention be given to the ability of the indebted to meet 
     their obligations.
       By the '90s, the business of lending had been transformed 
     by securitization. Lenders sold the right to repayment of 
     loans, eliminating their incentive to worry about the 
     borrowers' solvency. The financial institutions that bought 
     the loans then packaged them into securities and sold pieces 
     of these throughout the economy. Other large institutions 
     then sold insurance against the failure of these securities 
     to pay. The use of derivative forms greatly magnified the 
     amounts of money at stake.
       When imprudently granted mortgage loans began to default, 
     so did securities, leading to investor losses, and demands 
     that the insurers make good on their pledges. Faced with a 
     shutdown of the economy caused by the spreading inability of 
     the indebted to repay, and the consequent refusal of anyone 
     to advance funds to anyone else, the Bush administration 
     bailed out multinational insurance company AIG, asked 
     Congress for general bailout authority, and intensified the 
     work that it had begun along with Congress to create rules to 
     prevent a recurrence.
       Modified by the Obama administration and Congress, these 
     rules evolved into the Dodd-Frank Wall Street Reform and 
     Consumer Protection Act, which was designed to prohibit 
     abusive practices, and diminish the negative impact from the 
     misjudgments that are inevitable in a system in which risk-
     taking is necessary.
       Here are some of the most significant changes that will 
     result if Trump succeeds in wiping the law off the books, 
     with real-world reminders of the ``great'' financial system 
     he would restore.
       The abolition of the law's restrictions on granting 
     mortgages to borrowers who are highly unlikely to repay means 
     we will see successors to Countrywide, the mortgage-granting 
     machine that gave us countrywide defaults.
       The removal of the regulations governing trading in 
     derivatives means Goldman Sachs, J.P. Morgan Chase, and 
     others can return to the unrestricted dissemination 
     throughout the economy of securities composed of bad 
     mortgages, even when, in Goldman's case, the packager knew 
     enough about the weakness of what it was selling to bet its 
     own money that it would fail to pay off.
       An end to the rule that participants in derivative trades 
     either do so through exchanges or otherwise demonstrate that 
     they have the funds to meet their obligations to their 
     trading partners brings back the situation that prevailed 
     when three of the five leading investment companies--Bear 
     Stearns, Merrill Lynch, and Lehman Brothers--were unable 
     either to pay their own debts or collect what they were owed 
     by others, and AIG told Federal officials it was 170 billion 
     dollars short of meeting its obligations to pay off what it 
     owed those who had bought their credit default swaps 
     (insurance against the failure of mortgage-backed 
     securities).
       This leads to the next result of a return to the good old 
     days: It will put Federal officials back to having to choose 
     between letting a company go bankrupt--Lehman--with its 
     disruptive effect, or bailing it out--AIG. We repealed the 
     provision that allowed the Fed to advance 170 billion dollars 
     to pay AIG's debts while letting it stay in business. It 
     replacement--which Trump would repeal, reinstating the 
     unrestricted bailout authority--empowers officials to pay 
     only as much off the debt of the bankrupt entity as is needed 
     to maintain economic stability, but only after putting it out 
     of business, and with a requirement that no money paid out 
     from taxpayers be recouped by assessment on the surviving 
     large financial companies.
       Trump's plan to wipe out the provision that purchasers of 
     loans who then package them for resale to bear responsibility 
     for the first 5 percent of the losses that occur means the 
     investing public will once again be wholly dependent on the 
     rating agencies--whose blend of incompetence and dishonesty 
     was chronicled in The Big Short.'' (My one objection to the 
     way in which the law has been administrated is the failure to 
     apply this provision to home mortgages, but the power to do 
     so remains in the law if experience calls for it.)
       The disappearance of the Consumer Financial Protection 
     Bureau will return to the status quo in which consumers 
     harmed by the abusive behavior of a massive financial 
     institutions could only turn to the federal agencies whose 
     primary mission was to worry about the health of these 
     entities. Had there not been a consumer bureau, Wells Fargo 
     might still be creating false credit card accounts.
       I do favor some adjustments to lessen the scrutiny given to 
     small and medium-size banks, although not in the area of 
     consumer protection.
       But the major beneficiaries of total repeal are the largest 
     financial entities. I understand why those who believe 
     absolutely in an unregulated market advocate a return to the 
     process that risks repeating 2008. I do not understand how 
     this stance complies with Trump's promise to vindicate the 
     interests of average working people against those who stand 
     at the top of the economic structure.

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