E PL UR UM IB N U U S th of America PROCEEDINGS AND DEBATES OF THE 111 CONGRESS, SECOND SESSION

Vol. 156 WASHINGTON, WEDNESDAY, JULY 14, 2010 No. 104 Senate The Senate met at 10 a.m. and was appoint the Honorable TOM UDALL, a Senator The legislative clerk read as follows: called to order by the Honorable TOM from the State of New Mexico, to perform A bill (H.R. 5618) to continue Federal un- UDALL, a Senator from the State of the duties of the Chair. employment programs. New Mexico. DANIEL K. INOUYE, President pro tempore. Mr. REID. I object to any further proceedings at this time. Mr. UDALL of New Mexico thereupon PRAYER The ACTING PRESIDENT pro tem- assumed the chair as Acting President The Chaplain, Dr. Barry C. Black, of- pore. Objection is heard. The bill will pro tempore. fered the following prayer: be placed on the calendar. f Let us pray. f Almighty God, by Your providence, RECOGNITION OF THE MAJORITY RECOGNITION OF THE MINORITY You gave us a nation conceived in lib- LEADER erty and dedicated to equal justice for LEADER all. The ACTING PRESIDENT pro tem- The ACTING PRESIDENT pro tem- Today, infuse our lawmakers with pore. The majority leader is recog- pore. The minority leader is recog- this spirit of liberty and justice so that nized. nized. their labors will reflect Your purposes f f and plans. May their knowledge of your SCHEDULE providential purposes keep them from SMALL BUSINESS JOBS BILL detours that lead away from abundant Mr. REID. Mr. President, following Mr. MCCONNELL. Mr. President, my living. May their small successes leader remarks, the Senate will pro- friend the majority leader mentioned prompt them to attempt larger under- ceed to a period of morning business the small business jobs bill. I recently takings for human betterment. As they until noon. Senators will be allowed to had an opportunity to talk to Senator seek to do Your will, bless them with speak for 10 minutes each during that SNOWE, who is the author of that legis- the awareness of the constancy of Your period. The majority will control the lation. I assured her we are anxious to presence. Lord, guide them by Your first 30 minutes and Republicans will move forward. I appreciate his bringing higher wisdom and keep their hearts at control the next 30 minutes. up the discussion we have been having peace with You. We are working hard to come to about reaching a consent agreement We pray in Your great Name. Amen. agreement on amendments dealing that would allow us to expedite the f with the small business jobs bill. I had bill. I know my friend from Nevada a conversation with the Republican shares my view that small business is PLEDGE OF ALLEGIANCE leader last night. We are hopeful we an area that needs attention. We are The Honorable TOM UDALL led the can reach agreement to move forward going to continue to try to come to Pledge of Allegiance, as follows: on that legislation today. We have to agreement to move forward with that I pledge allegiance to the Flag of the have consent to move off very important piece of legislation United States of America, and to the Repub- reform, but I think that will not be a which I support and I believe most lic for which it stands, one nation under God, problem. Members of my conference do as well. indivisible, with liberty and justice for all. As a reminder, yesterday I filed clo- Mr. REID. Mr. President, as I have f ture on the conference report to ac- said before, this legislation is bipar- APPOINTMENT OF ACTING company H.R. 4173. That vote tisan. Most of the bill has been crafted PRESIDENT PRO TEMPORE will occur sometime tomorrow morn- in the past when Senator SNOWE was ing. I will work with the Republican chairman of the Small Business Com- The PRESIDING OFFICER. The leader to come up with a time that is mittee. I am glad to hear my friend clerk will please read a communication convenient to both sides. Senator SNOWE has had a conversation to the Senate from the President pro with the Republican leader. That is tempore (Mr. INOUYE). f good news. We will see what we can do The legislative clerk read the fol- MEASURE PLACED ON THE to move on. I hope everyone realizes lowing letter: CALENDAR—H.R. 5618 that jobs in America are not created in U.S. SENATE, Mr. REID. I understand H.R. 5618 is large numbers by big companies; it is PRESIDENT PRO TEMPORE, Washington, DC, July 14, 2010. due for a second reading. small businesses. To the Senate: The ACTING PRESIDENT pro tem- In the past few months, we passed a Under the provisions of rule I, paragraph 3, pore. The clerk will read the bill for relatively small piece of legislation, of the Standing Rules of the Senate, I hereby the second time. but it has been extremely helpful to

∑ This ‘‘bullet’’ symbol identifies statements or insertions which are not spoken by a Member of the Senate on the floor.

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VerDate Mar 15 2010 23:43 Jul 14, 2010 Jkt 089060 PO 00000 Frm 00001 Fmt 4624 Sfmt 0634 E:\CR\FM\A14JY6.000 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5801 be with the Wood family and all those company, would come in and make the said Jack, who is an extraordinarily who mourn his death and celebrate his parties whole. talented public servant, is fit for the life and his accomplishments. We will They overextended themselves. In so Hall of Fame. I am sure Jack Lew, a remember Specialist Wood when recall- doing, as these commercial trans- modest man, would dispute that. The ing the Nation’s warriors who gave actions started to fail, AIG did not record speaks for itself. their lives so we might live in peace. have sufficient reserves to meet their In his former capacity as Budget Di- Their names are etched on the con- promises. There was a fear that if they rector under President Clinton, Jack science of this Nation. started this cascading effect of failures Lew, in January of 2001, left President I offer my prayers to all those serv- and the inability of AIG to keep its George W. Bush a surplus in the Fed- ing in uniform today and especially promise, it would result in a panic in eral Treasury of $236 billion. That is an those serving in peril overseas. May our economy and a decline, which amazing legacy, to end 8 years of Presi- God bless them and their families and would have been even more precipitous dent Clinton’s administration with a see them through these difficult times. than what we had imagined. surplus in the Federal Treasury, the Mr. President, I yield the floor. It was at this meeting that Ben deficit coming down, Social Security I note the absence of a . Bernanke of the Federal Reserve said getting stronger, and to hand it off to The ACTING PRESIDENT pro tem- they were going to provide significant President Bush. At that moment in pore. The clerk will call the roll. resources to AIG to help them weather time, the accumulated debt of the The legislative clerk proceeded to this crisis. It came as a surprise to United States of America from the call the roll. many of us in the room, unaware of the time of George Washington until the Mr. DURBIN. Mr. President, I ask fact that the Federal Reserve had both end of the Clinton Presidency was ap- that the order for the resources and the legal authority proximately $5 trillion. Eight years the be rescinded. to do that. It is an authority that had later when President George W. Bush The ACTING PRESIDENT pro tem- not been exercised, to my knowledge, left office, the accumulated debt of pore. Without objection, it is so or- since it was first created almost 80 America had grown from $5 trillion to dered. years ago. $12 trillion—more than doubled in an 8- Mr. DURBIN. Mr. President, I ask That was the first meeting. It was an year period of time. Instead of leaving unanimous consent to speak as in indication of a terrible, rocky, rough to President Obama a surplus, as Presi- morning business, and I ask I be given road ahead for America and ultimately dent Bush had inherited from President as much time as needed. I promise not for the world. Subsequent meetings Clinton, he left him a $1.3 trillion def- to abuse that, but it may go slightly were even more alarming, as we were icit. President Bush’s administration, beyond the 10 minutes. told by Secretary of the Treasury Hank which was dedicated to balancing the The ACTING PRESIDENT pro tem- Paulson that unless we came up with budget and conservative fiscal policy, pore. Without objection, it is so or- $800 billion in what was known as the more than doubled the national debt dered. TARP fund, which would be used to ba- that had been accumulated by America The Senator from Illinois is recog- sically bail out the largest financial in- in its entire history, and instead of nized. stitutions in America, America’s econ- leaving a surplus for incoming Presi- f omy and the global economy could col- dent Obama, left him a gaping hole in lapse. I have been involved in public FINANCIAL REGULATORY REFORM the budget. life for a number of years. That is the In that context, we have many chal- Mr. DURBIN. Mr. President, probably type of conversation you never forget. lenges, but one of the challenges is to tomorrow morning, we will consider Many of us were at a loss to argue the make sure we never, ever again experi- this conference report, which is his- other side of the case that the problem ence what happened with these terrible toric in its impact on America. It is was not that large or that the response decisions being made on Wall Street the conference report of the Banking did not have to be that significant or and the virtual collapse or decline of Committees of the House and Senate, that the strategy and tactics were not the American economy, which led us which were charged with the responsi- the right ones. This was really un- into our deficit situation, to the busi- bility to reform the financial laws in charted water. We relied on our eco- ness losses across America, and record America, to make certain that our nomic leaders from the Federal Re- levels of unemployment. country never faces again what we serve and from the Department of the President Obama challenged us to faced a short time ago under President Treasury to suggest what we needed to come forward with Wall Street reform, Bush. do to go forward. change the way we do business on Wall We can remember that at the end of This rescue operation had some real Street so we never have to go through the President’s term, when the econ- value, I believe, in slowing down the this again. Let’s not have a repeat of omy started to go into a tailspin. I re- decline in our economy. But just a few this economic disaster. I commend member it very well because there was weeks after that, the election of the Chairman Chris Dodd and Chairman a special meeting called in October of new President, , really for the extraordinary ef- 2008 of the leaders of the House and gave to him and the new administra- fort they put into this conference re- Senate—Democratic and Republican— tion economic challenges which no pre- port. to meet with the Chairman of the Fed- vious administration had ever faced. More than 2 years after Bear Stearns eral Reserve, Ben Bernanke, and the When the President came to office, in failed, more than 18 months since Wall Treasury Secretary, Mr. Paulson, to the month he was sworn in, almost Street brought America to the brink of discuss a matter of great urgency. 750,000 were losing their jobs. In the another depression, more than a year Those types of meetings are rare span of the next 60 and 90 days, the after President Obama provided his around here, and everyone was a little numbers grew. The President walked outline for strong financial reform, fi- nervous as we entered the room that is into a terrible situation, with the econ- nally Wall Street reform is coming. a few feet away from the Senate Cham- omy still in decline, with the TARP After 8 million Americans—actually, ber. program President Bush had started in more than 8 million Americans—have These two leaders of our economy process but not completed, with unem- lost their jobs; after more than 1.2 mil- came forward and told us that we were ployment reaching modern-day record lion Americans have lost their homes; facing the collapse of major businesses levels, and with no end in sight. He in- after the American average household in America. Specifically, they pointed herited the biggest deficit in the his- has lost 20 percent of its accumulated to the collapse of AIG. It was an insur- tory of the United States from Presi- wealth and savings, finally Wall Street ance company—the largest in our coun- dent Bush. What a contrast to what reform will help prevent such a crisis try. Unfortunately, they had engaged President Bush inherited 8 years be- from ever occurring again. in some practices where it had prom- fore. As we began this debate in the Sen- ised as an insurance policy that it Yesterday, when President Obama ate several months ago, we were faced would back up commercial trans- named Jack Lew as the new head of the with a series of challenges and ques- actions. If they fail, AIG, the insurance Office of Management and Budget, he tions:

VerDate Mar 15 2010 23:43 Jul 14, 2010 Jkt 089060 PO 00000 Frm 00005 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.005 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5802 CONGRESSIONAL RECORD — SENATE July 14, 2010 Should we give America’s consumers they can implement the new powers you how much the banking lobbyists the strongest consumer protections in given them by this law. hate this provision. They came to my our history or should we allow Wall Third, the bill strengthens the regu- office and said: This is the worst idea Street to continue to do business as latory structure that oversees the fi- possible, to have an agency that is usual, complete with the fine print, the nancial industries. That will help us going to watch the documents we put tricks and the traps, and the shadowy identify and address failures at these in front of our borrowers to make sure markets we have today in America? institutions that are not properly man- they do not include deceptive language, Should we empower consumers to aged either by bank leadership or by tricks, and traps that could literally make informed choices for themselves pressure from the debt and equity mar- cost a person, a family, the money they and their own economic future when it kets. A new Financial Stability Over- have saved. Fortunately, we overcame comes to mortgages, credit cards, and sight Council will require regulators to that lobby and included this consumer student loans by forcing banks and work together more closely to mini- financial protection agency as part of credit card companies to offer clear mize systemic risks. A new resolution the act. Finally, there is going to be a terms in plain English or should we authority will give regulators tools single voice in Washington, DC, with allow Wall Street and the predatory they lacked when Lehman Brothers the mission of helping consumers make lenders to continue to skirt the law, was in meltdown. And risky derivatives the right decisions for themselves. knowing there is no cop on the beat to will be brought out of the shadows and Second, small businesses and mer- enforce it? into transparent clearinghouses and chants will receive relief from one of Should we force the Wall Street exchanges so that the transactions can their largest expenses over which they banks to make their big gambling bets be seen rather than hidden from public currently have no control—debit card interchange fees. For most people, they on commodities and everything else scrutiny. they can dream up out in the open, on That is all very important, but out- never heard of it. But ask a restaurant, fully transparent exchanges, or should side Washington and New York, many a business, a grocery store in Iowa, in Illinois, or in New Mexico what is the we allow Wall Street to continue run- American families and small busi- biggest pain in the neck they are run- ning a multitrillion-dollar shadow ca- nesses are basically going to ask: That ning into, and they will tell you that sino, one nobody can monitor, one that is all well and good, Senator. What is on the short list is the money they allowed AIG to nearly cripple the en- in it for us? have to pay to Visa and MasterCard tire financial system? The Dodd-Frank conference report and other credit card and debit card Should we protect the taxpayers so will bring basic accountability and companies every time a customer uses they never again are faced with bailing fairness to consumers and small busi- a card. You don’t think about it, do out the biggest banks in America? nesses across the Nation. you, that when you hand over that First, a new Bureau of Consumer Fi- And—let me add insult to injury—after credit or debit card to pay for your res- we put all our hard-earned tax dollars nancial Protection will protect con- taurant bill, not only do you have an into bailing out the big banks, they sumers of financial products from the obligation to pay what you have just showed their gratitude by giving bo- worst forms of abusive lending. charged but the restaurant is going to One of the benefits of this job is we nuses, multimillion-dollar bonuses, to end up paying a percentage of your bill one another. Should we change that? get to meet some of the most impres- to the card company. That was one of the questions facing us sive people in America. One of those It turns out that small businesses when we debated this legislation. persons is a woman named Elizabeth and merchants across America have This conference report has the right Warren. She is a law school professor literally no strength, no power, no answers to those questions. The Dodd- at Harvard. Several years ago, Pro- voice in determining these interchange Frank Wall Street Reform and Con- fessor Warren came and spoke to us at fees. We are becoming more and more a sumer Protection Act accomplishes one of these weekend getaways we have plastic culture. Our young pages here two basic goals: It substantially re- to try to think beyond the pressing in the Senate—and I think of my own duces the risk that financial markets business of today in longer terms. She children—many of them don’t carry will cause the economy to implode said what we need in this country is an much cash around any more. They again, and it empowers consumers and agency that helps consumers have have little plastic debit cards and cred- small businesses to make better finan- enough information so they can cards which they use when they be- cial choices. the right choices for themselves when come of age and are eligible for them. To reduce the risk of another finan- they are making financial decisions. More than half the transactions in cial crisis, this bill strengthens three I went up to her after her remarks, America now are done in plastic. As traditional layers of oversight of finan- and I said: Professor Warren, I want to more of these transactions take place, cial institutions: introduce that bill. Will you help me the merchants and businesses which First, the bill improves basic bank write it? honor the cards find that the inter- governance so institutions are run And she did. I introduced the earliest change fees charged by the credit card more carefully and more prudently. Ex- legislation on this issue. My version of companies are virtually uncontrol- ecutive pay and banking is going to be it has been included in this bill but lable, until this bill. tied more closely to long-term gains changed. I think they have improved For years, Visa and MasterCard, and rather than massive risk-taking, short- substantially on the original bill I of- their big bank backers, have unilater- term thinking, and mortgages and fered, but credit should be given where ally fixed prices on the fees small busi- other loans will have to be under- it is due. Professor Warren inspired me nesses pay every time they accept a written much more carefully. to write my bill and I know inspired debit card from a customer. The two Second, the bill helps creditors and many on the conference committee to giant card networks control 80 percent investors spot problems more easily at follow through and pass this legisla- of the debit card market—that is Visa banks that continue to be run poorly. tion. and MasterCard. And it is no surprise That imposes an extra layer of dis- Lenders will have to compete for that debit interchange fees have risen, cipline when bank boards fall asleep at business based on good loans rather even as the price of processing the the wheel. Credit rating agencies and than competing to dream up clever transaction has fallen. They can im- the SEC will provide much better infor- tricks in order to drain as many dollars pose these prices and say to the local mation to investors in both the debt as possible out of borrowers’ pockets. businessperson: Take it or leave it. and equity markets than investors Finally, there is going to be a cop on Small businesses in Illinois and have today. I might add, as chairman the beat with this consumer financial throughout the country have pleaded of the subcommittee which funds both protection agency to ensure that mort- over and over again with these card the Securities and Exchange Commis- gage brokers, private student lenders, network giants: Give us some way to sion and the Commodity Futures Trad- payday lenders, banks, and credit reduce these costs so that we can reach ing Commission, we are dramatically unions provide consumers with com- profitability, hire more people, and increasing the resources for each of plete information so families can make prosper as a business and pass on sav- those watchdog agencies to make sure good financial choices. I cannot tell ings to consumers.

VerDate Mar 15 2010 23:43 Jul 14, 2010 Jkt 089060 PO 00000 Frm 00006 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.007 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5803 The conference report that we have wholeheartedly support this bill’s pas- cratic forms of government, and tell before us will require the Federal Re- sage. On behalf of consumers and small them: Oh, it is okay to have a minority serve to ensure that Visa, MasterCard, businesses in Illinois and throughout decide what you vote on. They have to and their big bank allies can only the country, who want the power to scratch their heads and say: What are charge debit interchange fees that are make wise financial choices, I whole- you talking about? We need a majority. reasonable and proportional to the cost heartedly support this bill. I am going Yet here in our own country, a minor- of processing each transaction. It also to urge my colleagues to vote yes on ity rules in the Senate. prevents Visa and MasterCard from en- this conference report so that Presi- I know a lot of polls show that people gaging in certain specific anticompeti- dent Obama can sign this bill into law. are angry and they are mad at Con- tive practices. I might add, the Depart- Finally, reform will have to come to gress. I can understand that. If I had ment of Justice’s antitrust section has Wall Street. been out of work for 99 weeks and I had confirmed publicly, at a meeting before Mr. President, I yield the floor. a family to feed and house payments to the Senate Judiciary Committee a lit- The PRESIDING OFFICER (Mr. make and all of a sudden my unem- tle over a month ago, that Visa and BURRIS). The Senator from Iowa. ployment insurance benefits ended, I MasterCard are currently under inves- f would be pretty mad at Congress too. I tigation. Finally, Visa, MasterCard, EXTENSION OF UNEMPLOYMENT think what the Republicans are count- and the Wall Street banks will face COMPENSATION ing on is that this fall they will be so mad they will vote against whoever is some check against their unbridled Mr. HARKIN. Mr. President, I want running Congress, and that is the market power in the credit and debit to thank my friend and our majority industries. Democrats, obviously. That is what whip, Senator DURBIN, for laying out, I Finally, small businesses and mer- think in very stark and honest and they are counting on; that people will chants are going to have relief that open terms, what we are facing in this vote because they are mad, they are will lead to real savings, profitability, country today. I wish to pick up on angry, and they will vote the Demo- and reduced cost for consumers. The that and to carry it a little further in crats out. Yet it is the Republicans, a Dodd-Frank Wall Street Reform and talking about the number of people minority, who are keeping us from vot- Consumer Protection Act is a land- who are unemployed, what is hap- ing on extending unemployment insur- mark bill, including the most sweeping pening to people across America today ance benefits. reforms to Wall Street since the New who can’t find work, while the Con- I don’t care what my friends on the Deal. gress sits here immobilized, unable to other side of the aisle think. The Let me tell you the political reality. pass an extension of unemployment in- American people will know. People are In the Senate, there are 41 Republican surance benefits. not stupid. The voters of this country Senators. The bill I have described It is unconscionable what is hap- are pretty smart. Oh, you might fool should be a bill supported by both sides pening to so many people in America, them for a little bit. As Abraham Lin- of the aisle. We will be fortunate to through no fault of their own—people coln said: You can fool them for a little have four or five Republicans step up who are at the end of the line. They are bit, but not all the time. And pretty and join us to pass this bill. The over- looking to us, asking us to do some- soon they will catch on. They will whelming majority of Republicans will thing. Yet the Congress sits here im- catch on that the Congress is not act- oppose this bill and side with the bank- mobilized, unable to act. We are unable ing because a small minority of the ing industry. to act because a small minority here in Senate will not let us act. One of the Republican leaders in the the Senate on the Republican side re- A group of business economists re- House, JOHN BOEHNER of Ohio, said we fuses to let us move ahead with an ex- cently released their economic outlook were using with this bill a nuclear tension of unemployment insurance and they said that we are on track for weapon to kill an ant. I don’t think benefits. If we could ever have a vote— recovery. They gave a large share of anybody in America believes the reces- if we could get a vote on it—we would the credit to the Recovery Act that we sion we are facing today, with 8 million get over 50 votes. A majority would passed last year, of course without one unemployed and 1.2 million losing their vote for the extension. But once again, single Republican vote. I think the re- homes, is an ant. It is devastating to under the rules of the Senate, a minor- covery bill prevented a catastrophe. the millions of Americans who are un- ity of the Senate gets to decide what But, quite frankly, the economy is still employed and those who are losing we vote on. in the doldrums. Sales of new homes their homes. I think this response is a I wonder how many students in gov- plummeted last month to 33 percent, measured, thoughtful, good response to ernment classes that are being taught the lowest level in 40 years. deal with it. in high school today, even in college, According to the Federal Reserve, Why don’t we have the support of are being taught that the majority U.S. companies—get this—private U.S. more Republicans? Why won’t they does not govern in the Senate. I wonder companies are now hoarding an all- step up with us and make this bipar- how many understand that in our time high sum of $1.84 trillion in cash. tisan? Four or five of them will have democratic form of government, 41 Companies in America are holding $1.84 the courage to do it, and I tip my hat Senators decide what we vote on—41. trillion in cash. They are unwilling to to them. I am glad they are joining us. Not 51 but 41 Senators decide what leg- invest, to hire, or to expand. So again, This should be a bipartisan effort. But islation comes before this body. it is a very fragile recovery that could the others need to explain why they do You can go back to the Framers of dip back into even another big reces- not want us to move forward with fi- our Constitution and read all they sion. nancial regulatory reform. They have wrote in our Federalist Papers—what We had the Great Depression in the to explain why they wanted to stand Madison said and others—and they all 1930s. In the 1990s, as a result of the for the status quo, leave the laws as warned against the tyranny of the mi- profligate spending and the huge tax written, and run the risk of another re- nority. That is why they set up a sys- cuts for the wealthy under the Bush ad- cession in another day, leading to mil- tem of majority rule. I think it was ministration and the Republicans who lions of people losing their jobs and Madison who referred to the aspect as controlled Congress—as the Senator businesses failing. They do not have an perhaps a small junta being able to from Illinois pointed out—President answer for that. Their vote against this control legislation if we did not have a Obama was left with a deficit of $1.3 will be good news to the banking indus- majority vote. Well, we have turned trillion. When President Clinton left try, the special interest groups, such as that on its head. Because today, a mi- office, there was a budget surplus of credit card companies, but it certainly nority—41 Senators—decides what we about close to $300 billion. Because of doesn’t face the responsibility we all vote on. Please explain that in terms of all that, we have had the great reces- have to deal with the economic crisis our democratic principles to kids who sion of the 2000s—2007, 2008, 2009, and facing this Nation. are taking government classes now 2010. On behalf of the taxpayers in Illinois throughout America today. A lot of figures are thrown around and throughout the country, who never Go to other countries, where we are about how many are unemployed. The again want to bail out big banks, I trying to get them to establish demo- official unemployment is 9.5 percent

VerDate Mar 15 2010 23:43 Jul 14, 2010 Jkt 089060 PO 00000 Frm 00007 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.009 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5811 Last year, we were looking at the curbing waste and fraud in the work of My focus over the last several trust fund running out of Federal agencies during the years months has been to make sure this bill money in about 8 years. That is unten- ahead. Given the size of the budget is right for Montana and right for rural able. With the changes we have made deficits we face, we need to do that. America. After some hard work, I in the health care reform legislation, I Enactment of this legislation is not think we did just that. This Wall think we pretty much doubled that life the last step, but it is an important Street reform bill is good for Mon- to maybe closer to 15 or 20 years, but step. I look forward to seeing this im- tana’s community banks, and it bene- we still have a problem. With all the portant legislation signed into law and fits small businesses. money that is defrauded from Medi- to working with my colleagues and Even in this era of bitter partisan- care, we want to recover as much of it with the administration on its success- ship, the Senate unanimously passed as we can and put it back into the pro- ful implementation. an amendment I offered to make sure gram. A lot of times people say to us: Why banks only pay their fair share for Fed- But in any event, the pilot program— don’t you do something about waste, eral deposit insurance. Right now, which started in three States and ex- fraud, and abuse? They are convinced smaller community banks are paying panded to five States—this year we are that a lot of their money ends up being for 30 percent of this insurance, even expanding it to all 50 States. misspent, improperly spent, overpaid though they account for only 20 per- There is also a provision in the re- in some case. The people, or entities, cent of all bank assets. That does not cently enacted health care law—it is businesses, should not get any of this make sense, and this bill fixes that called the Patient Protection and Af- money. Somebody ought to do some- problem. fordable Care Act, it is the health care thing about it. With the legislation This conference report also includes reform legislation adopted earlier this that will be on its way to the Presi- a provision I drafted requiring the Con- year—but there is a provision that says dent, hopefully tomorrow, we are going sumer Financial Protection Bureau to to the folks who run health care at the to do something about it. We already consider the impact of all rules on Department of Health and Human are doing some pretty good things community banks and credit unions Services that they have to expand this about it. We are going to do more, and and the rural customers they serve be- program, this cost recovery program, we need to build on that record. fore any of those rules are made. to include Medicare Advantage, to in- Thank you very much, Mr. President. The legislation ensures that commu- clude the Medicare prescription drug The ACTING PRESIDENT pro tem- nity banks will not be punished for the program, and also to include Medicaid. pore. The Senator from Montana is rec- bad behavior of the mortgage brokers As money is recovered from fraud and ognized. who offer risky mortgages. Those overpayments and missed payments in f banks will be able to maintain the Medicaid, that money will be split be- community-based regulators they cur- WALL STREET REFORM tween the States and the Federal Gov- rently have, and in the case of State ernment. Mr. TESTER. Mr. President, I rise chartered banks, the same lending lim- The sooner the full program is up and today in strong support of the Wall its they currently have. operating, the sooner we can recover Street reform conference report. The Additionally, this bill ensures that even more money—I think probably Senate will make history when we pass community banks will be able to con- billions of dollars—in additional over- this legislation that finally holds Wall tinue to provide the same mortgage payments. Street accountable and finally cleans products—including those specific to There is an added benefit to an ex- up the schemes and abuses that nearly farmers and rural Americans—to their pansion of recovery auditing. The Re- brought our entire economy to its customers. covery Audit Contracting pilot pro- knees. Most importantly, this bill ends For small businesses, this legislation gram has identified dozens of vulnera- once and for all taxpayer-funded bail- makes it easier for investors to help bilities in the Medicare payment sys- outs of Wall Street banks and invest- get new small businesses up and run- tem that can lead to additional waste ment firms. It finally gets rid of any ning while protecting investors from and fraud. notion that any private company can schemers. It exempts small public com- According to the Centers for Medi- somehow be ‘‘too big to fail.’’ panies from costly additional compli- care and Medicaid Services—that is the I never bought that argument. In ance and regulation under Sarbanes- entity that oversees Medicare and Med- fact, I was the only Democrat in the Oxley. icaid—the contractors hired to recoup Senate to vote against both the bailout This bill is a win for Main Street. It overpayments identified ongoing vul- of Wall Street and the auto industry. I holds Wall Street accountable and pre- nerabilities that could lead to future do not believe in bailouts. But I do be- serves the critical role community overpayments totaling about a third of lieve in making sure folks are playing banks have in strengthening commu- a billion dollars more. So not only did by the same rules. nities, creating jobs, and building the contractors recover about $1 billion Our economy went belly up a year small businesses. That is important be- in overpayments in the 3-year pilot and a half ago because there were no cause Montana families rely on their program, they also identified addi- referees on the field. With this bill, community banks to finance and grow tional problems in the systems they that is about to change. Big banks will their businesses and farms, help pay looked at, which, if we will address be required to pay for their own liq- their bills, and put their kids through them, will reduce and avoid errors in uidation should they fail, and tax- school. the future. payers will never again be a part of This is a strong bill. It ends tax- Tomorrow—what is today, Wednes- that equation. payer-funded bailouts. It begins a new day?—tomorrow, Thursday—I think to- The bill also streamlines the regula- era of strong commonsense regulation morrow afternoon—the Subcommittee tion of Wall Street, providing the ref- to put the sideboards on our fast-mov- on Federal Financial Management, erees the tools they need to get the job ing financial industry, without taking which I am privileged to chair, will done fairly and effectively. away the fundamental tools it needs hold a hearing, and that hearing will It also ensures that everyone will for healthy competition and growth, examine the history and the opportuni- now be playing by the same rules, and which strengthens this economy. ties for the Medicare Recovery Audit that unregulated entities offering fi- Let me be clear. Our work on this Contracting. nancial products have to live up to the legislation does not end today. I will In conclusion, the Improper Pay- same standards as the community continue to remain vigilant to ensure ments Elimination and Recovery Act, banks and credit unions that serve this legislation is implemented and en- which again, hopefully, the House will States such as Montana. forced in the way it was intended. We pass today—the Senate has already The bill has tough new rules to pre- simply cannot afford to do nothing and passed it; and hopefully the President vent the spread of risky and dangerous let our financial industry go by the will put his ‘‘John Henry’’ on it later products such as subprime mortgages wayside ever again. this month—that legislation will allow that torpedoed our Nation’s entire fi- With that, I thank you, Mr. Presi- us to make even greater strides in nancial industry. dent.

VerDate Mar 15 2010 23:43 Jul 14, 2010 Jkt 089060 PO 00000 Frm 00015 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.025 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5812 CONGRESSIONAL RECORD — SENATE July 14, 2010 I suggest the absence of a quorum. cussions regarding the promotion or le- bad for payers, the taxpayers in the The ACTING PRESIDENT pro tem- gality of the health care reform bill. I country and the people who pay their pore. The clerk will call the roll. think we are entitled to that. It is an own health care bills as well, and bad The assistant bill clerk proceeded to important matter. for providers—it is a bill that I think is call the roll. I see my friend Dr. BARRASSO on the bad medicine, to the point that Sen- Mr. SESSIONS. Mr. President, I ask floor, who has been a great expert in ator TOM COBURN and I, the other phy- unanimous consent that the order for our debates on health care reform. He sician—there are only two physicians the quorum call be rescinded. has repeatedly explained how this leg- who practice medicine in the U.S. Sen- The ACTING PRESIDENT pro tem- islation will impact health care ate, and I have been taking care of peo- pore. Without objection, it is so or- throughout America. As a physician, ple and their families in the State of dered. he understands that, and he has been Wyoming since 1983—we have come up f able to explain it to us in ways that with a report called ‘‘Bad Medicine: A KAGAN NOMINATION any of us should be able to understand. Checkup on the New Federal Health In fact, he gave us some very serious Care Law.’’ Mr. SESSIONS. Mr. President, the warnings about the fact that the prom- There are people who say: I don’t like week before last, we had the hearing on ises made for this legislation were not this. Now we have a nominee to the Su- Elena Kagan for her nomination to the legitimate, weren’t real, weren’t accu- preme Court who is very likely, if this U.S. Supreme Court, which is a tre- rate, and in study after study and re- works its way to the Supreme Court, to mendously serious and important posi- port after report that has come out, have an opportunity to make a ruling, tion. Five members of the Supreme Senator-Dr. BARRASSO has been proven a ruling for the people of the United Court—not just nine but only five—can correct. The warnings he gave us that States, on whether this body—this Sen- redefine the meaning of words in our it is not going to reduce costs and that ate, this House—has a right to tell the Constitution and really alter, in many other difficulties will arise have been American people what product they ways, the very structure of our govern- proven true—too much, in fact—and it must buy, whether it is health insur- ment. We have seen activist judges is a matter of real seriousness. ance, whether it is cars, whether it is that I think have tended in that direc- So I guess I wish to say that a judge the kind of cereal they eat for break- tion, and it is dangerous and harmful should recuse himself or herself if their fast in the morning. The American peo- because judges are given lifetime ap- impartiality might reasonably be ques- ple are very concerned. pointments. They are not accountable tioned on any matter that came before So I come to the floor also with this to the public. They are protected. Even them. editorial from Tuesday, July 13, this their salaries are not reducible while I believe Dr. BARRASSO has raised editorial entitled ‘‘Kagan and they serve in office. So we have to previously his concern about what it ObamaCare,’’ because the fundamental know and believe they will be neutral, really means if the U.S. Government question is, Should this nominee recuse impartial, unbiased, and will render tells an individual American citizen herself if she is, in fact, confirmed by judgments based on the law and the who is minding his own business that this body? One might say: Well, when facts and not on any preconceived com- he has to have an insurance policy. I would someone recuse themselves from mitments they may have had. will recognize him at this point and making a decision? Because, after all, Ms. Kagan is now the Solicitor Gen- ask him to at least share his thoughts she has been serving in this adminis- eral of the United States. She has on that important issue and why he be- tration, serving this President, serving taken some sort of leave of absence in lieves having a fair judge on the Su- the President who has promoted such a recent weeks since this nomination oc- preme Court is important. piece of legislation that forces Amer- curred, but she holds that title. The The ACTING PRESIDENT pro tem- ican citizens, forces the citizens of this Department of Justice Solicitor Gen- pore. The Senator from Wyoming. country to buy a product. eral represents the U.S. Government in Mr. BARRASSO. Thank you very The editorial says: Federal court, usually before the Su- much, Mr. President. Recusal arises as a matter of judicial eth- preme Court, and in important cases I come to the floor today with my ics if as a government official she expressed before the courts of appeals and often friend and colleague because I have an opinion on the merits of the health-care is involved in setting legal policy for just gotten back from a week of trav- litigation. This is what she would have to the United States and helping to advise eling all across the State of Wyoming, render a judgment on were she to be con- firmed for the High Court. on that. So it is important that the a beautiful State this time of year. It goes on: American people know, before she is People are out and at parades. I had a confirmed—if she is confirmed—that chance to visit at several senior cen- It is also the question on which she is like- she has not been involved in matters ly to have participated given her role at the ters. The question that continued to Justice Department. that would bias her and cause her not come up was, Can the government force I would have to turn to my colleague to be able to serve impartially under me to buy health insurance? who is the of the Judi- the law and under the Constitution of A lot of people in Wyoming carry the United States. That is an impor- ciary Committee. their copy of the Constitution with It says as well that: tant question. them. They carry it in their breast The day before yesterday, I believe, The Solicitor General is the third ranking pocket. They carry it with them. It is official at Justice, its senior expert on Con- the Wall Street Journal had an edi- in the pickup truck. It is with them all stitutional issues, so it’s hard to believe she torial entitled ‘‘Kagan and the time. They continue to look to the wouldn’t have been asked at least in passing ObamaCare’’ in which it raised ques- 10th amendment, which says: about a Constitutional challenge brought by tions about the objectivity she might The powers not delegated to the United so many states. The debate about the suit bring to the Court and whether she had States by the Constitution, nor prohibited was well underway in the papers and on TV. been involved legally in the discussions by it to the States, are reserved to the The matter surely must have come up at At- or drafting the ideas concerning the de- States respectively, or to the people. torney General Eric Holder’s senior staff velopment and promotion of the health The people quote that. It just makes meetings, which the Solicitor General typi- cally attends. care reform bill so massively affecting sense to the people of Wyoming that health care in America. It raised the Washington should not be able to come The editorial goes on to say: question: Should she recuse herself if into their communities, into our State, We doubt Ms. Kagan would have stayed mum about the cases in internal Justice that comes up, if she has been involved into their homes, and say: You must councils on grounds that Mr. Obama might in that? I think that is a very impor- buy this product. later nominate her to the Court. At the time tant question. So when I see the number of States— the Florida suit was filed on March 23, she The seven Republican members of the 20 now—that have filed suit against the was only one of several potential nominees Senate Judiciary Committee wrote Federal Government because of a new whose names were being floated by the White yesterday and asked Ms. Kagan to give health care law, a law that I think is House. detailed explanations as to what extent going to end up, if it is not repealed So here we have this, and that is she may have been involved in any dis- and replaced, being bad for patients, when you get back to that opening

VerDate Mar 15 2010 23:43 Jul 14, 2010 Jkt 089060 PO 00000 Frm 00016 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.026 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5814 CONGRESSIONAL RECORD — SENATE July 14, 2010 anybody confirmed to the Supreme pressed or anything else—was there at any of momentous Constitutional importance. If Court will not sit on a case if they time you were asked in your present position there is any chance that the public will per- can’t be impartial, or if their impar- to express an opinion on the merits of the ceive her to have prejudged the case, or rub- tiality could even reasonably be ques- health-care bill?’’ ber-stamped the views of the President who Ms. Kagan: ‘‘There was not.’’ appointed her, she will damage her own tioned. Regarding a potential recusal, that’s not credibility as a Justice and that of the entire I thank the Senator for his leader- the right question. Ms. Kagan was unlikely Court. ship on the issue, and I am glad we had to have been consulted on the merits of As someone who hopes to influence the this colloquy. I hope we are going to health-care policy, and even if she did ex- Court and the law for decades, Ms. Kagan get a complete answer from the nomi- press an opinion on policy this would not be should not undermine public confidence in nee soon about any involvement she grounds for recusal. The legal precedents on her fair-mindedness by sitting in judgment that are clear. may have had explicitly, and then to on such a controversial case that began when Recusal arises as a matter of judicial eth- she was a senior government legal official. perhaps also inquire further about to ics if as a government official she expressed what extent she will be prepared to not an opinion on the merits of the health-care The ACTING PRESIDENT pro tem- participate if her impartiality can be litigation. This is what she would have to pore. The Senator from Washington is questioned. render a judgment on were she to be con- recognized. Mr. BARRASSO. If I can ask a final firmed for the High Court. It is also the ques- Mrs. MURRAY. Mr. President, I ask question. The final paragraph of this tion on which she is likely to have partici- unanimous consent to speak as in pated given her role at the Justice Depart- morning business. editorial that the Senator will intro- ment. duce into the RECORD says: The SG is the third ranking official at Jus- The ACTING PRESIDENT pro tem- As someone who hopes to influence the tice, and its senior expert on Constitutional pore. Without objection, it is so or- Court and the law for decades— issues, so it’s hard to believe she wouldn’t dered. We are talking about an appointment have been asked at least in passing about a Constitutional challenge brought by so many f that could last a lifetime, 30 or 40 states. The debate about the suit was well years. underway in the papers and on TV. The mat- Ms. Kagan should not undermine public con- ter surely must have come up at Attorney FINANCIAL REGULATORY REFORM fidence in her fair-mindedness by sitting in General Eric Holder’s senior staff meetings, Mrs. MURRAY. Mr. President, I have judgment on such a controversial case that which the SG typically attends. been fighting hard for a Wall Street re- We doubt Ms. Kagan would have stayed began when she was a senior government form bill that protects my State’s fam- legal official. mum about the cases in internal Justice councils on grounds that Mr. Obama might ilies, holds Wall Street accountable, It seems to me—and I ask the Sen- later nominate her to the Court. At the time and includes a guarantee that Amer- ator at this time—where someone may the Florida suit was filed on March 23, she ican taxpayers will never again have to be embarking on a long career on the was only one of several potential nominees pay to bail out Wall Street or to clean Court, wanting to do the right thing whose names were being floated by the White up after big banks’ messes. I am proud and head in the right direction, that House. to say that, finally, after months of the best decision would be to recuse Under federal law (28 U.S.C., 455(b)(3)), hard work, we are so close now to pass- herself from this case as well, if she is judges who have served in government must recuse themselves when they have ‘‘partici- ing legislation that does exactly that. confirmed, rather than get involved in pated as counsel, adviser or material witness This should not be a partisan issue. It it and potentially have an impact on concerning the proceeding or expressed an should not be about right versus left or her reputation for decades to come. opinion concerning the merits of the par- Republican versus Democrat. It should Mr. SESSIONS. I think that is cor- ticular case in controversy.’’ be about doing what is right for our rect. I appreciate the way the Wall Though their public chance has passed, families and small business owners in Senators can still submit written questions Street Journal expressed that. I think my State of Washington and across the that is a legitimate position. I hope the to Ms. Kagan for the record. We hope some- one asks her directly whether the legal chal- country. It should be about who it is nominee will take very seriously those lenges to ObamaCare ever arose in her pres- we choose to stand up for and who we concerns and will respond promptly to ence at Justice, whether she was ever asked think needs our support right now. the questions we have asked of her. her views, and what she said or wrote about Some people have spent the last few I ask unanimous consent that the the cases. months standing up for Wall Street and Wall Street Journal editorial be print- We also think there are grounds for recusal big banks, trying to water down this ed in the RECORD. based on her response during her Senate hearings on the substance of the state legal reform, and fighting against any There being no objection, the mate- challenge. The Florida case boils down to changes that would prevent the big rial was ordered to be printed in the whether Congress can compel individuals to banks from going back to their ‘‘bonus RECORD, as follows: buy health insurance under the Commerce as usual’’ mentality. [From the Wall Street Journal, July 13, 2010] Clause. Ms. Kagan danced around the history I have been proud to stand with so of jurisprudence, but in KAGAN AND OBAMACARE many others to fight against the Wall one response to Senator Coburn she did be- Street lobbyists and special interest Elena Kagan breezed through her recent tray a bias for a very expansive reading of groups and stand up for the families I confirmation hearings, but there’s some cru- Congress’s power. cial unfinished business the Senate should The Commerce Clause has ‘‘been inter- represent in Washington—families who insist on before voting on her nomination to preted to apply to regulation of any instru- want us to pass strong reform that can- the Supreme Court. To wit, she ought to ments or instrumentalities or channels of not be ignored or sidestepped in the fu- recuse herself from participating as a Jus- commerce,’’ she said, ‘‘but it’s also been ap- ture, who want us to end bailouts and tice in the looming legal challenges to plied to anything that would substantially make sure Wall Street is held account- ObamaCare. affect interstate commerce.’’ Anything? This able for cleaning up their own messes, In response to Senate queries, Ms. Kagan is the core question in the Florida case. If and who want us to put into place has said she’ll recuse herself from partici- she already believes that the Commerce strong consumer protections to make pating in 11 cases on which she represented Clause justifies anything that substantially the government in her current job as Solic- affects interstate commerce, then she has all sure big banks can never again take ad- itor General. The challenge to ObamaCare but prejudged the individual mandate ques- vantage of our families, our students, isn’t one of them, though the cases brought tion. or our seniors. by Florida and 20 other states were filed in A federal judge is required by law to recuse For most Americans, this debate is March, well before President Obama an- himself ‘‘in any proceeding in which his im- not complex; it is pretty simple. It is nounced her nomination on May 10. partiality might reasonably be questioned.’’ not about derivatives or credit default Ms. Kagan was never asked directly at her This has been interpreted to mean that the swaps; it is about fundamental fair- hearings about her role as SG regarding the mere public expression of a legal opinion healthcare lawsuits. The closest anyone isn’t disqualifying. But this is no routine ness. It is about making sure that we came was this question from Oklahoma Re- case. have good commonsense rules that publican Tom Coburn: ‘‘Was there at any Ms. Kagan would sit as Mr. Obama’s nomi- work for our families and our small time—and I’m not asking what you ex- nee on the nation’s highest Court on a case business owners. It is about the person

VerDate Mar 15 2010 02:15 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00018 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.032 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5815 who walks into a bank to sign up for a They cost homeowners the value of ness and good for your customer. I mortgage, or applies for a credit card, their most important financial asset as learned that strong customer service or starts planning their retirement. We neighborhoods have been decimated by and lasting relationships often made want to make sure the rules are now on foreclosures. your business much stronger; that per- their side and not with the big banks They cost our schoolteachers and our sonal responsibility meant owning up on Wall Street. police officers and all of our commu- to your mistakes and making them For far too long the financial rules of nities. And they cost our workers, such right. I learned that one business relied the road have not favored the Amer- as Devon, our students, such as Rob, on all the others on the same street. ican people. Instead, they have favored and our small business owners, such as I was taught that customers were not big banks, credit card companies, and Jude. prey and businesses were not predators, Wall Street. For too long, those people We owe it to people like them all and that an honest business was a suc- have abused the rules. across the country to reform this sys- cessful one. As we now approach this vote, I tem that puts Wall Street before Main It is time for us to bring those Main think it is important for all of us to be Street. We owe it to them to put their Street values back to our financial sys- clear about who it is we are fighting families back in control of their own fi- tem, to bring back an approach that for. I am fighting for people such as nances. We owe it to them to make puts Main Street and families over Devin Glaser, a school aide in Seattle, sure the rules that protect families sit- Wall Street and profits; that protects who told me that he had worked and ting around the dinner table at night, consumers, holds big banks account- saved his money and bought a condo balancing their checkbooks and finding able for their actions, and makes sure before the recession began. He told me ways to save for the future, not those people such as Devon and Rob and Jude he put 20 percent down on a traditional sitting around the board room table are never again forced to bear the bur- mortgage and was making his pay- finding ways to increase profits at the den for big banks’ mistakes. ments. However, like a lot of people expense of hard-working Americans. To I urge my colleagues today to stand who found themselves underemployed do that, we have to pass this strong with us against the status quo and for as a result of this recession, Devin has Wall Street reform legislation. this strong Wall Street reform bill that been unable to find work for more than It is important for families to under- families and small businesses in Wash- 25 hours a week. He told me he is now stand what this bill does and what ex- ington State and across the country unable to pay his mortgage. He will be actly opponents of this legislation are desperately need. Mr. President, I yield the floor. foreclosed on any day now. fighting against. The ACTING PRESIDENT pro tem- I am also fighting for people such as This bill contains explicit language pore. The Senator from Missouri. Rob Hays, a Washington State student guaranteeing that taxpayers will never whose parents have put their retire- Mr. BOND. Mr. President, I rise again be responsible for bailing out today to speak about the financial ment on hold and gone back to work in Wall Street. It creates a brandnew Con- order to send him to school. A few overregulation bill. The so-called fi- sumer Financial Protection Bureau nancial reform bill before us is being short years ago, Rob’s parents were in that will protect our consumers from the process of selling their home and sold to the American people as holding big bank ripoffs, end unfair fees, curb Wall Street accountable for the eco- preparing to retire. But then the fore- out-of-control credit card and mort- closure crisis took hold and they could nomic crisis that hurt every American gage rates, and be a new cop on the family and business in every commu- no longer find a buyer. As a result, beat to safeguard consumers and pro- they were forced to pay two mortgages nity across the Nation. We are told this tect their families. bill will end ‘‘too big to fail’’ and pre- with the money they had saved for It puts in place new restrictions for Rob’s school, and retirement was put vent future bailouts. small businesses from unfair trans- Unfortunately, just as the stimulus on hold. action fees that are imposed by credit I am fighting for people such as Jude bill was supposed to reduce unemploy- card companies. It enforces limitations LaRene, a small business owner in ment and the health care bill was sup- on excessive compensation for Wall Washington State, who told me that posed to lower health costs and reduce Street executives. And it offers new when the financial crisis hit, his line of the deficit, this bill, too, will do the op- credit was pulled. That forced him to tools to promote financial literacy and posite of what is advertised. It will not lay off employees, go deep into debt on make sure our families have the knowl- prevent future bailouts. It will create his personal credit card, and cut back edge to protect themselves and take another huge Federal bureaucracy; and on inventory—despite the fact that his personal responsibility for their fi- instead of punishing Wall Street, it toy stores were more popular than nances. will punish Main Street and the fami- ever. I have heard so many stories from lies who suffered—not caused—the fi- I am fighting for people such as people across Washington State who nancial meltdown. Devon and Rob and Jude because they have scrimped and saved and made the This bill was meant to rein in Wall are the ones being forced to pay the best with what they had but were dev- Street. Yet the biggest supporters are price now for Wall Street’s greed and astated, through no fault of their Goldman Sachs and Citigroup, and the irresponsibility. own—people who played by the rules biggest opponents are community Whether it was gambling with bor- but who are now paying the price for banks and small businesses in every rowed money from our pension funds, those on Wall Street who did not. city and town and community in the making bets they could not cover, or These are the people for whom we have Nation. I think that tells us all we peddling mortgages to people they to stand up, the people whose Main need to know about this bill. I urge my knew could never pay, Wall Street Street values I and so many others colleagues to listen to the folks at made reckless choices that have dev- fight for every day. home, the people who have to make a astated a lot of working families. With all of the new protections and living who are going to be burdened by In my home State of Washington, reforms this bill contains for families it. Wall Street’s mistakes cost us over and small businesses, one has to ask: I strongly oppose cloture on this bill. 150,000 jobs. They cost average families Who are the opponents fighting for and Yes, there have been improvements thousands of dollars in lost income. who are they standing up to protect? made, and I worked with my colleague, They cost small businesses the access I grew up working at my dad’s five- Senator DODD, to make sure we did not to credit they need to expand and hire and-dime store on Main Street in devastate the venture capital area. Un- and, in many cases, caused them to Bothell, WA—actually on Main Street. fortunately, that is coming in another close. Like a lot of people in the country, bill. But despite some of the progress They cost workers their retirement Main Street is where I got my values. we have made, the provisions most accounts they were counting on to I was taught by my dad that the prod- harmful to taxpayers, families, and carry them through their golden years uct of your work was not just about small businesses still remain. and students the college savings that the dollars in the till at the end of the As a matter of fact, new provisions would help launch their college ca- day. I learned that a good transaction have been airdropped into the con- reers. was one that was good for your busi- ference report that are so problematic

VerDate Mar 15 2010 02:15 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00019 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.033 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5816 CONGRESSIONAL RECORD — SENATE July 14, 2010 that neither Chamber could agree to lions in losses almost destroyed our fi- people were concerned this past week include them in either version. If we nancial system and poisoned the when I was home about what is going are truly committed to enacting real world’s financial system. on in Washington. I was talking with a bipartisan reform, then the majority I have heard some folks say: Why do group in Maryville in northwest Mis- would never allow items that were these bad practices mean something is souri. never debated and voted on to be in- going to happen to me? The way this I said: The uncertainty is really a cluded in the bill. bill is drafted, utility companies may problem for small businesses. I hope my Democratic colleagues will not be able to lock in steady rates for One small businessman corrected me. stand up for these principles about their customers, leaving them instead He said: No, it’s the certainty. We which they have talked so loudly and at the whim of a volatile market. The know what Washington has already say no to this backroom practice of utility companies will have to pay bil- done to the deficit, to the debt, to airdropping totally new concepts into lions to Wall Street or Chicago to clear health care, what it is going to do to fi- the bill. their normal long-term contracts and nancial regulation, and what it is I wish to talk now about some of the postcollateral with energy suppliers threatening to do to energy costs. most egregious provisions in the bill. through clearinghouses run by big fi- I asked everybody around the table: First, it is unbelievable and unac- nancial firms. That money will be im- Should I have said ‘‘certainty’’ rather ceptable that so many of my colleagues mediately passed along to every con- than ‘‘uncertainty’’? want to turn a blind eye to the govern- sumer of power from that utility com- They said: You certainly should. ment-sponsored enterprises, GSEs, that pany. That is what utilities do—they Small businesses are not willing or contributed to the financial meltdown pass it on to you and me as electricity able or even inclined to create jobs by buying high-risk loans that banks or gas or other customers of theirs. when this massive government rollout made to people who could not afford Mr. President, you and I and folks in of spending, taxation, and regulation is them. every community across the country coming down on them. Everyone here knows what I am talk- could pay higher costs every time we Let’s not be naive. Any of the new ing about. Despite this bill’s 2,300 flip on the light switch or turn on the costs as a result of new mandates and pages, it completely ignores the 900- air conditioner or heat. regulations, regardless of the entity on pound gorilla in the room: the need to That means family farms may not be which they are imposed, will be passed reform Fannie Mae and Freddie Mac, or able to get long-term financing, forcing down to the very people this bill claims the toxic twins as I not so fondly have many to quit farming and prevent to protect. Under the new, misnamed to refer to them now. many from beginning to farm. Consumer Financial Protection Bu- The irresponsible actions by Fannie The Wall Street Journal today, in a reau, or CFPB, the decisions on allo- and Freddie turned the American front-page article headed ‘‘Finance cating credit will no longer be based on dream into the American nightmare Overhaul Casts Long Shadow on the the safety and soundness requirement for too many families who have either Plains’’ tells how this bill will clobber for healthy banks. Instead, by empow- had their homes foreclosed or who are folks in agricultural communities who ering this new superbureaucracy with hanging on by a thread. have to have forward contracts. They unprecedented power, decisions on The irresponsible actions, pushed by never caused the problem, but it will credit will be driven by the administra- previous administrations on Fannie tie up capital and make them pay trib- tion’s political will and agenda. Poli- and Freddie, devastated neighborhoods ute to big firms on Wall Street or Chi- tics will then decide how to allocate and communities as property values di- cago. No wonder those big firms are for credit while operating outside the minished. them. There is a lot of business for framework of safety and soundness, To add insult to injury, after Freddie them, a lot of expense for the farmer, thus putting more risk back into the and Fannie went belly up, it was the the commodity hauler trying to make system when we were supposed to be very Americans who suffered from a living. taking risk out of the system. their irresponsible actions who were I am stunned that any Senator in This giant bill also contains a provi- left footing the bill. good conscience would vote for a bill sion creating a new Office of Financial As if that were not bad enough, un- that would increase costs for every Research. You will get to know this less we act now to reform the toxic American, especially at a time when one. It is given the authority to access twins, over the next 10 years Fannie working families are struggling to personal financial information of any and Freddie will cost the American make ends meet. One thing is certain: citizen in the United States. Well, I taxpayers at least an additional $389 This bill will enlarge government. don’t know about you, but I would pre- billion. Today’s Wall Street editorial opines fer not to have a new bureaucracy ri- In the joy of the Christmas holiday that: fling through my personal account in- last December, the administration Dodd-Frank, with its 2,300 pages, will un- formation in an era of economic and took off the $400 billion limit on them. leash the biggest wave of new federal finan- electronic communications where I have to ask: How much money do cial rulemaking in three generations. What- fraud and identity theft run rampant. they think they can lose if $400 billion ever else this will do, it will not make lend- Ordinary Americans who did not cause is not enough for them to lose? ing cheaper or credit more readily available. the financial meltdown should not be What is in this bill to address this They go on to state that one law firm punished and placed at risk because the problem? Absolutely nothing. Zip. has estimated that the new law ‘‘will government wishes to create this new, Zero. require no fewer than 243 new formal unnecessary office. Next, this bill lumps in the good guys rule-makings by 11 different agencies.’’ I could continue to list provision with the bad guys and treats them all What will be the effect? More law- after provision, pointing out expan- the same, particularly when it comes yers, more bureaucracy, more taxpayer sions of government and ill-intended to derivatives. money, and more lawsuits. policies that will create more uncer- Folks who are trying to manage and Certainly, I cannot vote in good con- tainty while failing to hit the objective control costs are treated the same as science for a bill that creates a massive of regulatory reform. However, this folks who are spending and speculating new superbureaucracy with unprece- Chamber doesn’t have the hours for my in the market, making shady bets with dented authority to impose govern- speech alone. I could say: Harsh letter money they did not have, making in- ment mandates and micromanage any to follow. If anybody wants to know, surance bets on property they did not entity that extends credit. we will be happy to send them lots of own. We are not talking about the big chapters and lots of verses. But, much This was described in the book, ‘‘The guys—the Goldman Sachs and the like the health care bill recently Big Short,’’ by Michael Lewis. These AIGs. In the real world, we are talking signed into law, I fear small businesses computer game derivatives, or insur- about the community banks, small re- will soon learn of many more unin- ance policies, were dreamed up by Wall tailers, and even your dentist. tended consequences which have yet to Street geniuses, some who made bil- I talked with a lot of small busi- be seen. Even the bill’s sponsors admit lions, others who lost billions. The bil- nesses and listened to them. A lot of that the bill’s long reach will not be

VerDate Mar 15 2010 02:11 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00020 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.034 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5817 fully known until it is in place. Re- As the Davis Polk wonks put it, ‘‘U.S. fi- Under Dodd-Frank, if Firm A pays to cover member when the leader on the other nancial regulators will enter an intense pe- the cost of the last bailout, there’s no guar- side of this building said: If you want riod of rule-making over the next 6 to 18 antee that the FDIC will rescue its creditors to find out what is in the bill, you will months, and market participants will need if Firm A fails in the future. This is fun- to make strategic decisions in an environ- damentally different from traditional de- have to pass it. Well, in this bill, if you ment of regulatory uncertainty.’’ The law- posit insurance, which guarantees the same want to find out what it is going to do, yers needed 26 pages of flow charts merely to deal for every bank customer. Dodd-Frank unfortunately, you are going to find illustrate the timeline for implementing the allows the FDIC to discriminate among out if you pass it. I don’t want to have new rules, the last of which will be phased in creditors at its discretion. my fingerprints on what is going to after a mere 12 years. This transfer of wealth is a tax by any rea- happen to businesses, to communities, Because Congress abdicated its responsi- sonable definition, borne by the customers, and to jobs in the United States if it bility to set clear rules of the road, the lob- shareholders and employees of the compa- bying will only grow more intense after the nies ordered to pay it. Is this how Mr. Brown passes. President signs Dodd-Frank. According to plans to reward the tea partiers who carried To sum it up, if the goal is to enact the attorneys, ‘‘The legislation is com- him to victory last winter in Massachusetts? real reform that ensures we never, ever plicated and contains substantial ambigu- Is this the key to a small business rebound have another financial crisis like the ities, many of which will not be resolved in Maine? one we had 18 months ago, the bill falls until regulations are adopted, and even then, A good definition of a bad law is one that woefully short of that goal. It is light many questions are likely to persist that its authors are rewriting even before they on reform, heavy on overreach and un- will require consultation with the staffs of pass it. The only jobs Dodd-Frank will create intended consequences. Overall, this the various agencies involved.’’ are in Washington—and in law firms like In other words, the biggest financial play- Davis Polk. bill is too large, too costly for con- ers aren’t being punished or reined in. The sumers, and would kill job creation at only certain result is that they are being Triumph of the Regulators—Estimate of new a time when working Americans need summoned to a closer relationship with rule-makings under the Dodd-Frank finan- to be left to do what they do best, and Washington in which the best lobbyists win, cial reform by federal agency that is succeed. and smaller, younger firms almost always Bureau of Consumer Financial Pro- There is no doubt we need to protect lose. New layers of regulation will deter tection ...... 24 lending at least in the near term, and they CFTC ...... 61 every American from ever again falling Financial Stability Oversight Coun- victim to Wall Street gone wild. But are sure to raise the cost of credit. Non-blue chip businesses will suffer the most as the fi- cil ...... 56 what we do not want—and why this de- nancial industry tries to influence the writ- FDIC ...... 31 bate is so important—is to punish ing of the rules while also figuring out how Federal Reserve ...... 54 Americans for a crisis they didn’t to make a buck in the new system. FTC ...... 2 cause. Unless we scrap this failed The timing of Dodd-Frank could hardly be OCC ...... 17 Office of Financial Research ...... 4 version and start over, the Democrats’ worse for the fragile recovery. A new survey by the Vistage consulting group of small and SEC ...... 95 bill will do just that, and the costs will Treasury ...... 9 be paid by Main Street. midsize company CEOs finds that ‘‘uncer- Mr. President, I ask unanimous con- tainty’’ about the economy is by far the Total* ...... 243 most significant business issue they face. Of sent to have printed in the RECORD an the more than 1,600 CEOs surveyed, 87% said * The total eliminates double counting for joint editorial from today’s Wall Street rule-makings and this estimate only includes ex- the federal government doesn’t understand plicit rule-makings in the bill, and thus likely rep- Journal to which I referred. the challenges confronting American compa- resents a significant underestimate. There being no objection, the mate- nies. Source: Davis Polk & Wardwell rial was ordered to be printed in the Believe it or not, Mr. Frank has already Mr. BOND. Mr. President, I yield the RECORD, as follows: promised a follow-up bill to fix the mistakes Congress is making in this one. In a recent floor. [From the Wall Street Journal] all-night rewrite session, he and Mr. Dodd The PRESIDING OFFICER (Mr. THE UNCERTAINTY PRINCIPLE made a particular mess of the derivatives MERKLEY). The Senator from New Mex- So Republicans Scott Brown, Olympia provisions. They now say they didn’t really ico. Snowe and now say they’ll mean to force billions of dollars in new col- Mr. UDALL of New Mexico. Mr. provide the last crucial votes to get the lateral payments from industrial companies President, I ask unanimous consent to Dodd-Frank financial reform through the on existing contracts that present no sys- speak as in morning business. Senate. Hmmm. Could this be Minority temic risk. But that’s precisely what the The PRESIDING OFFICER. Without Leader Mitch McConnell’s secret plan to regulators could demand under the current objection, it is so ordered. take back the Senate, guaranteeing another language, and the courts will ultimately de- year or two of regulatory and lending uncer- cide when everyone sues after the new rules The Senator from New Mexico is rec- tainty and thus slower economic growth? are issued. ognized. Probably not, but that still may be the Taxpayers might naturally ask why legis- Mr. UDALL of New Mexico. I thank practical effect. This week White House lators don’t simply draft a better bill now. the Chair. aides leaked to the press that President But for Democrats the current and only pri- (The remarks of Mr. UDALL of New Obama may seek a review of regulations that ority is to pass something they can claim Mexico pertaining to the submission of are restraining business confidence and bank whacks the banks and which they can hail as S. Res. 581 are located in today’s lending. Yet Dodd-Frank, with its 2,300 another ‘‘achievement’’ to sell before the RECORD under ‘‘Submission of Concur- pages, will unleash the biggest wave of new elections. federal financial rule-making in three gen- More remarkable is that a handful of Re- rent and Senate Resolutions.’’) erations. Whatever else this will do, it will publicans are enabling this regulatory mess. Mr. UDALL of New Mexico. Mr. not make lending cheaper or credit more Mr. Brown and Ms. Collins say they now President, I suggest the absence of a readily available. favor Dodd-Frank because Congressional ne- quorum. In a recent note to clients, the law firm of gotiators agreed to drop the bank tax. But The PRESIDING OFFICER. The Davis Polk & Wardwell needed more than 150 lawmakers didn’t drop the bank tax. They clerk will call the roll. pages merely to summarize the bureaucratic only altered the timing and manner of its The assistant legislative clerk pro- ecosystem created by Dodd-Frank. As the collection. Instead of immediately assessing ceeded to call the roll. nearby table shows, the lawyers estimate a tax on large financial companies to pay for that the law will require no fewer than 243 future bailouts, the final version simply au- Mrs. LINCOLN. Mr. President, I ask new formal rule-makings by 11 different fed- thorizes the bailouts to occur first. The unanimous consent that the order for eral agencies. money to pay for them will then be collected the quorum call be rescinded. The SEC alone, whose regulatory failures via a tax on the remaining firms. The PRESIDING OFFICER. Without did so much to contribute to the panic, will Because this tax will be collected by the objection, it is so ordered. write 95 new rules. The new Bureau of Con- Federal Deposit Insurance Corporation, even Mrs. LINCOLN. Mr. President, I ask sumer Financial Protection will write 24, opponents of the bill have viewed it as part unanimous consent to speak as in and the new Financial Stability Oversight of an insurance system. It isn’t. Insurance is morning business. Council will issue 56. These won’t be one- when you pay a premium and the insurance The PRESIDING OFFICER. Without page orders. The new rules will run into the company agrees to replace your house if it hundreds if not thousands of pages in the burns down. A tax is when you pay the gov- objection, it is so ordered. Federal Register, laying out in detail what ernment and then the government decides Mrs. LINCOLN. Mr. President, I rise your neighborhood banker, hedge fund man- which houses it wants to replace when there to voice my support for the Dodd- ager or derivatives trader can and cannot do. is a fire in the neighborhood. Frank Wall Street Reform Act. As the

VerDate Mar 15 2010 04:32 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00021 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.036 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5818 CONGRESSIONAL RECORD — SENATE July 14, 2010 chairman of the Senate Agriculture guidance and expertise as the rules and and Robert Holifield on our Agri- Committee, I was fortunate to play a regulations are written for this legisla- culture Committee staff, as well as role in writing some of the most impor- tion. As chairman of the Senate Agri- Anna Taylor on my personal staff. tant reforms of this legislation, and culture Committee—one of the key We have an enormous opportunity to that was the derivatives title. This his- committees of oversight—I pledge to be do something that is going to move us toric legislation the Senate stands vigilant in this process and retain a forward, understanding that we never poised to approve will rein in the reck- watchful eye on those regulators. It is get things perfect but, more impor- less Wall Street behavior that nearly imperative that our vision of strong re- tantly, that we are willing to step to destroyed our economy, hurting Ar- form is implemented properly; that ev- the plate and to do what we can to kansas small businesses and costing eryone should be doing their job—in make our country strong again, to millions of Americans their jobs. the legislation we write, the regula- make our economy strong again, to In 2008, our Nation’s economy was on tions that need to be written to match bring confidence to consumers and in- the brink of collapse. America was that, and the oversight to ensure that vestors in this Nation and globally in being held captive by a financial sys- balance continues. While the regu- order to move ourselves forward—not tem that was so interconnected, so lators must hold the financial system just for ourselves but for future genera- large, and so irresponsible that our accountable for its actions, Congress tions. I urge my colleagues to support economy and our way of life were must hold the regulators accountable, this conference report, and I look for- about to be destroyed. I will never for- just as the voters hold us responsible ward to this legislation being signed get the sobering meetings at the Cap- for a lack of meaningful reform. into law. itol with then-Treasury Secretary As the Senator from a rural State, I I yield the floor and suggest the ab- Hank Paulson and Federal Reserve will also ensure that our community sence of a quorum. Chairman Ben Bernanke, who informed banks are able to continue to meet the The PRESIDING OFFICER. The us of the imminent collapse of the U.S. lending needs of rural America and will clerk will call the roll. economy. Overnight, the United States not be subject to unintended con- The assistant legislative clerk pro- of America—the most powerful eco- sequences. Our community banks did ceeded to call the roll. nomic power on the globe—had been not create this problem and should not Mr. CORKER. Mr. President, I ask brought to the brink of collapse. have to shoulder the burden of paying unanimous consent that the order for Today, American families and small for the solution. the quorum call be rescinded. businesses are still managing the con- America’s consumers and businesses The PRESIDING OFFICER. Without sequences of the reckless behavior that deserve strong reform that will ensure objection, it is so ordered. occurred on Wall Street and nearly led that the U.S. financial oversight sys- Mr. CORKER. Mr. President, I ask to our economic collapse. Congress has tem promotes and fosters the most unanimous consent to speak as in the duty to the people we represent and honest, open, and reliable financial morning business. to future generations of Americans to markets in the world. Our financial The PRESIDING OFFICER. (Mr. ensure that this country’s economic se- markets have long been the envy of the FRANKEN.) Without objection, it is so curity is never again put in that kind world. The time has come for our coun- ordered. of jeopardy. Failure to correct the mis- try to restore confidence to our shat- Mr. CORKER. I wish to speak for a takes of the past is simply unaccept- tered financial system. The time has moment about the Dodd-Frank bill able. That is why I am proud to say come for us, the United States, to lead that we are going to vote on appar- that today we stand poised to deliver by example. We stand poised to deliver ently tomorrow evening. I wanted to the historic reform the American peo- that reform today, and I look forward talk a little bit about politics, which is ple deserve. to final passage of this bill. not my specialty, and then a little bit This legislation provides 100 percent Finally, a bill of this complexity and about the substance. transparency and accountability to our importance requires perseverance and I know the Presiding Officer has been shattered financial markets and regu- long hours, and the dedicated staff of highly involved in this bill and made a latory system. As chairman of the Sen- the Senate deserves congratulations. I positive contribution. I read recently ate Agriculture Committee, I was thank my colleagues, of course, Sen- comments made by our leader, the ma- proud to help craft the bill’s strong de- ator DODD and his staff, for their tre- jority leader here, and the President, rivatives title. This legislation brings a mendous work. In particular, I would and actually the chairman of the Bank- $600 trillion unregulated derivatives like to thank Ed Silverman, the Bank- ing Committee regarding the fact that market into the light of day, ending ing Committee staff director for his the reason the bill is the way it is is the days of Wall Street’s backroom partisan politics, and basically insinu- deals and putting this money back on dedication to finishing this legislation. ating that Republicans did not want to Main Street where it belongs. In all of I would like to also thank Senator deal with a financial regulatory bill. our communities across this Nation, CHAMBLISS, my ranking member on the Nothing has disappointed me more these reforms will get banks back to Senate Agriculture Committee, and his than the fact that we have a bill that the business of banking, protecting in- staff for their friendship and eyes and has basically ended up wrapping folks nocent depositors and ensuring tax- ears throughout this process; Senator around the axle as they tried to get payers will never again have to foot REID and his staff, of course, for their two or three votes on our side of the the bill for risky Wall Street gambling. leadership; and the administration and After spending countless hours on regulators for their extraordinary com- aisle to pass this bill. We had a tremen- this legislation and digging into the de- mitment to this reform bill; and cer- dous opportunity to pass a bipartisan tails of the derivatives world, I am here tainly our House colleagues, Chairmen bill. We had a tremendous opportunity to reassure my colleagues and all FRANK and PETERSON—particularly to pass a bill that would have shown Americans that this bill is strong, it is Chairman PETERSON of the House Agri- the American people that we in this thoughtful, and it is groundbreaking culture Committee in particular, and body have the ability to work together reform that will fundamentally change their staffs, for their cooperation and on big issues and solve problems. I our financial system for the better. We leadership. think it is a shame we did not do that. worked hard to ensure that it would. I also would like to thank my staff I have to say, from my perspective— It is important to reiterate that this for their unbelievable hard work and I think I put as much time into reform is not regulation for regulation throughout this process. There were a this bill as anybody here in the Sen- sake. It is surgical in its approach. We lot of long nights, a lot of complicated ate—it ended up being about partisan maintain an end-user exemption, pro- issues, and a lot of dedication on their issues. There was an overreach on mote restraints on the regulators, part to ensuring that what we produced issues that had almost nothing to do— where necessary, and provisions that was something that was good and solid as a matter of fact, absolutely nothing recognize we are competing in a global for the future of this country, particu- to do—with this crisis, to advance financial marketplace. larly Patrick McCarty, Cory Claussen, some political agenda issues, and then, Over the next year, Congress will Brian Baenig, Julie Anna Potts, Matt on the other hand, a total denial to rely heavily on the regulators for their Dunn, George Wilder, Courtney Rowe, deal with some of the core issues that

VerDate Mar 15 2010 02:11 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00022 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.037 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5819 got us in this situation. So I am dis- were already in. So it is pretty fas- take is who leads it. This is an incred- appointed. cinating how we create bills and we do ible place for us to be, for us as a Con- We talk a lot. We have had groups not address the core issues, and then gress to be. I think it is an incredible come in, and they talk us to about how we have lots of unintended con- place for the administration to be, they want to see bipartisanship. Then sequences along the way, as we are see- where we are creating an entity, a con- some of us on both sides of the aisle ing play out right now. sumer financial protection organiza- step out from time to time to do that. I am not supporting this bill, which I tion, that has incredible rule-writing When it happens, and a lot of effort is had hoped to cosponsor. I am not sup- abilities, that has no board, no real expended, and the end product is not porting this bill out of partisanship; I ability, and yet on its own, one achieved, for a lot of forces that exist am not supporting this bill because it person—I am not talking about a group around here, the very people that you misses the mark. This is not the worst of people, but one person is going to de- end up reaching out to criticize the bill that has ever been created. I am cide the nature of what this organiza- fact that we ended up with a partisan not going to say that. It is not. We just tion is going to engage in. I find that bill. did not do our work. I mean, basically incredible. Yet, at the end of the day, let’s face what we have done is, as I mentioned, For all I know, the fears that I have it, one side has the majority, one side we left it to regulators. We did not deal about it, the fears I have about this or- has the minority. In this particular with some core issues. ganization, may not be borne out—may bill, I do not think there was, at the I offered an amendment to deal with not be borne out. end, a valid attempt to do that. So I underwriting. At the end of the day, re- I think the Presiding Officer very am disappointed. We have issues in this gardless of everything that people talk well may support this concept. He will country as they relate to our financial about at hieroglyphic levels, we had a never know whether his hopes for this system that do need to be addressed. lot of loans in this country that were organization are borne out until we No doubt, any bill of this magnitude, written to people who could not pay know who the person is and what their 2,300 pages, has some good things in it. them back. We did not have under- bent and flavor is. There are good provisions in this 2,300- writing standards. We still do not have I think that, again, as a body we had page bill. In many ways we punted underwriting standards. a responsibility to put a balance in most of the work to regulators. They At the end of the day, we had two en- place so that we knew what the direc- are going to spend the next 10 to 18 tities. I am not one of those who said, tion of this organization was going to months making rules that leave a lot these entities were the core reason for be over time. I find that to be incred- of instability in our financial system the problem. But the fact is, we had ibly irresponsible. at a time when I think people want to two enablers, Fannie and Freddie, that, As we look at this bill, I think one of have a degree of certainty. let’s face it, what they do is they allow the gauges of what it does is, we have I think the Presiding Officer today people to write bad mortgages, pool the folks on Wall Street who rhetori- tried to actually focus on greater cer- them together, and then they insure or cally my friends on the other side of tainty in some areas, and I might have purchase those. They were enablers. We the aisle wanted to bash, and, candidly, disagreed with some of those. But the have not dealt with that. all of America in many ways is upset fact is, I think part of our job here in I do not support this legislation, not with Wall Street is loving this bill. legislating is to create a degree of clar- because it is the worst bill in the They have got teams of compliance of- ity. world. It is not. As a matter of fact, we ficers who have the ability to deal with One of the shortcomings of this bill is do not even know what the outcome of regulations a consumer protection that—I think the count keeps going. I this legislation is. It is interesting, I agency might put out, all these have heard a count of 363 rulemakings. read the papers and they talk about rulemakings. As a matter of fact, typi- I have heard a group come out and say the fact that this is a historical piece cally when we regulate like this, it is there are 500 rulemakings. In essence, of legislation. We have no idea whether the big guys who benefit, and they get what we did with this bill in many this bill is historical. We will not know bigger. ways is say to the very regulators who for a long time until the regulators de- But the community banks, the small- had the power, candidly, to do most of cide what they are going to do with er banks in my State, and I think what is in this bill anyway, they had this bill, because basically the power is across this country, are the ones that that power within their purview, did left to a huge number of bureaucrats are concerned. I know we are all con- not do it, and kind of what we said is: which, by the way, we have created, cerned about the employment activity Look, we would like for you to make which is going to be like a malaise over in our country. All of us want to see rules. our financial community because we the economy improve. So K Street and government rela- did not give a lot of clear direction. We At the end of the day, most Ameri- tions folks are going to make a lot of left it to regulators. We created a bu- cans have to deal with these smaller money over the next 12 to 18 months as reaucracy. institutions. Most Americans want to they now lobby regulators to sort of One other note. I think the issue that deal with these smaller institutions. figure out what the rules of the road in many ways divided us—I know peo- They are people they go to church are going to be. In the process, again, ple on the other side of the aisle knew with, they go to Rotary Club, they see jobs in the country will be more stag- this well, refused to address it, al- at the grocery store. These are the peo- nant. though at one point we got very close ple they have relationships with. What The other piece of this is that this all and almost had a deal—was this issue we are doing in this legislation is we started with this sort of political agen- of the Consumer Protection Agency. are increasing the cost of capital that da: We are going to bash Wall Street. I am all for consumer protection. I is available to most Americans, and we Now Republicans have come out and think the concern that I had as an indi- are limiting the amount of that in- said, no, this is a Wall Street bailout. vidual is we have created a new entity. creased cost—that capital is going to So we had Democrats going to bash It has no board. It is an amazing thing. cost more—we are decreasing the avail- Wall Street, and Republicans saying, It has no board. Because of the stand- ability. this is a Wall Street bailout. Candidly, ards against which the way this organi- So we are decreasing the availability I do not know that it is either one. The zation is judged as it relates to its rule- of capital in communities across our fact is, I think most folks on Wall making, which is expansive across the country, and we are increasing the cost Street like this bill. entire financial industry, because of of that. So I find that it is an amazing As a matter of fact, I am looking at the standard against which you have to place where we are. We all care about hedge fund managers right now, read- challenge, there is no veto ability. employment, and yet we put in place ing the Financial Times, many of the This new organization has a budget policies that are counter to that em- folks who probably are involved in the anywhere from, I think, $600 million to ployment. So, again, I am disappointed riskiest businesses are now out forming $1 billion a year, and the only way the in the outcome of this bill. new hedge funds. Now they are moving Presiding Officer or I will know what I have appreciated working with to a more unregulated area than they direction this organization is going to many Members on both sides of the

VerDate Mar 15 2010 02:11 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00023 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.041 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5820 CONGRESSIONAL RECORD — SENATE July 14, 2010 aisle to come up with a balanced piece will create and, obviously, the many damage done to the economy as a of legislation that will stand the test of technical changes that will result be- whole. We cannot talk to any room time, a piece of legislation, by the way, cause of the fact that we rushed our with owners of small businesses and that will actually deal with the core work. not hear stories about frozen lending, issues that created this financial crisis. This process began mostly about sub- about credit lines cut in half, about op- This bill does not do that in every area. stance. A lot of people put a lot of time portunities to expand a business, but, It does in some. I want to say that into trying to understand substance. I despite a regular banking relationship some of the derivatives—clearing know the Presiding Officer focused on extended over a decade, that bank can- houses, I think that is a good contribu- one particular issue and tried to offer not now extend the loans that would tion. Again, I think we have got end some substance in that regard. At the enable them to seize that opportunity users out across our country now who end of the day, politics took over. to create jobs. We still have massive are panic stricken, farmers and others, November is approaching. It would be disruption in our securities market who use derivatives in their daily lives. nice in the eyes of some people to have that provides the credit that fuels not And now maybe—we do not know be- a 60-, 61-vote bill. Some are said to like only home mortgages but many other cause regulators will decide down the obstruction. I can tell my colleagues, parts of the economy. road. We punted that. We said, we will nothing could be further from the This economic meltdown has been a let the regulators decide. So for a pe- truth, especially on this piece of legis- huge factor in contributing to the na- riod of time, they are going to be con- lation. tional debt. In every possible way, the absence of responsible lane markers cerned about whether they are able to What I regret most is, I know this and traffic signals has wreaked havoc put up their tractors and barns and bill is going to have the unintended on the American family and the Amer- other things as collateral against de- consequence of hurting Tennesseans, ican economy. We are here now to set rivatives or be in a more risky posi- hurting people from Oregon and Min- that straight, to restore those lane tion. nesota and around the country. There We have missed the mark. I realize is no question that with all that we markers and traffic signals. What really happened? It can be that, ironically, after a year of work, have laid out in these 2,300 pages, there summed up in two words: irresponsible 2,300 pages, hundreds and hundreds of will be less credit available and the deregulation. Let’s get into the details credit that is available will cost more rules that are getting ready to be gen- a bit further. Let’s start with irrespon- money. What we really have done with erated by regulators. It is my under- sible deregulation that led to new pred- this bill is hurt the average American. standing there is now already another atory mortgage practices. One of those I yield the floor and suggest the ab- bill coming to correct this bill. That is practices was liar loans, loans in which sence of a quorum. pretty amazing to me. the loan officer was making up the I wish to say that politics ends up The PRESIDING OFFICER. The numbers and putting them in because overcoming substance, I have seen as clerk will call the roll. they knew they could turn around and bills come to the floor. We had an op- The bill clerk proceeded to call the sell that loan to Wall Street and have roll. portunity which we missed to try to no responsibility for whether that fam- Mr. MERKLEY. I ask unanimous get this bill right in a bipartisan way. ily succeeded in making the payments. In spite of the fact that I am dis- consent that the order for the quorum Another predatory practice was appointed I cannot support this legisla- call be rescinded. steering payments—mortgage origina- The PRESIDING OFFICER. Without tion strictly on policy grounds, I do tors getting paid huge bonuses to sign want to say that our staff and our of- objection, it is so ordered. people up for mortgages that had in the Mr. MERKLEY. I ask unanimous fice is going to continue to be engaged fine print hidden exploding interest consent to speak as in morning busi- with others. I know there is going to be rates, so the family could easily make a lot of other activity as a result of ness. the payments at 5 percent, but when The PRESIDING OFFICER. Without this bill, some of the unintended con- that hidden language triggered 9 per- objection, it is so ordered. sequences, some of the mistakes that cent, there was no way the family was Mr. MERKLEY. Mr. President, I rise have been made and some of the glar- going to be able to make those loan to address the Dodd-Frank financial re- ing omissions we did not deal with, payments. Since most of those were on form bill and to share the reasons it things such as—it is hard for me to be- a 2-year delay, we can think of it as a lieve that we would not take the time makes a great deal of sense to restore 2-year fuse, a ticking timebomb, a to upgrade our Bankruptcy Code so the lane markers and traffic signals to ticking mortgage timebomb that was that a large entity that fails goes our financial system—lane markers going to go off and destroy that fam- through some of the same things the and traffic signals that were ripped ily’s finances. Then the prepayment same entity in Minnesota might go away carelessly, thoughtlessly over the penalty that locked people into those through. It is amazing to me that we course of a decade and led to the eco- loans. These retail mortgage practices did not do that work. But we still have nomic house of cards that melted down resulted in irresponsible deregulation. an opportunity. last year, doing enormous damage to Then we had the securities that were I know the Presiding Officers have America’s working families. There may made from those bad mortgages by fi- now changed. I know the Presiding Of- be many in the financial world who feel nancial firms, packaging those bad ficer sitting here today is on the Judi- pretty good about the most recent bil- mortgages, putting a shiny wrapper on ciary Committee. I also know that over lion-dollar quarterly profits or million- them, and then selling them with AAA the course of the next year or two we dollar bonuses, but families in Amer- ratings to financial institutions, to will have the opportunity to work on ica’s working world are not feeling so pension funds, to investment houses, that and try to develop something so good. They are looking at their retire- tossing those mortgage securities hith- that when a large, highly complex fi- ment savings being decimated. They er and yon without full disclosure. nancial entity fails, there is actually a look at the value of their house and re- When those mortgages that were in sort of standard they go through when alize it is worth less than it was 6 years those packages went bad, those securi- they fail that people understand, and ago. For many families, the amount ties were going to go bad. That is what they understand the bankruptcy stats, they owe on the house is more than it happened in 2008 and 2009. It melted they understand what their rights are is now worth. Families are looking at down this economy. going to be. lost jobs and lost health care that went Another piece was the irresponsible There is a lot of work left to be done. with those jobs. They are looking at an deregulation lifting leverage require- I am disappointed in where we are and economy that struggling to recover, ments on the largest investment what we are going to be voting on to- that is providing them few opportuni- houses. Bear Sterns in a single year morrow night. ties to get back on their feet. went from 20-to-1 leverage to 40-to-1 le- I cannot support it, but I do look for- The meltdown triggered by the eco- verage. That means they were going to ward to working with my colleagues on nomic house of cards built up over the make a lot more money when every- changes that will have to be made, on last decade is enormous. It is not only thing is going up, but it means the mo- the unintended consequences this bill the damage done to families, it is the ment things turn down, they can’t

VerDate Mar 15 2010 02:11 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00024 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.042 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5821 cover their bets and they are going to sumer protection responsibilities to electrician to wire up your basement. go out of business. the Fed, but the Fed had its monetary The electrician leaves, and you find out Then we had credit default swaps. mission in the penthouse of their office he or she took out a fire policy on your That is a fancy term for insurance on building. They had safety and sound- house. I think you might be a little the success of a bond. That new insur- ness on the upper floors, but they put worried about the quality of the wiring ance was issued by AIG without any consumer protection down in the base- that was done in your basement. collateral being set aside to cover the ment. They ignored it. They didn’t act Or consider this possibility: You buy insurance—complete failure to deregu- on the responsibilities they had. So we a car and you find out the person who late this new product. Those insurance put those responsibilities in an organi- sold you the car took out a life insur- policies, those credit default policies zation, a Consumer Financial Protec- ance policy on you. Well, you do not created an interwoven web in which if tion Bureau that has a single mission— like the idea, I do not like the idea, of one firm failed and couldn’t pay off its not a third mission or a fourth mission, the possibility that someone would sell responsibilities under the credit de- not a forgotten mission, not a mission a car that is defective so they can take fault swaps or insurance policies, then we put in the basement, but a first mis- out a life insurance policy and maybe the firm that it owed was going to fail. sion—so that Americans can choose cash in. It set up a web of potential collapse. from responsible financial products, Yet that was what was happening Those are the types of dramatic not ones that compete to see who can with securities: companies taking bad issues created through irresponsible de- have the biggest scam, the biggest de- loans, putting them in a shiny wrapper, regulation that we must address in this ception, the biggest trick or the big- selling them, and then taking out an body and that are addressed in the gest trap but instead can compete on insurance policy—a credit default Dodd-Frank financial reform bill. the cost of the product and on the qual- swap—so when that security went bad First, the bill ends those three preda- ity of the service. they could cash in. tory mortgage practices I spoke of. It The third thing this bill does is redi- Well, we need to have a level of in- ends liar loans. It creates underwriting rects banks to the mission of providing tegrity in the formation of our securi- standards. My colleague from Ten- loans to families and small businesses. ties or our bonds. This bill takes us in nessee mentioned he would like to see This is the core function of the bank- that direction. This bill puts the sale of underwriting standards in this bill. ing world. What happened over the last swaps on organized markets. What are swaps? Again, they are insurance poli- They actually are in the bill. That is a few years is some of our banks said: It cies, based on interest rates; insurance very important part of this legislation. is a lot more fun to bet on high-risk in- policies, based on exchange rates; in- This bill ends the steering payments, vestments than it is to make loans to surance policies, based on the success the bonuses paid to mortgage origina- families and businesses. But that is not tors to basically guide people into of securities. the mission of the banks that have ac- You cannot sell insurance to the gen- tricky mortgages with hidden explod- cess to the Fed window for discounted eral public without setting aside re- ing interest rate clauses. This bill funds from the Federal Reserve. That serves, but these swaps were sold with- stops prepayment penalties that were is not the mission of the banks that we out reserves. So this bill before us used to lock families in. If you are in a insure their deposits. The function of today says reserves are necessary so mortgage and you have to pay several those banks is to make sure there is li- the bet can be covered if the event you pounds of flesh to get out of that mort- quidity in the hands of our businesses are insuring should happen. gage—and by that, I mean perhaps 10 so they can thrive and so families can It also creates a market for them so percent of the value of your house— thrive. This bill redirects them to that the customer—that is normally a busi- where is that 10 percent coming from? mission. ness that wants to hedge its interest You can’t do it, so you are locked in. Let me put it this way: High-risk in- rate risk or its exchange risk or its in- You are chained to the steering wheel vesting is a little bit like high-speed vestments in securities, that wants to of a car going over a cliff. We have got- car racing. hedge and protect itself against the ten rid of that practice. You know as you watch cars going possibility that those will go down or The second main thing we have done around the race track they are going to change—they can get that at a much is establish real-time consumer protec- push the boundaries, the limits of better price when they can do so tion to end scams and tricks and traps speed and traction, and they are going through the power of a transparent, or- in financial documents. There was a to do quite well. They are going to try ganized market. woman from Salem, OR, who wrote to to nudge ahead of the rest of the cars. So being able to hedge risk at a much me. She wanted to share her story, just But then, eventually, one is going to cheaper price is a huge contribution to one of the little pieces of malfeasance hit some rubber on the track or some the formation and allocation of capital that had occurred. She had paid her oil or some gravel or get bumped by an- in our country. credit card bill on a timely basis other car and the race car is going to Finally, this bill allows a systematic month after month, year after year. crash. way to dismantle failing firms in the She was very surprised when she re- When you go to the track, you pretty financial world so it minimizes sys- ceived a letter saying she had a late well know in advance you are going to temic risk and so the industry itself payment and owed a fee. So she called see a car crash. That is the way it is picks up the cost of their failure, so we up the credit card company and said: with investment houses. They are com- the taxpayers are not in a position of How can this be? I always pay on time. peting with each other to find the best having to pick up that cost. The person on the other end said: opportunities for the highest return, so I know some of my colleagues on the Yes, we received your payment, as you we know they are going to crash—that other side have simply asserted the op- indicated. But your contract says we some of them will—and we accept that. posite to try to confuse the issue. Well, don’t have to post your payment for 10 This is an important role in the forma- I think that is irresponsible because so days, and so we didn’t post your pay- tion, aggregation, allocation of capital. much was done in this bill to make ment right away. We posted it at the But we want them to crash on the race sure American taxpayers are never end of that 10-day period. At the end of track, not to crash out on the streets again on the hook for the failure of fi- the 10-day period, your payment was of the city or the streets of the coun- nancial firms in our Nation. This is the late. So you owe us this fee. It is all in tryside. That is why this bill moves type of responsible lane markers and your contract. high-risk investing out of the banks traffic signals we need in our system. She said: How can that be fair? that should be dedicated to the mission Certainly every one of us here be- That is why we need a consumer pro- of providing loans to small businesses lieves there are further strides that tection agency for citizens across the and families. could be made. There are standards in country. Members know what I am Another key thing this bill does is re- this bill that I would like to have crisp- talking about because virtually every store integrity in the formation of se- er. There are terms for which I know one of us has opened up a statement curities. Let me put it to you this way. we will need fierce, vigilant regulation and gone: Wait, how can that be fair? Imagine that an electrician comes to to make sure those terms are not ex- We did have the delegation of con- your house because you are asking that panded into loopholes.

VerDate Mar 15 2010 02:11 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00025 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.043 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5822 CONGRESSIONAL RECORD — SENATE July 14, 2010 This bill does not do as much as I the bill and look forward to further this year, our national debt will be a would like to address the issue of per- comments today and tomorrow by oth- staggering $13.8 trillion. That is an al- verse incentives in the system of rating ers on this product. At a later point most $2 trillion increase in 1 year. As securities, something the Presiding Of- today, we will go into greater length the book of Proverbs tells us in chapter ficer was a huge advocate for, and put about the bill. But I would urge my 7, verse 22, ‘‘The rich rule over the poor forward a terrific policy to address. We colleagues to support this legislation. I and the borrower is the servant of the are going to have to keep working on am very grateful to all who have been lender.’’ that piece. involved—both Democrats and Repub- America must address its debt and But in each of these areas I have de- licans—in trying to make this as stop borrowing money from countries scribed, this is a quantum improve- strong and as good a bill as we possibly such as and others that don’t ment. I think colleagues on both sides could. have our best interests at heart. We of the aisle know that. So beware of ef- I have listened with some interest just can’t keep kicking the can down forts to confuse the debate trying to today to the comments of others about the road. Our national debt is one of say what is north is south and what is this legislation, with some amusement, the most important problems we face, east is west. I might add, in terms of observations and our failure to begin to address the So these are the reasons—these core about how we got to where we did. But, fiscal crisis will damage our economy, improvements to our financial system nonetheless, that is the nature of this our national security, and the kind of that enhance the ability to aggregate institution, I suppose. future we leave to our children and and allocate capital efficiently—why I With that, I again thank Senator grandchildren. am supporting this bill. I applaud the MERKLEY for his fine work. Still, I know Ohioans are hurting, so chairman of the Banking Committee, I suggest the absence of a quorum. I approached the majority leader and who steered this bill through enormous The PRESIDING OFFICER. The told him I would provide the vote he sets of obstacles. It is reported that clerk will call the roll. needed to extend unemployment insur- Wall Street hired 1,000 extra lobbyists The assistant bill clerk proceeded to ance if the Democrats were willing to to try to torpedo the bill that is before call the roll. use some of the estimated $40 billion us. That is a lot of obstacles to get Mr. VOINOVICH. Mr. President, I ask unspent stimulus money to help offset through. unanimous consent that the order for at least half of the stand-alone unem- These are complex issues that re- the quorum call be rescinded. ployment insurance extension. He re- quired thoughtful analysis and had to The PRESIDING OFFICER. Without jected my offer but remained at the be worked and reworked. So I applaud objection, it is so ordered. table on what I considered to be a fair the chairman’s work in taking us to and simple bill: Extend the unemploy- this point where we are prepared to f ment benefits and pay for half of it. send this bill on to the President’s INVESTING IN AMERICA So I say to my friends on the other desk. Mr. VOINOVICH. Mr. President, I side of the aisle, let’s get it done. Let’s I would like to particularly thank rise today to discuss the state of unem- my colleague, , who teamed extend UI benefits in a bipartisan man- ployment in our country and what we ner and pay for at least half with stim- up to work with me on a proposal to need to do to finally create sustainable take high-risk investing out of the ulus funds. I am confident we could get jobs and grow our economy. 60 votes for that tomorrow. bank holding companies and to im- The unemployment rate currently prove the integrity of bonds. That was Second, I know most people in Amer- stands at 9.5 percent nationally and in ica would rather have a job than col- work that came straight out of the my State 10.7 percent. Clearly, some- committee work he did in such a capa- lect unemployment insurance. They thing has to be done about this. It ap- would rather have a job than collect ble and timely fashion. pears that the new Senator we are ex- So with that, I conclude by saying we unemployment insurance. But my con- pecting from the State of West Vir- need a financial system that is not cern is that not enough is being done ginia may be the deciding factor when about quarterly profit margins on Wall by this administration—or by Con- we vote later this month to begin ad- Street, that is not about the size of bo- gress, for that matter—to put people dressing this problem. nuses on Wall Street but is about pro- back to work or create an environment First, I think we need to understand viding a foundation for business to where businesses have enough con- that we need to instill certainty into thrive, for employment to be increased, fidence in the future to unleash a cor- the economy by providing relief to the for families to find work, and to build porate, private sector stimulus. segment of our fellow citizens who can- financial foundations for the success of I wish to quote from a current News- not find work. Because of the downturn those families over the next several week article by Fareed Zakaria enti- in the economy, I have already voted decades. That is the type of financial tled ‘‘Obama’s CEO Problem. He needs foundation we need, and this bill cer- multiple times to extend unemploy- business on his side now.’’ tainly is a huge stride in accomplishing ment insurance from the standard 26 I ask unanimous consent to have this that. weeks to 99 weeks, amounting to tens article printed in the RECORD following Mr. President, I yield the floor. of billions of dollars. But this emer- my statement. The PRESIDING OFFICER. The Sen- gency extension has now expired, leav- The PRESIDING OFFICER. Without ator from Connecticut. ing many without the benefits they objection, it is so ordered. Mr. DODD. Mr. President, I will not need to stay afloat. So let’s extend un- (See exhibit 1.) take long at this moment. I just want employment insurance once again. Re- Mr. VOINOVICH. He says the fol- to compliment our colleague from Or- suming this emergency program lowing: egon—as well as other members of the through November 30 will cost about Actually, there is a second stimulus, one committee—for his work on this his- $33 billion, and I believe we should pay that could have a dramatic effect on the toric piece of legislation. This was a for at least half of it from the stimulus economy—even more so than government long time in putting together a com- funds. spending. And it won’t add to the deficit. prehensive, complicated piece of legis- Just before the recess, I supported an He goes on: lation dealing with financial reform. unemployment insurance extension The Federal Reserve recently reported that There are many people who deserve that was fully paid for, but my Demo- America’s 500 largest nonfinancial compa- credit for the product of this legisla- cratic colleagues blocked that amend- nies have accumulated an astonishing $1.8 tion, not the least of which is Senator ment offered by Senator , trillion in cash on their balance sheets . . . MERKLEY of Oregon, a new Member to preferring instead to continually bor- and yet, most corporations are not spending this body but a very active and vibrant row money on the credit card of our this money on new plants, equipment, or children and grandchildren. Last year, workers. Were they to loosen their purse member of the Banking Committee strings, hundreds of billions of dollars would who added substantially to the product we borrowed $1.4 trillion. That means start pouring into the economy. And these that is now before us. we borrowed 41 cents of every dollar we investments would likely have greater effect So I appreciate having the oppor- spent last year. Over half of this debt is and staying power than any government tunity to hear his observations about held by foreign investors. By the end of stimulus.

VerDate Mar 15 2010 04:32 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00026 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.044 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5825 about—we are still waiting to hear EXHIBIT 1 Most of the business leaders I spoke to had from the White House on their prior- [From Newsweek, July 6, 2010] voted for Barack Obama. They still admired ities. I recently met with Secretary OBAMA’S CEO PROBLEM him. Those who had met him thought he was unusually smart. But they all thought he Ray LaHood, and he indicated that we (By Fareed Zakaria) was, at his core, anti business. When I would will be hearing from the administra- The American economy is sputtering, and ask them for specifics, they pointed to the tion soon. we are running out of options. Interest rates fact that Obama had no businessmen or But the fact is the person we need to can’t go any lower. Another burst of govern- women in his cabinet, that he rarely con- ment spending—whether a good or bad idea— sulted with CEOs (except for photo ops), that hear from is President Barack Obama. looks politically impossible. Is there any- he had almost no private-sector experience, That is who we need to hear from. He thing that could protect us from the dangers that he’d made clear that he thought govern- is out on the stump talking about cre- of stagnation or a double dip? Actually, ment and nonprofit work was superior to ating jobs. Here is an unbelievable op- there is a second stimulus, one that could work in the private sector. It all added up to have a dramatic effect on the economy—even portunity—a way to create real jobs a profound sense of distrust. more so than government spending. And it and not borrow the money from our Some of this is a product of chance. The kids and grandkids to pay for it. On oc- won’t add to the deficit. The Federal Reserve recently reported that economic crisis forced the government into casion, the President has said he is op- America’s 500 largest nonfinancial compa- expansions of its authority in dozens of posed to any tax, including a gas tax, nies have accumulated an astonishing $1.8 areas, from finance to automobiles. But pre- on the ‘‘middle class.’’ I point out that trillion of cash on their balance sheets. By cisely because of these circumstances, the Kerry-Lieberman bill, which he any calculation (for example, as a percent- Obama now needs to outline a growth and supports, includes an increase in the age of assets), this is higher than it has been competitiveness agenda that will seem com- in almost half a century. And yet, most cor- pelling to the American business commu- gas tax of between 20 and 60 cents high- nity. This might sound like psychology more er per gallon. That doesn’t make sense. porations are not spending this money on new plants, equipment, or workers. Were than economics, and the populist left will He supports that but not 10 cents for they to begin loosening their purse strings, surely scream that the last thing we need to highways? It should be noted that all hundreds of billions of dollars would start do is pander to business. But in fact the first the groups who want the reauthoriza- pouring through the economy. And these in- thing we need is for these people to start tion bill and are willing to pay for it vestments would likely have greater effect spending their money—soon. As a leading with a gas tax, by the way, are up in and staying power than a government stim- New York businessman, who had publicly arms about the Kerry-Lieberman bill, ulus. supported Obama during the campaign, said to me, ‘‘Their perception is our reality.’’ because they think it diverts funds Now, let me be clear. I think there is a strong case for a temporary and targeted from the highway trust fund. The PRESIDING OFFICER (Mr. government stimulus. Both people and com- PRYOR). The Senator from Georgia is They sent a letter to the President, panies are being very cautious about spend- recognized. saying this gas tax is to be used for ing. Right now, government spending is transportation and transit in this what’s keeping the economy afloat. Without f country. We don’t warrant its use in a second stimulus, state and local govern- FINANCIAL REGULATORY REFORM the Kerry-Lieberman bill to raise ments will have to slash spending and raise taxes, which will produce a downward spiral Mr. ISAKSON. Mr. President, I will money for things that don’t have any- of higher unemployment, slower growth, be brief. I come to the floor this after- thing to do with the concerns that we lower tax revenue, and a larger deficit. Joel noon in anticipation of the vote tomor- have. Klein, the New York City schools chancellor, row on the financial regulatory bill and Passing a surface transportation bill told me that when the stimulus money runs to express the concerns I expressed be- out at the end of this year, he will be forced would put a large segment of the econ- fore its passage on the floor originally, omy to bed. Think about it. For 5 to lay off 5,000 teachers. Multiply that exam- ple a thousand times to get a sense of what and my continuing concern today years, that part of our economy will 2011 could look like. about its final form—and I understand feel good about things. It will help But government spending can only be a it will pass with 60 votes. States meet their infrastructure needs. bridge to private-sector investment. The key Nobody has been more concerned It will reduce greenhouse gases and to a sustainable recovery and robust eco- about the economy and the financial provide certainty and stability to keep nomic growth is to get companies to start markets and financial institutions of it on the road to recovery. investing in America. So why are they reluc- tant, despite having mounds of cash lying our country than I. In part, because of Show me another bill that has bipar- around? I put this question to a series of my lifetime in the residential real es- tisan support from labor, manufac- business leaders over the past few days. They tate business, I have seen firsthand the turing, business, truckers, and State were all expansive on the topic, and all want- sufferings in our mortgage industry, and local groups. I doubt any other ed to stay off the record, for fear of offending the foreclosures that have taken place, piece of legislation will get this kind of people in Washington. and what the subprime lending indus- support before the election. Do you Economic uncertainty was the primary cause of their caution. ‘‘We’ve just been try did in the U.S. economy. know what we need? We need a sorbet through a tsunami, and that produces cau- Before we rush to a reregulation of fi- to bring people together. Let the Amer- tion,’’ one said to me. But in addition to eco- nancial institutions, I think we have to ican people know that we hear them. nomics, they kept talking about politics, stop and reflect on some of the things And do you know something? We can about the uncertainty surrounding regula- we have already noted as Members of get something done on a bipartisan tions and taxes. Some have even begun to the Senate. basis, believe it or not. This legislation speak out publicly. Jeffrey Immelt, the CEO Senator CONRAD, a Democrat from will create real jobs for Americans. It of General Electric, complained last Friday that government was not in sync with entre- North Dakota, and myself introduced will be paid for and will put a major preneurs. The Business Roundtable, which legislation over a year ago called the part of the economy to rest without had supported the Obama administration, Financial Markets Crisis Commission. adding to an already staggering deficit. has begun to complain about the myriad new We introduced it because we believed It will eliminate the uncertainty about laws and regulations being cooked up in everything that had happened in late the future that is plaguing our country Washington. 2008 through March of 2009 that col- so we can move forward to provide One CEO said to me, ‘‘Almost every agency lapsed our markets on Wall Street, col- brighter prospects for our children and we deal with has announced some expansion of its authority, which naturally makes me lapsed our securities, collapsed our grandchildren. concerned about what’s in store for us for mortgage-backed securities lending, I guess the most important guar- the future.’’ Another pointed out that be- and hurt our banks both community antee is that the bill will give peace of tween the new health-care bill, financial re- and national need to be investigated. mind to millions of workers in trans- form, and possibly cap-and-trade, his com- We need to get to the root problem. We portation and allied industries. They pany had lawyers working day and night try- need to try to correct it. no longer will have to worry about un- ing to figure out the implications of all these This Senate passed the Conrad- employment compensation. They will new regulations. Lobbyists in Washington Isakson amendment unanimously. The have been delighted by all this new activity. have a job. They can pay their mort- ‘‘[Obama] exaggerates our power, but he in- House passed it virtually unanimously. gage, buy a car, pay for their kids’ edu- creases demand for our services,’’ the super- The Senate and the House funded it to cation; and they can have the peace of lobbyist Tony Podesta told The New York the tune of $8 million. That commis- mind that comes from having a job. Times. sion is appointed and working today. It

VerDate Mar 15 2010 02:11 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00029 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.048 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5826 CONGRESSIONAL RECORD — SENATE July 14, 2010 has subpoena powers that it can issue, We went to the Embassy and went to come back to us with a forensic audit and it is issuing subpoenas. It is di- a briefing. When it was over, we were and tell us what we should have done rected by statute to report back to us asked if there were any questions. I rather than take a rush to judgment in by December 31 of this year. said: I have one. Is today a holiday? a precarious and difficult time in the Here we find ourselves in the position The Ambassador’s officer said: No, it current recession in the United States. of getting ready to pass a financial re- is not a holiday. Why do you ask? I am grateful for the time given to regulation bill on the floor of the Sen- I said: We passed 15, 20 buildings half me. My vote tomorrow on the financial ate tomorrow, in the middle of the year finished, cranes up, 20 to 30 stories, reregulation bill will be no. It is my in July, knowing that we are not going padlocks on the gates, razor wire on hope that when the Financial Markets to have until December of this year the the fences, nobody working. What hap- Crisis Commission comes back in De- forensic audit of our financial system pened? cember, we will find the right answers done by the Financial Markets Crisis He said: U.S. mortgage-backed from that forensic audit to then make Commission which we unanimously subprime securities. the right decisions for the financial funded and demanded. It is like a doc- I said: I beg your pardon. markets of the United States of Amer- tor doing surgery before he does a diag- He said: U.S. mortgage-backed ica. nosis. It does not make a lot of sense. subprime securities. He said: Just 3 I yield the floor. In particular, there is one part of the weeks ago, Lynch in America The PRESIDING OFFICER. The Sen- bill I want to focus on for a second that wrote down their portfolio by 78 cents ator from Rhode Island. I think is rife for continuing problems on the dollar. Therefore, the Bank of f without any regulatory oversight, and Kazakhstan, which had bought a num- TRIBUTE TO LIEUTENANT GEN- that is Freddie Mac and Fannie Mae. ber of these securities, wrote down ERAL FRANKLIN L. HAGENBECK I think everyone realizes that the their portfolio as well. They stopped purchase of mortgage-backed subprime funding construction loans. They Mr. REED. Mr. President, next Mon- securities by Freddie and Fannie cre- stopped making mortgages. day, LTG Franklin Hagenbeck will re- tire from the U.S. Army after 39 years ated the depository whereby Wall Kazakhstan is 111⁄2 time zones away Street went to raise the money to from Washington, DC. The reverbera- of service. He is a friend and a class- make subprime loans, knowing they tions of the subprime security collapse mate from West Point, the class of could sell them to Freddie and Fannie. affected not just the United States but 1971. Buster Hagenbeck has distinguished Once you create liquidity for those se- the world. Today what is happening in himself as a soldier, as a scholar, as an curities, you create a market, and Europe and other areas is, in part in those securities are going to be created individual of peerless leadership abil- our recession, was a consequence of ity. He entered West Point with the to be funded or purchased by those en- what began by a mandate by Congress tities. class of 1971. He graduated and was for Freddie Mac and Fannie Mae to commissioned an infantry officer. He That is exactly what happened over purchase affordable mortgage-backed the 5 or 6 years preceding the begin- served in a succession of assignments, securities which became the subprime ning of the collapse in late 2007. culminating as the commander of the securities that collapsed the market- Freddie and Fannie went from zero 10th Mountain Division in Afghanistan. place. There he fought the fight in Operation holdings in subprime loans to as much I tell that story and I make that as 13 percent of their portfolio. This Enduring Freedom. He served with statement to make my single impor- was not just because they decided to great distinction, great judgment, and tant point on why this rush to judg- buy them, but it was in part because of great discernment of the situation. He ment on the financial regulatory bill is a congressional directive for Freddie certainly not only exemplified the wrong. It is wrong because it excludes and Fannie to have a portion of their courage and character of our troops, Freddie Mac and Fannie Mae from any portfolio in what is known as afford- but he felt very deeply for their con- scrutiny or increased regulation. Let able loans. cern and welfare. That is the type of These affordable loans became me repeat that. The two entities that individual, that is the type of soldier subprime loans. They were securitized created the market that bought the se- he is. on Wall Street. The securities sold curities that fueled the funds for Wall After serving as the G–1 of the U.S. around the world, with the legitimacy Street to put them together and sell Army, he was designated the 57th Su- of those securities based in part on the them—the two entities, Freddie Mac perintendent of the United States Mili- fact that U.S. Government-sponsored and Fannie Mae—are exempt from this tary Academy. In the last several entities, Freddie Mac and Fannie Mae, financial reregulation bill in terms of years, he has distinguished himself as a were buying them, but also because scrutiny. leader on not only issues of academic Moody’s and Standard & Poor’s rated That just, to me, does not make any excellence but also, much more impor- them AAA. Then all of a sudden we had sense. I think when the Financial Mar- tant, fulfilling the fundamental mis- a tremendous collapse of subprime se- kets Crisis Commission reports back to sion of the Military Academy to curities that had devastating con- us at the end of this year, it will make produce men and women committed to sequences not just for the United it clear that it is a mistake to rush to the motto of the academy: ‘‘Duty, States but for the world. judgment. honor, country.’’ Selfless service to the Briefly, I want to tell a story to It is critical that we have all the Nation. Buster Hagenbeck personifies make that point. In August of 2008, I players under scrutiny and all the that spirit. was in Kazakhstan with Leader REID players under regulation, not just try- Under his leadership, West Point has and other Members of the Senate on a ing to create a feel-good system where been recognized by Forbes magazine as trip that later took us to Afghanistan we reregulate those who are already the best liberal arts college in the and finally to Germany. When we ar- regulated, saying we are doing some- country. Every year it has successful rived in Kazakhstan and landed at the thing about the conditions in the mar- candidates for Rhodes Scholarships and airport, we went into the city in an ket when, in fact, we are raising the Marshall Scholarships. It is ranked at ambassador’s vehicle. As we went by, I cost of doing business, lowering the the very top in terms of engineering saw this beautiful city in Asia, beau- ability for banks and lending institu- schools in the United States. But the tiful countryside, large buildings being tions to extend capital and, in fact, in real hallmark of West Point, as it al- built, beautiful flowers, obviously a some ways contributing to a contrac- ways has been and always must be, is country of great wealth. They do have tion of the recession we experience the men and women they produce, the most of the oil in the old Soviet Union, today in America. young lieutenants who are today serv- now the Russian Federation. When I cast my ‘‘no’’ vote tomorrow ing in Iraq and serving in Afghanistan, As we came into town, I kept notic- on financial reregulation, it will not be serving with courage and distinction. ing vacant, half-finished 20- and 30- because I don’t think we need to do I think it is not only comforting for story buildings with a chain-link some things in the marketplace, but it them to know but inspiring that their fences around them and razor wire on will be because I think it is time we lis- Superintendent led forces in Afghani- the fences and a padlock on the doors. ten to the people we have charged to stan before them, that he knows what

VerDate Mar 15 2010 02:11 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00030 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.050 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5828 CONGRESSIONAL RECORD — SENATE July 14, 2010 Remember, all we have seen so far is nancial reform bill. I want to begin by CHAMBLISS, my colleague from Georgia, just the birds that live down there in thanking the Presiding Officer who, along with their colleagues on the com- the heat. Think of when all the birds while not a member of the committee, mittee, worked very hard and I thank go down there. This is what they are played a very active role during the them and their staffs for the work they going to find. They are going to find consideration of the legislation on the have produced in order to make this a that beaches that used to have beach floor of this body a number of weeks stronger and a better bill. balls are now filled with tar balls. So ago. I want to thank my House counter- many of them go to the marshes and There will be a debate again, I know, part, BARNEY FRANK of Massachusetts, the wetlands, and the oil is starting to tomorrow before we actually vote on who chairs the Financial Services creep into those marshes. We cannot final passage of the bill. A lot of this I Committee of the other body. He, along really put up a sign for those birds that will talk about this evening I have dis- with Chairman PETERSON of the Agri- says: Hey, go to Mexico instead. There cussed in the past over many weeks culture Committee, did a very good job are naturally other places they could and months that have brought us to in pulling together the House version go, but, guess what. They can’t read. this particular moment, where within of this bill. They actually completed Nor are we going to be able to put some the next 24 hours we will make a final their work back in December of last big net up to stop them from flying to decision as to whether this body is pre- year. The House moved more quickly those places. I talked to people, experts pared to endorse the efforts to reform for all of the reasons that Members are on this, from Ducks Unlimited and our financial system in this country so aware of, the rules of the institution other places. These birds do not have that we never ever again subject the and others that facilitate the rights of the instinct to avoid those oily areas. American people to what they were the majority to basically move along They are going to just plow back in subjected to in the fall of 2008 where through the underbrush without the where they went last winter. That is the Congress of the United States, nuances that the Senate provides for in why a bipartisan group of Senators along with President Bush, asked the terms of the consideration of legisla- joined me in sending a letter to Sec- American taxpayer to write a check for tion. $700 billion to bail out financial insti- retary Salazar to ensure that proper I sat, along with my Senate col- tutions which, through their own mis- attention and coordination is also leagues from the Banking Committee feasance and malfeasance, as well as made with U.S. Fish and Wildlife and and the Ag Committee, for 2 long those of regulators who failed to act, conservation organizations that are weeks, almost 70 hours in a conference put this country and in fact the globe working to protect the habitat of mi- committee. For those who wonder what at financial risk. gratory birds. a conference committee is, very simply I am pleased that just this week, the I shall never forget as long as I live the meeting in mid-September in the it is when the Senate acts on a bill and National Incident Command announced the House acts on a bill, and you need offices of Speaker NANCY PELOSI, along the launch of a new Web site, to resolve the differences between the restorethegulf.gov, dedicated to pro- with Democrats and Republicans, and their respective committees in Con- two, we meet in what is called a con- viding the American people with clear ference committee. and accessible information and re- gress, where the Chairman of the Fed- The leadership of both Chambers ap- sources related to the BP oilspill re- eral Reserve Board and the Secretary points conferees to represent the inter- sponse and recovery. of the Treasury under President Bush ests of the respective Chambers, as you It is also important that as we focus announced to all of us that if we did then sit down and try and iron out on stopping this terrible leak, we also not act within a matter of days, and I those differences. Chairman BARNEY prepare for the serious and imminent am literally quoting the Federal Re- FRANK chaired that conference com- threats to the birds and wildlife that serve Chairman and the Secretary of mittee. There were 42 of us, Members of play a critical role in the regional gulf the Treasury, that if we did not act the House and the Senate, who got to- economies and to the more distant re- within several days, the entire finan- gether for that lengthy period of time, gional economies in places such as cial system of this country and maybe including one all-night session, to Minnesota and Wisconsin. a good part of the world would melt produce what is in front of us today, In just a few weeks, we must be ready down, were their words. and that is this. This is the conference for the mass influx of ducks and birds So we acted over the next several report that reflects the work of both in the gulf region. If we fail to prepare, weeks. There are a number of Members bodies over many months in trying to countless unsuspecting birds, wildlife, here who were deeply involved in that craft a series of ideas and proposals will not return to Minnesota and our effort. The country reacted with great that would minimize, if not all to- ecosystems and economies will feel the outrage over how we had ever gotten to gether prohibit, the tragedy we have impact, not just in Minnesota but that position and what steps we were been through over these last several throughout the country; not just in going to take to see to it that we would years. Louisiana, not just in Florida. It will never ever again subject our Nation spread. We will continue to push, with not only to the cost of bailing out I would also be remiss at this junc- the recovery efforts, to make sure these firms but also the cost that has ture if I did not thank the members of there is adequate focus on this impor- ensued as a result of the financial col- the Senate Banking Committee who tant issue. lapse to jobs and homes, retirement ac- spent a lot of time together over the I yield the floor. I suggest the ab- counts, ability of families to educate last number of years. I became chair- sence of a quorum. their children, all of the effects that man of this committee about 30 The PRESIDING OFFICER. The have been visited upon the American months ago, in January of 2007. My clerk will call the roll. people and many others as a result of great friend and colleague with whom I The assistant legislative clerk pro- events that began to transpire years served for so many years from Mary- ceeded to call the roll. ago, culminating in the difficulties we land, Paul Sarbanes, retired from the Mr. DODD. Mr. President, I ask unan- saw in the fall of 2008. Senate. The ranking member, Senator imous consent that the order for the Before I begin any remarks about the SHELBY, was chairman of the Banking quorum call be rescinded. bill itself and what we have tried to Committee for about 4 years prior to The PRESIDING OFFICER (Mr. achieve, I want to begin by thanking January of 2007. So on the seniority BEGICH.) Without objection, it is so or- my colleague from , Senator system, I reached the elevated status dered. BLANCHE LINCOLN, who chairs the Agri- to become chairman of this committee f culture Committee. She shared a re- at a critical moment when obviously sponsibility with me in this bill, and the bottom began to fall out of our FINANCIAL REGULATORY REFORM while the bulk of the titles came out of economy. Since January of 2007, our Mr. DODD. Mr. President, I want to the Banking Committee bill, a very committee has had around 80 hearings spend a couple of minutes, a few min- critical piece of this legislation in- on this subject matter alone that has utes this evening, if I can, talking volved the participation of the Agri- produced the ultimate product before about the Wall Street reform, the fi- culture Committee. She and SAXBY us here this evening and tomorrow.

VerDate Mar 15 2010 02:11 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00032 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.055 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5829 I want to begin by thanking my Then, of course, of Committee, and my colleagues on the Democratic colleagues on the com- , as well who comes from a Banking Committee, as well as, of mittee and the members of their staffs. varied background, including financial course, BLANCHE LINCOLN of the Agri- TIM JOHNSON of South Dakota, who has services, understands it well. culture Committee for their work. done a wonderful job, has been deeply So I thank my Democratic colleagues At a later point in these remarks, I involved in a number of critical issues on the committee for their work. will go through and mention staff, peo- before the committee. Senator SHELBY, the Republican ple who played such a critical role as JACK REED of Rhode Island is a very ranking member, and I have been great well. But I thought at the outset we valued member of the committee, friends for many years, served in the need a recognition of these Members. spent a lot of time working with Sen- other body and this body together for a Yesterday I spoke briefly about the ator GREGG on the derivative section in number of years. And while we have role of the majority leader, HARRY this bill. differing points of view on this bill, and REID. And again, while not involved on Senator of New he is not a supporter of it, the Shelby- a daily basis in the production of this York, extremely knowledgeable about Dodd amendment, which was offered at legislation, the majority leader played financial matters, has been invaluable the outset of the debate on the floor of such an important role in making sure in understanding the nuances and the this Chamber, put aside I think for the institution provided the time and difficulties, as well as understanding most Members once and for all the the space and the procedures for the this institution very well, and I want issue of a bailout, too big to fail. I consideration of a matter such as this. to thank him for his service. thank him for that and his involve- As I mentioned earlier, he could have Senator BAYH of Indiana, who, along ment in the process as we moved for- very easily decided to truncate the de- with myself, will be retiring at the end ward. bate. We ended up taking 4 weeks of of the year, has been a strong member BOB BENNETT of Utah, tremendously the time of this body, considering, as I of the committee, brought a good per- knowledgeable, played a very impor- mentioned earlier, some 60 amend- spective on the needs of American busi- tant role on the Banking Committee ments on the floor, open-ended debate. ness and industry as we worked our over many years. There were only one or two examples way through the legislation; BOB JIM BUNNING, the nemesis of the Fed- where a supermajority was required. MENENDEZ of New Jersey, tremen- eral Reserve, was never shy at express- There was only one tabling motion, I dously helpful as well. ing his concerns about the conduct of believe, of any of those amendments. HERB KOHL of Wisconsin, again a the Federal Reserve Board. I thank A significant number of amendments knowledgable businessman in his pre- him for that. were adopted that were offered by the vious life, comes to the Senate with a of Idaho is very knowl- minority to this bill, as well as amend- lot of strong ideas and contributed to edgeable, worked with CHUCK SCHUMER ments that were offered on a bipartisan this bill. on corporate governance issues. He basis. In fact, of the 60 amendments DAN AKAKA of Hawaii also added con- contributed to this bill. A number of that were adopted in the consideration siderable financial literacy. This has amendments we adopted were Crapo of this bill, 30 of them, one-half, came been a subject matter he has long been amendments that strengthened the leg- interested in, and seeing to it to how from the minority as well as a bipar- islation. we might elevate the knowledge and tisan combination of amendments that BOB CORKER, worked with MARK WAR- understanding of consumer responsi- were offered by both a Democrat and NER. I thank BOB CORKER. I listened to bility when it comes to financial mat- Republican together. his remarks earlier today. We have a So one-half of the product that was ters. different point of view on the evolution adopted on the floor of this Chamber is of Ohio. We serve to- gether on two committees involved in of this bill, but, nonetheless, I thank a reflection of the work of Members both the Health, Education and Labor him for his work on titles I and II of from both sides of that political spec- Committee, which the Presiding Offi- the legislation. Along with Senator trum. And while Members may not cer also serves on. He is a member of WARNER, I think they made a signifi- want to crow about that, I do, because the Banking Committee, and again was cant contribution—and his staff as I think it is a reflection of the deter- tremendously helpful and interested in well. mination to make sure that this bill the subject matter. MIKE JOHANNS of Nebraska again has would be available for amendment and of Montana did a very strong interest in the legislation; Sen- consideration. good job as well and was invaluable on ator VITTER of Louisiana; Senator No one is guaranteed success with rural America, the interests of small DEMINT of South Carolina; also Sen- their ideas, but you ought to be guar- banks, the financial needs of more ator HUTCHISON. A number of amend- anteed an opportunity to be heard, and rural aspects, more rural areas of our ments were adopted. KAY BAILEY what we did in the consideration of Nation. HUTCHISON of Texas was deeply inter- this bill is provide that guarantee, and who played a critical ested in regional banks, the Reserve far beyond the guarantee. As I said, role, along with CARL LEVIN, on a banks, and played an important role. one-half of all the amendments adopted major part of this bill dealing with pro- JUDD GREGG of New Hampshire, again over 4 weeks were successfully offered prietary trading, the so-called a retiring Member at the end of this by the minority or on a bipartisan Merkley-Levin rule, which was debated Congress, while we have had some dif- basis, Democrats and Republicans. So at length over many weeks and is part ferences on this bill, which you will no the process has been an open one, one of this bill. doubt hear more of over the next 2 in which regardless of whether you like of is a new days, JUDD GREGG played such a piv- or support the bill, I would hope it member of this body, a former Gov- otal role in the fall of 2008 in trying to would become an example of how the ernor of Virginia, and a person who has put together a proposal that would re- Senate can conduct its business on a spent a good part of his life working in store some stability to the financial in- major legislative proposal. the area of financial services. I cannot stitutions in our country. While we Today and tomorrow, the Senate of begin to say enough about MARK WAR- have our disagreements, I have great the United States will have the oppor- NER’s involvement with this bill. He respect for him. He is a knowledgeable tunity to bring some closure to one of was invaluable in terms of helping to Member, one who brings a great deal of the most challenging times in our re- understand and bring together various passion to his beliefs and views. There cent history with the passage of com- people from disparate points of view on are a lot of matters in which I could prehensive financial reform. This bill resolution mechanisms, as well as point to JUDD GREGG’s involvement. I was not written to reshape our econ- winding down of financial institutions thank him as well. omy, the most powerful economy the and how they ought to work. And while Those are the members of the Bank- world has ever known. Nor was it writ- a junior member of the committee, his ing Committee. So before beginning ten to hinder innovation in our finan- involvement, his participation, was any substantive discussion of the bill cial sector, the spirit of creativity and that of any senior member—in fact, itself, I wanted to thank the leadership entrepreneurship that has made our more so. So I thank him. of the House, the Financial Services economy the envy of the developed

VerDate Mar 15 2010 02:11 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00033 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.056 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5830 CONGRESSIONAL RECORD — SENATE July 14, 2010 world, still is strong and vibrant, and I will be other economic crises. The Sometimes, just by saying the numbers think enhanced by what we have done question we ought to be asking our- we dilute the influence or importance with this legislation. selves is, If there is one, can we mini- of it. As tempting as it would be to let the mize the effect of it or do we have a sit- Mr. President, 8.5 million of our fel- cries of protest from the worst offend- uation where a relatively small crisis low citizens have lost their jobs in this ers of the large financial institutions can metastasize, much as a cancer economic crisis. Our unemployment serve as an argument for passage, this might, across the economic spectrum rate is dangerously close to double dig- bill was not written to punish Wall in such a way that we find ourselves its. The fact is, it hovers near 20 and 30 Street, despite the desires of many. with job losses, foreclosures, and the percent with lower income people. If Our reform legislation does not have like, that we have gone through? you are making $30,000 to $40,000 a an agenda of its own. I would like to We provided in the bill the tools to year, the unemployment rate is triple point out what we are trying to see to it that our regulatory agencies that number of 9.5 percent or 10 per- achieve with this legislation. Here you and others will have the capacity and cent. If you are making more than can see on the graph behind me—I will the ability to identify, to spot early on $75,000 or $80,000 a year—and many do— have several graphs to point to peo- problems that emerge both here at the unemployment rate is about 4.5 ple—our job was—and you can look at home and around the world. And I em- percent or 5 percent. So when you talk various orders of matters on the phasize ‘‘around the world’’ because we about a 9.5 percent or 10 percent num- graph—to end bailouts and too big to have all painfully learned in the last ber, that is overall, but within income fail. Maybe more so than any other number of weeks and months that a fi- groups, the number is much higher issue, this one is an issue which Mem- nancial problem in a relatively small among lower income workers and bers of the body were joined together country some 10,000 or 12,000 miles working families than it is for the na- in a common cause that never again from here can pose problems right in tional average. So the job loss has been did we want to see a bailout of a finan- our own backyard. I speak, obviously, significant. cial institution at the expense of the of the difficulties occurring in Greece I wish there were some way to con- American taxpayer. So our first goal, and Europe as well. So it is very impor- vey the sense of loss this is for all of in my view, was to end too big to fail tant that we have the capacity and the us, not just for those who lose their and to end these bailouts. tools to address financial crises when jobs, but what it means to our con- Another is to grow jobs and create they happen, as certainly they will. fidence and our trust and our optimism wealth. Obviously, you cannot without Then lastly, of course, in this bill we as a people is far beyond the cost of a vibrant financial services sector rein in what we call the Wall Street en- some financial impact. Again, these where credit becomes available, wheth- larged bonuses that have so angered numbers hardly reflect the damage er it is a small bank in Alaska or Con- the American public, where people, done to our country. necticut, where credit can flow, capital even last year, in the midst of all this Mr. President, 7 million people in our can move, so businesses can grow and crisis and hardship—$20 billion was country have lost their homes or en- jobs can be created. And while this is handed out in bonuses in the major fi- tered foreclosure, and millions more not a jobs bill per se, in the absence of nancial institutions in our country. are teetering on the brink of fore- doing what we are doing, the idea of Again, I believe people who do good closure. Again, I say in this area, for talking about long-term growth in our work and work hard ought to be re- those of us who serve here, obviously, country without reforming the finan- warded. But how do you explain to the the idea of foreclosure is about as re- cial institutions would be a pipedream, person who lost their job, their home, mote as anything we could think of. in my view. So this legislation has as their retirement, their ability to edu- We are well compensated as Members its goal to help create job growth in cate their children, that an institution of the Senate to be in this Chamber. our Nation. that brought this country to near col- But that notion of having to go home We want to empower consumers and lapse is rewarding its members with to your family because of a job loss, be- investors. I will get into this in more bonuses of $20 billion? So our legisla- cause of a bad mortgage—one you got detail, but the idea that there is some- tion gives shareholders and others the into that you could not afford—all of a place in our Nation where a group of opportunity in corporations to decide sudden having to let your family know people get up in the morning, not as a what those remunerations ought to be, that the home we live in, we dreamed second or third afterthought, worrying as they should as the owners of these about, that we got so excited about ac- about what happens to the consumer of businesses. It is not a radical idea. In quiring, no longer is ours; we have to financial institutions, whether it be a fact, it is radical not to allow people move; we have to leave—again, I do not credit card, a student loan, a home who ultimately are the owners of these know if you could begin to explain or mortgage, a car loan, whatever, an in- businesses, as well as those whose describe what that means to an indi- surance policy—when you get up that hard-earned money gets invested, to vidual, to a family, to be through that. morning, your primary obligation is to have some say in all of this. So the 8.5 million jobs, the 14.5 mil- make sure that average consumer in So our proposal before you is a com- lion unemployed citizens in our Na- this country who needs and depends prehensive solution. It is not encom- tion—a 55-percent increase, by the way, every day on financial services will passing. There are obviously areas we since the crisis began—again, the num- have someone watching out for them, did not deal with for reasons I will ad- ber I have mentioned to you of 9.5 per- to see to it that they are not going to dress momentarily. But it is a com- cent of unemployment—I mentioned be abused, defrauded, and taken advan- prehensive solution to a very com- the 7 million homes that have been in tage of. For the very first time in our plicated set of problems. foreclosure since the housing crisis Nation’s history, we will have such a This bill is a response to the failure began. In the first quarter of 2010, half place because of this legislation. It is of our financial regulatory system to of the States saw an increase in the not perfect. It is not exactly what ev- protect ordinary families from the con- rate of homes entering foreclosure as eryone was looking for. But I think al- sequences of others’ bad decisions. This opposed to a year ago. lowing an agency like this, a bureau, to legislation is the change I think the So while we are on the brink, I hope, exist that will be able to focus its at- American people deserve after all they of passing this bill, let there be no tention on that concern is a major con- have lost and been through. doubt or illusions—that problems per- tribution to this legislation. The effects of the crisis on our finan- sist and this bill does not bring your Fourth, we have here the issue of cial system are being felt all around us, home back. It does not bring a job back putting tools in place to avoid these and they will continue to be felt for for you in the morning. It does not re- problems from growing as large as they some time, even with the adoption of store your retirement account. But did. One thing I think is very impor- this legislation. I have repeated these hopefully it will see to it that we never tant to say about this bill. There is statistics, I know, over and over, and I have to see our country go through nothing in this legislation that will will try to do this briefly, but it is im- these kinds of difficulties again. stop another economic crisis. It would portant once again that we understand We have lost dozens of community be ludicrous to suggest we have. There the impact of what has occurred. banks over the last several years.

VerDate Mar 15 2010 03:02 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00034 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.057 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5831 Thousands of small businesses have ditional 14 amendments by my Repub- bill, why would you bother going had to close their doors. Trillions of lican colleagues during the conference. through all of this? It seems to me dollars in retirement savings and We worked out our differences with there ought to be a reward for a proc- household wealth have evaporated as colleagues in the House and produced a ess that is as involved and as inclusive well. finished conference report that we have as this one has been. Let me again just go through some of before us today. So throughout this debate we have those numbers for you. The impact of So, again, this chart behind me re- heard the same arguments, of course, the crisis on community banks: 90 flects those efforts. coming from the opposers of this legis- banks in 2010 with assets totalling $75 As I mentioned, in the conference lation: Slow down. Don’t overreach. billion through July 9 of this year have committee we held eight public meet- Let’s let the market work things out. closed their doors, and 89 of the 90, by ings over 2 weeks, for almost 70 hours, Let’s wait for another day and start the way, held assets of less than $10 bil- where the 42 of us gathered to resolve over. I keep hearing that argument lion. These are small community banks the differences between these two bills. over and over, and as infuriating as that have had to close their doors as a We approved some 32 amendments in that can be to hear from some of the result of the crisis. In 2009, there were the conference committee. There were very same people who caused this mess 140 banks in our country with assets of 79 votes held. Of the 32 amendments to begin with, we have taken great $170 billion that also closed their doors, that were approved by the conference pains to listen to all sides and included and 135 of the 140 that closed their committee, 14 came from our Repub- their ideas and proposals in this con- doors had assets of less than $10 billion. lican colleagues and 18 came from our ference report that is before us. What So again, we have seen over the last 2 Democratic colleagues. Almost an we haven’t heard is an alternative plan years the number here approaching 250 equal number were adopted offered by to fix the gaping loopholes in our sys- tem. Indeed, the alternative is to main- banks, the overwhelming majority both the minority and majority in con- tain the status quo. That is all I can being small banks. ference. The FDIC, the Federal Deposit Insur- Again, almost an equal number were conclude because there is no other op- ance Corporation, has on its watch list adopted here on the floor of the Senate. tion, nor has there been placed on the table, that which allowed this process of institutions 700 banks that are Of the 60 amendments we debated here, to happen. A status quo that was dan- shaky. Again, saying they are shaky 32 were, again, either minority amend- gerous 2 years ago, it is even more so does not mean they are about to close ments or done in conjunction with a Democratic colleague. We held some 39 tonight. their doors. But there is a watch list If we let this opportunity to reform rollcall votes on the floor of this body that the FDIC pursues. Again, I would our financial system go by, we will find to consider the bill over the 4 weeks we love to tell you that the passage of this ourselves, tragically, someday far too debated the legislation. bill is going to stop all of that from soon, in an even deeper hole finan- I do not want to dwell on all of that, happening immediately. It does not. cially, facing even more of a mess, and but I think it is important because, as But it certainly minimizes the possi- needing to write an even bigger bill to I pointed out earlier, we went through bility of ever watching that happen clean it up. I would predict that an- a health care debate. I was very in- again as a result of the circumstances other generation or two would pass be- volved in that because of the tragedy, we have been through. fore such another historic effort as we the loss of my great pal and friend Our work continued as Democrats have crafted here would come before from Massachusetts, Senator Kennedy, and Republicans in the committee this body if we fail to accomplish what worked to put together a framework as who chaired the HELP Committee. is before us tomorrow. We cannot af- far back as November. In fact, it goes With his illness, I was asked to take ford to let that happen. We must not back and predates earlier. But last No- over the acting chairmanship of that let that happen. This is truly a strong vember, my colleague from Alabama, committee. We all know what a painful and historic piece of legislation. It puts the former chairman of the committee, process it was to come to a conclusion a permanent end to too big to fail, to Senator SHELBY, announced—and I be- on the health care debate. Again, I re- taxpayer bailouts—gone. lieve he was correct—that we had got- gret, I am sorry it went through that Allow me to remind my colleagues of ten about 80 percent of the way to a bi- process—not exactly a textbook what is in this historic bill, along with partisan consensus on this legislation. version of how a bill ought to become the too-big-to-fail concept and ending That is about where it ended, I guess, law—but nonetheless an important the bailouts that have too often per- but nonetheless this bill does reflect at contribution to our country. sisted in the past. Wall Street firms least strong measures in here that were This bill, by contrast, is a model in understand if they gamble with their crafted on a bipartisan basis. many ways of how a bill ought to be- own risks, it is one thing. Gambling On the Senate floor, we debated the come law. We did it under an open with others is a flaw that we will not bill for 4 weeks, carefully considering process. We had a conference that was tolerate. The American people deserve the ideas and concerns of our col- open, amendments were offered, and this assurance, and we provide it in leagues. Some 32 amendments were of- Members could be heard. I am not sug- this bill. They were put on the hook, of fered either by the minority or to- gesting that is a reason solely for course, for an unprecedented emer- gether with a Democratic and Repub- someone to support this bill or oppose gency action that we had to take to lican author, of the 60 amendments. it, but I do think it is important in how save our economy from completely col- Half of the additions that were made to this body conducts its business as a lapsing. They were and still are angry the bill over 4 weeks came from the mi- model of what can be done to restore that they had to pay for the greed and nority, either alone or working with a some civility to a process that is sorely recklessness of others, and they were majority member. lacking in it on too many occasions as and are still today even angrier that Then, for the first time in recent we try to resolve the matters that our their generosity didn’t seem to moti- memory, we broadcast every minute of constituents have sent us here to work vate Wall Street to change its culture, the almost 70 hours of the conference out. as banks continue to lavish large bo- committee between the other body, the So I talk about the number of votes nuses on executives while Main Street House of Representatives, and the U.S. cast, the time spent, the openness of Americans lost their homes, their jobs, Senate. This conference committee was the process because it ought to be re- their retirement, and their wealth. on C–SPAN. There were no backroom warded to some degree. If, in fact, As I mentioned earlier, this bill cre- deals because there was not a back there is no different conclusion, the ates a consumer protection agency room. Everything was done—all—every same roadblocks are offered, and with authority and independence. It minute of that conference was reported whether or not we have a closed proc- ends too big to fail; it establishes an to the American public—in fact, be- ess much as the health care debate advanced warning system for financial yond. C–SPAN, picked up by satellite, was, or as open a process as the finan- threats; and it provides new trans- was available literally around the cial services bill was, and at the end of parency and accountability for deriva- world to monitor the events in the con- the day you are still faced with the tives and other exotic financial instru- ference committee. We approved an ad- same obstruction in trying to pass a ments. It makes public companies and

VerDate Mar 15 2010 03:02 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00035 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.059 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5832 CONGRESSIONAL RECORD — SENATE July 14, 2010 executives more accountable to their in our legislation as one of the impor- companies—and new protections for in- shareholders, and it gives regulators tant provisions that had not existed vestors. powerful authorities to protect inves- earlier on, not just last year but going Despite the wild protestations of tors and depositors. This legislation, I back to 2004, 2005, as he rightly points some on Wall Street who, given their say to Wall Street, with its outright out, when the problems began to actions in the lead-up to this crisis, ban on any future too-big-to-fail bail- emerge, that this problem that we have have little standing to lecture us about outs, is the other shoe dropping. gone through never would have hap- keeping our financial system healthy, Our bill also establishes, as I men- pened to the extent it has. this bill is good for the financial sector tioned, a consumer financial protection So one of the highlights of this bill is as well. Our bill rewards creativity and bureau, the very first-of-its-kind that we have far more than just one set innovation without the pressure to watchdog. It will have one job and one of eyes now looking over the landscape take outrageous risks or to deal un- job only; that is, to protect and em- both at home and abroad, including fairly with consumers. Honest firms power American consumers and their State regulators who I think can bring can focus on competing for business by financial decisions. American families a valuable contribution to the over- serving their customers better, and for shouldn’t have to have an advanced sight responsibilities when it comes to community banks reform means business degree to plan for their finan- determining whether institutions stronger core funding, fair deposit in- cial future, and they shouldn’t have themselves or product lines or prac- surance premiums, a stronger insur- the fear that they will get ripped off by tices are so risky that they endanger ance fund, and a far more level playing a shady lender or a scam artist as too our financial system. Then they have field. These banks will get to keep often has been the case. the power to respond to that as well, to their Federal regulator, and they For too long they have been on their see to it that those practices can be would not be charged assessments by own because the seven different agen- brought to a stop before they cause the the new consumer protection bureau. cies that were supposed to be looking problems that the last crisis did in so For retailers, this reform bill means out for them were distracted by their many other areas of our economy. freedom from inflated interchange fees other sometimes conflicting missions. Our legislation contains strong provi- and for consumers. I wish to thank Americans need to know this new sions that bring the $600 trillion deriv- RICHARD DURBIN, our colleague from Il- consumer protection bureau would not ative market out of the shadows and linois, the majority whip, whose insist- make decisions for them. The new bu- into the sunlight. Let me repeat that ence on this language in the bill pro- reau will make sure consumers have number. This is an area where we went voked significant debate and discus- the information they need to make from $60 billion, I think it was—a $60 sion. I didn’t mention him earlier, but good decisions about their home mort- billion to $90 billion industry of the de- I wish to thank Senator DURBIN for his gages, their student loans, their home rivatives market to $600 trillion—that involvement, and I thank retailers and equity loans, their credit cards, and is with a ‘‘t’’—globally, just a massive others across the country who strongly other financial matters. It will protect market, operating in the shadows. supported this provision in this bill. them from being trapped by unfair or Again, our legislation shines the bright Fifteen million retailers today will be deceptive or abusive lending practices, light of sunshine on these transactions able to earn more and charge their cus- and if they do encounter a problem, so we have far more transparency in tomers less because of these provisions there is a single toll-free number to this area. in the bill. call and get help. Let me quickly point out that there For seniors and veterans and minori- By the way, let me just add to this is absolutely nothing inherently wrong ties, reform means protections against last point about consumer protection: I with derivatives. In fact, quite the con- some of the most hideous scams tar- have heard some Members suggest we trary. Derivatives are vitally impor- geted at these populations in our coun- don’t deal with underwriting standards tant if utilized properly in terms of try. Again, I point out—I don’t know if for home mortgages. I am looking to wealth creation and growing an econ- we have this up, but here was the head- staff here, but I think there are some omy. But what was once a way for line in the Wall Street Journal the 40, 50, 60 pages of this bill, pages and companies to hedge against sudden other day: ‘‘Big Win for Small Banks in pages alone dedicated to underwriting price shocks has become a profit center Overhaul.’’ That certainly is the case. standards when it comes to residential in and of itself, and it can be a dan- There are 8,000 of them in this country. mortgages. We spent a great deal of gerous one as well, when dealers and The Independent Community Bankers time in seeing to it that no longer other large market participants don’t Association, while not endorsing the would we have these no-doc loans, no hold enough capital to back up their whole bill, sent a memorandum to requirements, no information, nothing risky bets and regulators don’t have in- every Member of this body, I think this at all that too often led to the finan- formation about where the risks lie. morning or yesterday afternoon, out- cial difficulties we are in. AIG was the classic example, of course, lining why the major provisions in this I urge my colleagues and others to where that happened. bill are very good for our small banks read the bill or read the sections. There Derivatives should help companies in this country. I have enumerated just is a whole area of this bill, a signifi- manage their risks. That is why they a couple of measures. cant part of it, dealing with under- are valued, so they can continue to Mr. President, I ask unanimous con- writing standards for residential mort- grow their businesses, hire workers, sent to have printed in the RECORD at gages. and improve the quality of our econ- this juncture the memorandum from This bill will provide an early warn- omy. But during this crisis, panic and the ICBA, if I may. ing system to sound the alarm should confusion in the derivatives market led There being no objection, the mate- large institutions or new financial to job losses. Derivatives traders lost rial was ordered to be printed in the products or practices threaten the sta- sight of the impact their actions were RECORD, as follows: bility of our financial system. Most having on the real economy in our Na- ICBA Commentary Americans were completely unfamiliar tion. THE GOOD IS OFT INTERRED WITH THEIR with innovative financial instruments With this bill, companies can con- BONES such as credit default swaps and mort- tinue, obviously, to use derivatives to (By Jim MacPhee, Mike Menzies and Sal gage-backed securities until those very hedge their commercial risks, but they Marranca) instruments sparked a crisis that put must do so in a much safer and trans- A tsunami of paper, e-mails and every millions of people out of work. I noted parent way that would not put our other form of communication predicting ev- with some interest just yesterday, I be- whole financial system at risk. erything from the destruction of community lieve it was, that the former Secretary Meanwhile, of course, this bill in- banking to financial Armageddon is washing of the Treasury, Hank Paulson—I don’t cludes reforms to executive compensa- over bankers nationwide as a result of the House passage of the conference report on want to exaggerate his comments, but tion and corporate governance that Wall Street Reform. Some of this stuff is so I think I concluded that he thought will make corporate executives more extreme it practically implies the end of life this bill was a good bill. He identified accountable to the owners of their as we know it. It has Chicken Little in a full specifically this early warning system businesses—the shareholders in these sprint.

VerDate Mar 15 2010 03:02 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00036 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.060 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5833 Ok, enough already. There is some really must follow. Banks with up to $10 billion in Senator HAGAN, as well—expressed in- bad stuff in the bill. Some of the information assets will continue to be examined for com- terest as to what would happen to soaking bankers about the bad stuff is actu- pliance by their current regulator. A meas- small banks and small businesses and ally very true and accurate, some of it is ex- ure to give the bureau ‘‘backup enforce- our desire to reform a system to make aggerated and a bit of a stretch, and some of ment’’ authority over community banks was sure they were not going to be overly it is just downright lies designed to scare the eliminated. daylights out of community bankers. That is Significantly, the CFPB will not have au- burdened with regulations and other so community bankers will pull Wall thority to impose assessments on commu- things that would make it difficult for Street’s chestnuts out of the fire for them. nity banks to pay for its operations. Also, them to operate. Why do you think it is called the ‘‘Wall the bureau will be required to consult with So there are other provisions in here, Street Reform Act’’? the banking regulators before proposing any particularly with regard to consumer Everyone has been made painfully aware of rule and during the comment process (ICBA protection, where the needs and con- all the evil in the bill. What seems to be fought hard for these exemptions). In all of cerns of small businesses must be ad- lacking is a fair and balanced look at what its rule making, the bureau also will have to dressed before rules are promulgated. actually may be some good elements in the specifically consider the benefits and costs a That would not have happened except bill—if you are a community bank that is. new consumer-protection rule would have on Not much good in there for Wall Street—we banks with less than $10 billion in assets, and for the contribution of my colleague freely admit that. to rural bank customers. Before proposing from Maine. From our personal observations, we know any rule that would significantly affect com- I would be remiss, as well, if I didn’t that a fair number of community bankers munity banks, the bureau must convene a mention—I didn’t discuss it here—the watch the FOX News Channel. And according panel to gather input directly from commu- capital requirements in this bill. There to FOX News, it does its best to be ‘‘fair and nity banks. was a lot of discussion about that. It balanced.’’ So, in the interest of ‘‘fair and Now if this bill is defeated all the bad stuff was the amendment of SUSAN COLLINS, balanced,’’ and because just about every- will just come back like a bad habit, but all our colleague from Maine as well, who, thing evil, bad and terrible has been said the good stuff listed above goes away—likely along with working with the FDIC and about the Wall Street Reform Act that can for good. As Mark Antony said at Caesar’s be said, let’s at least look into the bill and funeral, ‘‘the evil that men do lives after Sheila Bair, came up with a very see if there is anything remotely redeeming them; the good is oft interred with their strong provision in this bill that is a for community banks. bones.’’ In the context of Wall Street Re- very workable and flexible provision Keep in mind that we are not fair and bal- form, Mark Antony is saying that if the bill but helps us avoid one of the major anced when it comes to the financial services goes down the bad stuff in the bill will live problems that contributed to this cri- industry. As longtime community bank ex- on in many, many different forms, but the sis, which is the capital standards that ecutives, we freely admit that we are fierce- good stuff for community banks in this Act raised the risks and caused so many of ly devoted and passionate about the commu- will be buried with it. Through the ages our institutions to get into the trouble nity banking industry and don’t represent Shakespeare’s wisdom has been proven time they were in. Senator COLLINS made nonbank financial firms or Wall Street. So and again. with that disclaimer, let’s look at the other At the end of the day, each community other suggestions to the bill that were side of the coin. banker will have his or her own view of this important as well. But I think those A U.S. Senate Banking Committee sum- bill. And that view will be shaped by his or particularly dealing with capital stand- mary of provisions in the bill that will ben- her own circumstances, and that is as it ards contributed very much to this, efit community banks might be a good place should be. As your elected ICBA executive and I am grateful to her, as well as her to start. As already mentioned, while the committee members, we will always ensure colleague from Maine, Senator SNOWE, Wall Street Reform Bill contains some bur- that ICBA stays true to its mission to rep- for her contributions. densome measures for community banks, resent the best interests of community I mentioned earlier we talked about particularly those that impose government banks at all times and flier. We hope this trying to get this right on the question price controls on debit interchange fees, the commentary gives you at least a glimpse of legislation also includes many important the other side of this issue. of proprietary trading, the so-called Volcker rule that was raised by the provisions and exemptions for community Mr. DODD. Mr. President, the ICBA former chairman of the Federal Re- banks that ICBA fought for and won. Some memorandum highlights all of the of those provisions will directly benefit com- serve Board. munity banks’ bottom lines. Others are de- things done in this bill that warrant Again, I thank Paul Volcker for his signed to buffer community banks from the the headline in the Wall Street Journal contribution, his tireless effort. He has actions lawmakers were intent on taking to about how the overwhelming majority long since left public life, and he could rein in the megabanks and nonbank financial of the 8,000 small banks in this country have sat back and offered general com- firms. do well under this bill. I thank the Among many other measures beneficial to mentary on everything, but he decided, ICBA for stepping up and making that at his young age, to get back involved community banks in the bill, four in par- case for us. The American Bankers As- ticular are worth highlighting . . . and engaged in this bill. He made a Fairer Deposit Insurance System. The bill sociation had been vehemently opposed strong contribution to the concept of will require the FDIC to assess insurance to this legislation and tried to con- proprietary trading, where depositors’ premiums based on total liabilities, not on vince people they represented all banks money should not be put at risk when domestic deposits. This provision alone will in the country. The ICBA took great banks are making choices that involve save community banks a total of $4.5 billion offense at this suggestion and hence risk. It is one thing to risk your own over three years. the memo sent around to all Members. money, but to risk your depositors’ Deposit Insurance Coverage. The bill will I wish to thank other colleagues as permanently raise the FDIC deposit insur- money is another matter. But it is ance limit to $250,000. It will also extend un- well—I didn’t mention this earlier—re- more complicated than the two sen- limited deposit insurance coverage for non- garding the small business provisions. tences I have just uttered. interest-bearing transaction accounts under Particular thanks go to our colleague I thank SCOTT BROWN of Massachu- the Transaction Account Guarantee program from Maine, Senator SNOWE, who setts, because this was not merely a for two years. chairs, along with Senator LANDRIEU, parochial interest out of the Common- Too-Big-To-Fail Regulations. To reduce the Small Business Committee. They wealth of Massachusetts. There is the too-big-to-fail funding advantages and sys- paid particular attention to how small whole issue of the de minimis partici- temic risks, the bill will require the largest businesses would be affected by this banks to hold more capital and liquidity re- pation, where banks literally have to serves. In addition to creating a new sys- bill and made a number of suggestions hedge to protect depositors’ money temic-risk council, the bill will put in place which we adopted as part of the bill on against interest rates. There are a new resolution authority to wind down the the Senate floor and again preserves number of legitimate areas where that largest institutions that fail. them in the conference committee. is required and necessary. As a result Consumer Financial Protection Bureau Ex- These are not minor suggestions. They of Senator BROWN’s involvement and emptions. ICBA vigorously and continually were significant ones and added great work, we took note of that, and it re- opposed the creation of the Consumer Finan- value to this bill. flects his ideas and thoughts in this cial Protection Bureau, but the bill offers We all talk about small business, but several important measures to exempt com- bill as well. It is a stronger bill as a re- munity banks from direct bureau oversight. if we are not careful, too often they get sult of his involvement. Most nonbank financial firms, for the first lost in the debates around here. Sen- These areas of small business, capital time, will be subject to the same lending ator SNOWE and other colleagues—I see standards, and de minimis participa- rules and standards that community banks my colleague from North Carolina, tion were all significant contributions

VerDate Mar 15 2010 04:32 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00037 Fmt 4624 Sfmt 0634 E:\CR\FM\A14JY6.015 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5834 CONGRESSIONAL RECORD — SENATE July 14, 2010 to our legislation. I thank them all for didn’t know he was here. I thank him understandable anger and frustration. I their work. There are many other as- for what he did in this bill. I have spent cannot legislate anger and frustration. pects. I thank Senator LUGAR and BEN a lot of time here, but I suspect that That is not our job here. As angry as CARDIN of Maryland for their proposal over the next 24 hours or so there will we are, as mad as we may be at institu- dealing with extraction of natural re- be more discussion about it. tions and individuals, that cannot be sources, and requiring that companies Again, I have been asked: Do you dis- our motivation in crafting the legisla- that are public that do so have to say agree with anything in the bill? Of tion that the American people expect. in their public filings with the SEC course I do. This is a bill crafted by a Many have endorsed this bill, but not how much they are paying the mostly committee, working with our col- because they love every aspect of it. I developing countries for the right to leagues in this Chamber, and with the am grateful to Sheila Bair at FDIC. extract these natural resources. I am 435 others in the other Chamber, work- She has been stalwart in her effort to told by those who follow these issues ing with the White House, the regu- seeing to it that consumers, small that that provision alone could have a lators, and the stakeholders in trying banks, and others would survive and do huge impact when it comes to the abil- to fashion a bill that would reform our better. I am grateful to her and the ity of developing countries to under- financial system. I wrote a bill back in staff of the FDIC. stand what has happened to their nat- November that I would have preferred. I am grateful to Tim Geithner and ural resources and some of the corrup- But you don’t get to write your own the Treasury folks, who have done a tion that exists in their country. bill. You can do that, but that may be great job working our way through I note the presence of my friend from where it begins and ends. We serve in a technical matters and the like, so we Minnesota. I mentioned earlier, when legislative body, so it takes com- can understand the implications of var- he was presiding, his contribution on promise and working together to try to ious ideas to get the job done. rating agencies. This was a subject achieve the best results we can, recog- I am grateful to the National Credit matter we debated and discussed end- nizing that, in the end, you have to Union Administration’s chairman, Mr. lessly, trying to figure out how to get produce the votes. A good idea that Matz, who was helpful in putting this greater accountability out of the rat- doesn’t have the votes is just that—an bill together. ing agencies, greater due diligence, so idea. But we bear responsibility of I mentioned the ICBA, the inde- that when the institution or person more than just coming up with ideas. pendent community banks, and their making the decision to purchase a The American public expects nothing importance as well. securitized product that had been rated less of us than to fashion proposals Again, I thank the former Federal as AAA, or AA, or B, or whatever that that will minimize great risks to them. Reserve Chairman, Paul Volcker. Also label is on there—for years people have None of us lost a job or a home in the the 20 pension fund managers, includ- relied on that. You saw that AAA and last 2 years. None of us has watched ing the Connecticut State Treasurer, you didn’t have to know much more. It our retirement account evaporate over- as well as the CEO of the California didn’t get any better than that. night. None of us will worry whether State Teachers Retirement System, We learned painfully that those rat- our children can get a higher edu- the Massachusetts Laborers’ Benefit ings were not based on due diligence by cation. That all happened to the people Fund, Service Employees International the rating agencies but on the informa- we represent across the country. They Union, the National Treasury Employ- tion of those purchasing the ratings are asking that we do our best. They ees Union, U.S. Public Interest Re- from the departments who were relying don’t ask for perfection. They know we search Group, National Consumer Law exclusively on the very entity being have not solved every problem, and Center, Americans for Financial Re- rated. In a sense, it was fundamentally that we are not going to bring back form, Consumer Federation of Amer- false to suggest that the rating agency their homes and their jobs; but they ica, American Association of Retired had drawn the conclusion that a par- expect us to respond to the situation Persons, the Leadership Conference on ticular product, whether a securitized that brought us to the brink of finan- Civil and Human Rights, North Amer- mortgage or others, was actually of the cial disaster. This is our best effort to ican Securities Administration, the In- value that the rating would indicate. do so. It is not perfect, I know that. It stitute for College Access and Suc- Our colleague from Minnesota, of is not exactly what I would write on cess—on and on. course, played an important role in my own, nor is it what anybody else I ask unanimous consent that the list suggesting an alternative idea that has would have written. But it is our best of the myriad organizations across this been incorporated in the bill. I am judgment on what we can do. country that endorsed this bill be deeply grateful to him for his involve- We won’t know the full results of printed in the RECORD. ment. I mentioned earlier some of the what we have done until the very insti- There being no objection, the mate- provisions. tutions we have created, the regula- rial was ordered to be printed in the JEFF MERKLEY is a member of our tions we have suggested and provided RECORD, as follows: committee. for are actually tested. We can’t legis- Federal Deposit Insurance Corporation One of my dearest friends during my late wisdom or passion. We cannot leg- Chairman Sheila Bair; National Credit Union service here in the Senate is my col- islate competency. All we can do is cre- Administration Chairman Matz; Former Fed- ate the structures and hope that good eral Reserve Chairman Paul Volcker; 20 league CARL LEVIN. We don’t serve on prominent Pension plan managers including committees together. He is chairman people will be appointed who will at- the CT State Treasurer and the CEO of the of the Armed Services Committee and tract other good people—people who CA State Teachers’ Retirement System; also chairman of the Government Oper- will make careers and listen and see to Massachusetts Laborers’ Benefit Funds; ations Committee—the names change; it that never again do we go through Service Employees International Union I still believe that is the name of the what we have been through. That is not (SEIU); National Treasury Employees Union; committee—which has broad jurisdic- our job. Ultimately, that is dependent U.S. Public Interest Research Group (U.S. tion, but he held a critical hearing upon what happens after this bill be- PIRG); National Consumer Law Center; comes law—if it does. We need to see to Americans for Financial Reform; Consumer days before we brought this bill to the Federation of America; American Associa- floor of the Senate, highlighting many it that the human leadership that tion for Retired Persons (AARP); The Lead- of the problems that have persisted in makes up these bodies who will be re- ership Conference on Civil and Human the financial services sector. Working sponsible for regulating the activities Rights; North American Securities Adminis- with our colleague from Oregon, Sen- in these financial areas does its job. trators Association; The Institute for Col- ator MERKLEY, Senator LEVIN and he None of us has the power to guarantee lege Access & Success; National Association crafted a proposal to deal with propri- that. All we can do is provide them of College Stores; National Association of etary trading—the Volcker rule, which with the tools and the structure and Convenience Stores; National Restaurant As- the architecture that will allow them sociation; National Grocers Association; The I mentioned a moment ago. It was due Food Marketing Institute; The Merchants to their involvement that those ideas to do that job well. We have done our Payments Coalition; The Petroleum Market- were incorporated into the bill. best to provide those very tools, and ers Association of American and New Eng- When you have a 2,500-page product— that structure, and that architecture, land Fuel Institute; and 7-Eleven and its I see my colleague from ; I in a complicated time—in the midst of Franchisees.

VerDate Mar 15 2010 03:02 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00038 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.062 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5835 Mr. DODD. Mr. President, lastly, I structures safer to invest in, safer to OFFICE OF REPRESENTATIVE GREGORY MEEKS think it is worth noting that in all the start a business in, and safer to partici- Milan Dalal. analysis that we did to root out the pate in the economy of our Nation. OFFICE OF REPRESENTATIVE MARY JO KILROY cause of the crisis, it was not the In short, this legislative proposal in- Noah Cuttler. sists that we rebuild the foundation of American people who were at fault. OFFICE OF REPRESENTATIVE GARY PETERS our prosperity and, thus, restore the Their prosperity was built on hard Jonathan Smith. work, entrepreneurship, and creativity. trust that allows us to prosper as a HOUSE AGRICULTURE COMMITTEE Those qualities are as strong now in great nation. the American people as they have ever This is one of my last acts as a Mem- Clark Ogilvie. been. We have seen a pattern of exploi- ber of this body, in the legislative con- HOUSE BUDGET COMMITTEE tation on the part of some executives text. I am very proud of my colleagues Greg Waring. and others in the financial sector, and and of this bill. I am proud of the work HOUSE ENERGY AND COMMERCE COMMITTEE a lack of wisdom on the part of too we have done over the past several Phil Barnett, Michelle Ash, Anna Laitin. many Washington regulators. What we years to make it as strong as we pos- HOUSE JUDICIARY COMMITTEE have seen is a lack of integrity on the sibly could. George Slover. part of some greedy individuals, who I thank my staff as well: Amy Friend sits next to me, our legislative counsel. HOUSE OVERSIGHT AND GOVERNMENT REFORM sought to get rich by ripping off the COMMITTEE I also thank Ed Silverman, the staff di- American families. What we have seen Mark Stephenson, Adam Miles. is a lack of compassion and com- rector. I also thank Jonathan Miller, HOUSE LEGISLATIVE COUNSEL petence on the part of those who were Dean Shahinian, Julie Chon, Charles Yi, Marc Jarsulic, Lynsey Graham Rea, Jim Wert, Marshall Barksdale, Brady supposed to be watching out for the in- Young, Jim Grossman. terests of consumers and investments. Catherine Galicia, Matthew Green, As a result, there has been a deficit Deborah Katz, Mark Jickling, Donna SENATE BANKING COMMITTEE of trust in our markets, foresight in Nordenberg, Levon Bagramian, Brian Ed Silverman, Amy Friend, Jonathan Mil- our regulatory system, and confidence Filipowich, Drew Colbert, Misha Mintz- ler, Dean Shahinian, Julie Chon, Charles Yi, Roth, Lisa Frumin, William Fields, Marc Jarsulic, Lynsey Graham Rea, Cath- in our economy. erine Galicia, Matthew Green, Deborah Katz, The challenge we have faced all along Devin Hartley, Beth Cooper, Colin Mark Jickling, Donna Nordenberg, Levon is how do you restore those things? McGinnis, Neal Orringer, Kirstin Brost, Bagramian, Brian Filipowich, Drew Colbert, How do we restore trust? I can’t put a Peter Bondi, Sean Oblack, Erika Lee, Misha Mintz-Roth, Lisa Frumin, William number on that for you. I can’t tell you Abigail Dosoretz, Robert Courtney, Fields, Beth Cooper, Colin McGinnis, Neal the financial implications of the ab- Caroline Cook, Joslyn Hemler, Dawn Orringer, Kirstin Brost, Peter Bondi, Sean sence of trust or a diminution of it. Ratliff, and all of their families. Oblack, Steve Gerenscer, Dawn Ratliff, How do we bring back confidence and I thank our legislative counsels: Erika Lee, Joslyn Hemler, Caroline Cook, Robert Courtney, Abigail Dosoretz. optimism, which has been the hallmark Laura Ayoud, Rob Grant, Allison of our Nation, even through the most Wright, and Kim Albrecht Taylor. SENATE AGRICULTURE COMMITTEE difficult of times? You can’t legislate I want to thank the Democratic floor Robert Holifield, Brian Baenig, Julie Anna trust or confidence or optimism. As I staff: Lula Davis, Tim Mitchell, Tricia Potts, Pat McCarty, George Wilder, Matt Engle, and Meredith Mellody. Dunn, Elizabeth Ritter, Stephanie Mercier, said, you cannot legislate wisdom or Anna Taylor, Cory Claussen. integrity, and we have not sought to do These are remarkable people whose SENATE LEGISLATIVE COUNSEL so in this bill. names will never enjoy the spotlight or There is nothing I or any other legis- get notoriety, but day in and day out Rob Grant, Alison Wright, Kim Albrecht- lator or Senator can do to stop a bank- and over weekends and around the Taylor, Colin Campbell, Laura McNulty Ayoud. er from making a bad decision or a clock, they made all the difference in trader for putting profit over principle. seeing to it that we arrived at this mo- CONGRESSIONAL RESEARCH SERVICE Our system will always depend, in part, ment. There are Democrats and Repub- Baird Webel. on human beings. So it will always in- licans and people who work off Mr. DODD. The final result depends clude human error. who contributed as well. There are too on the votes of my colleagues and But our system also depends on insti- many names to mention. whether they decide it is better for us tutions and those we can do something I thank Chairman FRANK and DICK to move forward with these reforms as about. That is what this effort is all SHELBY, my Republican colleague, as we have crafted them or to do nothing, about. We can strengthen them to well as BLANCHE LINCOLN, who did such in effect, and say that after all this make our financial system more resil- a great job along the way. It is a mo- time and effort, we have nothing to say ient to the shocks that occur and make ment of some pride as well as success about what brought us to this situa- our economy as a whole less vulnerable that we have come this far. tion. I ask unanimous consent that a list to the effects of those shocks. I have taken a long time. I apologize If you ever played a board game of staff on both sides of the Capitol be to my colleagues who want to be heard called Jenga with your kids, it involves printed in the RECORD. on this matter. I will be here all day There being no objection, the mate- stacking a series of oddly shaped tomorrow to listen to the debates and rial was ordered to be printed in the blocks, one on top of the other. But be- thoughts as we go forward. This is a RECORD, as follows: cause the foundation on which the first moment in which we can take great block is laid never grows any broader, HOUSE FINANCIAL SERVICES COMMITTEE pride as an institution, both in terms there is only one way to build, and that Jeanne Roslanowick, Michael Beresik, of what we produced and how we pro- David Smith, Adrianne Threatt, Andrew Mil- is up. As you build, the stack becomes ler, Daniel Meade, Katheryn Rosen, Kate duced it. For that, I am deeply grateful more and more unstable, until someone Marks, Kellie Larkin, Tom Glassic, Rick to the membership of this institution. places one fateful block in the wrong Maurano, Tom Duncan, Gail Laster, Scott The PRESIDING OFFICER. The Sen- spot and the entire structure comes Olson, Lawranne Stewart, Jeff Riley, Steve ator from North Carolina. crashing down. Hall, Erika Jeffers, Bill Zavarello, Steve Mrs. HAGAN. Mr. President, before I By allowing banks to shop for the Adamske, Elizabeth Esfahani, Daniel begin, I congratulate Senator DODD for most lenient regulators, in a similar McGlinchey, Dennis Shaul, Jim Segal, all of the extremely hard work he has fashion, by failing to put a strong cop Brendan Woodbury, Patty Lord, Lois done on Wall Street reform. We are on the consumer protection beat, by Richerson, Jean Carroll, Kirk Schwarzbach, Marcos Manosalvas, Marcus Goodman, certainly pleased that we are at this leaving the door open to taxpayer bail- Garett Rose, Todd Harper, Kathleen Mellody, point in time. outs, we were building our wealth on a Jason Pitcock, Charla Ouertatani, Amanda f narrow and unstable Jenga foundation. Fischer, Keo Chea, Sanders Adu, Hilary Yet by putting in place strong, clear West, Flavio Cumpiano, Karl Haddeland, UNANIMOUS CONSENT REQUEST— rules, by giving regulators both the au- Glen Sears, Stephane LeBouder. EXECUTIVE CALENDAR thority and the responsibility to en- OFFICE OF REPRESENTATIVE CAROLYN MALONEY Mrs. HAGAN. Mr. President, I come force those rules, we can make our Kristin Richardson. to the Senate floor this afternoon to

VerDate Mar 15 2010 03:02 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00039 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.063 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5840 CONGRESSIONAL RECORD — SENATE July 14, 2010 Working families are also on the We are all agreed that the current lous mortgage lenders and the offices hook for the corporate welfare that is path forward is unsustainable. But we of pay-for-hire credit rating agencies, compounding the national debt. Our differ on what changes need to be in the headquarters of sluggish regu- tax system is riddled with loopholes so made. It is economically unsound, and lators, and then vastly expanded in its corporations can escape liability by potentially dangerous, to require that negative impact in the boardrooms of shifting operations overseas. In fact, all spending be offset while we are still Wall Street financial firms. corporations are often actually re- recovering from a recession, reeling The financial crisis they all helped warded for sending jobs overseas by our from nearly 10 percent unemployment create has cost millions of Americans tax system. That has to stop. rates, and looking for ways to temper their jobs, their homes, and their fi- There is something even more offen- the jobs deficit of 12 million workers. nancial security. It has endangered sive. If BP is taken to court because of We are putting our economy back at businesses large and small. It con- their negligence in this oilspill and a risk just when it is finally turning a tinues to weigh down our economy judge finds they owe punitive damages, corner. Nobel Prize-winning economist today. It required trillions of dollars of those punitive damages can be de- Joseph Stiglitz has warned that the up- government aid just to keep the crisis ducted as a business expense. Why do coming phase-out of Recovery Act from sliding into a depression. we allow these oil giants that earned spending and State and local spending Addressing the causes of this crisis, hundreds of billions of dollars in profits cutbacks are likely to exert further in an effort to ensure that it is not re- in the past decade to deduct punitive downward pressure on the economy. peated, is our very serious obligation. damages from the taxes they should Our working and middle classes are We now have before us, months in the pay? And that is if they pay taxes at still struggling, and they continue to making, something that constitutes all. ExxonMobil did not pay any taxes need our help. We can help them by ex- our best efforts to carry out that obli- last year. Despite its $45 billion profit, tending unemployment insurance and gation. The legislation before us con- it paid no income tax. COBRA subsidies for those who lost a tains many important provisions. I do not bring this up to inspire anger job through no fault of their own. We But it is, in sum, an attempt to build at corporations. I bring it up because can retain vital nutrition assistance a firewall between the worst high-risk these loopholes and allowances create programs in the Recovery Act to make excesses of Wall Street on the one hand revenue shortfalls. Revenue shortfalls sure kids do not go hungry. And we can and the jobs and homes and futures of equal deficits, unless they are shifted make investments in renewing our Na- ordinary Americans on the other. I onto the backs of middle-class families. tion’s infrastructure. strongly support the Dodd-Frank bill But we would be remiss to go after These are not government hand-outs, and encourage our colleagues to do the these big oil companies without also these are the most effective ways to same. tackling our own spending problems. get our economy going again and con- Senator DODD spoke at some length a Secretary Gates has led the way in ex- tributing to our economic recovery. few minutes ago about this bill. He said plaining how we can, and must, achieve Without these measures, we risk slip- that he cannot legislate integrity, wis- savings in the defense budget. While ping back into a recession. And as I dom, passion, or competency. That is nothing is more important than the de- have noted, recessions directly con- surely true. But without Senator fense of our Nation, national security tribute to long-term deficits. DODD’s integrity, wisdom, passion, and is not well-served by unnecessary, in- I encourage my colleagues to join competency, we would not be where we credibly expensive weapons programs. with me in standing up to the rhetoric are today, on the threshold of making Nor are we well-served by programs that all spending is created equal. I en- a generationally important reform of that come in late, and way over budg- courage my colleagues to show compas- the financial community. et. sion toward those still out of work. I Senator DODD made reference to the Secretary of Defense Gates recently encourage my colleagues to support Permanent Subcommittee on Inves- quoted his predecessor, Secretary spending programs that will help us tigations, and the investigations which Rumsfeld, who said it best: ‘‘A person emerge from this downturn. And I en- we held into the financial crisis. I have employed in a redundant task is one courage my colleagues to join forces in seen up close and personal and in detail who could be countering terrorism or coming up with new ways to tackle our the worst of those excesses. Our col- nuclear proliferation. Every dollar long-term deficits because they mat- leagues on the subcommittee, includ- squandered on waste is one denied to ter. ing my ranking member, Senator the warfighter.’’ That was Secretary We face enormous economic prob- COBURN, my very active member on Rumsfeld on September 10, 2001. lems: the short-term economic crisis that subcommittee, Senator KAUFMAN, Our national security priorities must and the long-term deficit. But we also and others, we saw these excesses in be matched to our real defense prior- face a seemingly intractable political four different hearings. ities in the 21 century, not dictated by problem. As long as this body refuses For over almost a year and a half, expensive weapons systems that are to face up to the simple facts about our subcommittee devoted our re- only benefiting the bottom line of big where our deficits came from and what sources to examining some of the defense contractors. we need to do to solve them, as long as causes and consequences of the finan- These are all things that we can do we turn a blind eye to the simple facts cial crisis. We issued dozens of sub- to bring down long-term deficits. about what will get us out of this poenas. We examined millions of pages We urgently need bipartisan solu- major downturn we will be unable to of documents. We conducted over 100 tions. One idea that I have supported, a reach the solutions demanded by these interviews. We took more than 30 hours deficit reduction commission, was pro- problems and deserved by the Amer- of testimony during those four public posed by Senators CONRAD and GREGG. ican people. hearings. This commission would make rec- Simply put, if we do not face facts, Those hearings focused on the prac- ommendations that would then come we can not do our jobs. And that would tices of risky mortgage lenders, using up for an up-or-down vote by Congress. leave this country in serious trouble. Washington Mutual, WaMu, as a case That proposal failed, despite its broad I yield the floor. history. We focused in the second hear- bipartisan support. The commission The PRESIDING OFFICER. The Sen- ing on the failures of the regulators to was ultimately supported by more on ator from Michigan. rein in WaMu’s risky practices, in a this side of the aisle than by those f third hearing on the inaccurate risk as- across it, including those who cospon- sessments of credit rating agencies, sored the original bill and then voted FINANCIAL REGULATORY REFORM and then in the fourth hearing on the against it when it came up as an Mr. LEVIN. Mr. President, roughly 2 egregious practices of some Wall Street amendment. I am curious what changes years ago, our Nation suffered a catas- investment banks using, as a case his- could be made to such a proposal for it trophe. It was not a hurricane or an tory, Goldman Sachs. to attract more support. I welcome earthquake. It was no act of God. It In each of those hearings, we learned working with my colleagues across the was a man-made disaster, manufac- important facts about how the finan- aisle to find such an approach. tured in the boiler rooms of unscrupu- cial industry and those tasked with

VerDate Mar 15 2010 03:02 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00044 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.069 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5841 overseeing it failed in their obliga- heed to the problems uncovered in our that fail to thoroughly investigate tions, plunging the Nation into crisis hearings and take the steps needed to products they rate. and a deep recession. I want to set out protect our mortgage markets from fu- The bill also tasks the SEC with ex- how the legislation before us addresses ture abuses. amining the clear conflict of interest many of the lessons we learned in the WaMu might not have been able to involved in Wall Street firms shopping subcommittee’s investigation. engage in its worst practices for as for the highest rating among the var- Our hearings began with a case study long as it did had it been confronted by ious rating agencies. I am hopeful, at of Washington Mutual Bank, a $300 bil- Federal regulators. Instead, our inves- the end of the study, the SEC will lion Seattle-based thrift, that, thanks tigation found that the Office of Thrift adopt the approach taken in the to its reckless lending, became the Supervision, WaMu’s primary regu- Franken amendment that won bipar- largest bank failure in America’s his- lators, was more a lapdog than a tisan support in the Senate, and estab- tory. In the pursuit of higher and high- watchdog. Repeatedly its examiners lish an intermediary that will separate er profits, WaMu’s management turned identified enormous problems with the the credit-rating firms from the invest- its focus from traditional mortgage bank’s lending and securitization oper- ment banks that press them for high lending to high-risk subprime and ad- ation. Yet higher-ups in the Office of ratings in return for lucrative com- justable-rate mortgage loans. Thrift Supervision failed to take ap- pensation. As part of their work, I hope In doing so, it engaged in practices propriate action. When the Federal De- the SEC will take an in-depth look at that endangered the bank, its bor- posit Insurance Corporation sought to the documents and testimony in our rowers, and the economy at large. It address the obvious problems in WaMu, subcommittee hearings that laid bear sold loans to borrowers that it knew or the Office of Thrift Supervision, OTS, the conflicts of interest that under- should have known would be unable to erected roadblocks that prevented ac- mine the accuracy of credit ratings. repay. It paid its salespeople more if tion. Wall Street investment banks also they sold higher risk loans, with higher Documents show that the head of played the major role in the crisis. interest rates or other terms that made OTS referred to Washington Mutual as Seeking ever higher profits, they ag- them more difficult to repay. their agency’s constituent, perhaps re- gressively marketed the mortgage- Internal audits repeatedly found high flecting an awareness that the coun- backed securities and exotic deriva- levels of fraud and abuse in the bank’s try’s largest thrift was also the OTS’s tives tied to the mortgage market that loans. But business continued as usual. largest single source of funding. were at the heart of the crisis. Increas- WaMu then dumped these risky loans I am also afraid that comment call- ingly, those banks drew their profits into the financial system, selling them ing Washington Mutual a constituent not from helping client investors pros- or packaging them into mortgage- of its regulatory agency also ignored per but by trading for their own ac- backed securities that Wall Street ea- the obligation that should result from counts, often in direct conflict with gerly scooped up, flooding the stream an agency being a fiduciary whose con- their clients’ interests. Internal e- of commerce with toxic assets like a stituents are not the people they regu- mails that the subcommittee disclosed polluter dumping poison into a river. late but are the people of the United showed Goldman Sachs repeatedly WaMu collapsed in 2008, leaving be- States of America. marketed mortgage-related financial Clearly, OTS has outlived its useful- hind a trail of shattered homeowners instruments that it created and knew ness, and the legislation before us dis- and investors. Its case history was em- to be faulty, junk, and worse. After it solves the OTS. In addition, a new Fi- blematic of a whole host of irrespon- did so, it then made the large bets nancial Stability Oversight Council sible mortgage lenders that loaded up against those very same instruments. will have broad authority to monitor our mortgage markets with toxic secu- Our investigation also showed Goldman individual financial institutions as rities. Sachs made a large bet that the mort- The legislation before us does much well as the system at large to catch gage market as a whole was headed to address these problems. A consumer problem institutions such as WaMu and down, a bet it denies to this very day financial protection bureau will bring problematic practices such as high risk that it made, despite a mountain of new scrutiny to the practices of finan- lending before they endanger the finan- evidence contained in the firm’s own cial companies, providing important cial system as a whole. documents that it did so. oversight that can end the kind of abu- Credit-rating agencies also failed With Senator MERKLEY, I worked to sive and even fraudulent practices used their essential role in this crisis. Our address the outrageous conflicts of in- by WaMu and other mortgage lenders. investigation found these agencies, Other provisions will require those which supposedly supply expert and ob- terest revealed in our hearings on in- who create mortgage-backed securi- jective analysis of credit risk, used vestment banks. The Dodd-Frank bill ties, such as WaMu, and the invest- faulty risk models and assigned super- makes important progress on this ment banks it used, to retain a portion safe AAA ratings to products later re- front. It sharply limits the risky pro- of the risk of securities that are backed vealed to be little better than junk. prietary trading that Goldman Sachs by those high-risk loans, such as Paid by the Wall Street firms whose and other Wall Street firms used to subprime mortgages or option ARMs so products they were supposed to objec- rack up enormous profits while endan- that securitizers will not be able to off- tively assess, they sought market gering the stability of the financial load all that risk onto the market and share by working with these firms to system. walk away from the losses that occur ensure the high ratings needed to sell While I wish the bill was more force- down the road. risky products to risk-averse investors ful in limiting these risky trades, espe- Still another set of provisions in this such as pension funds and university cially in terms of limiting financial bill ban so-called liar loans, which al- endowments. They failed to account for firm investments in hedge funds and lowed WaMu and others to sell loans overwhelming evidence that fraud was private equity funds, the language in without any documentation of a bor- a major factor in a growing number of this bill will add substantial strength rower’s income or ability to repay. mortgage loans. to the stability of the financial system. The bill also prohibits the practice of The Dodd-Frank bill sets up a new of- In addition, the bill includes lan- paying salespeople more for gouging fice in the Securities and Exchange guage to end the conflicts of interest homeowners with higher rates or other Commission to oversee and examine revealed in our investigation of Gold- terms that make loans harder to repay. the work of the credit-rating agencies. man Sachs. No longer will financial Each of those reforms addresses crit- I pay tribute, by the way, to Senator firms be able to package and sell asset- ical problems exposed in our sub- FRANKEN for the work he did in this backed products to investors and then committee’s hearings, which helped to area in the amendment he offered to bet against those same products. Those build the legislative history supporting the Senate. The Dodd-Frank bill re- conflicts of interest will end, unless the the need for this bill. quires the agencies to disclose their regulators water down our strong lan- Most of the reforms also require im- methodology and their track records. guage with weak enforcement. plementing regulations. I hope that It allows investors to file private The Dodd-Frank bill contains other those writing the regulations will pay causes of action against such agencies much needed measures as well. It will

VerDate Mar 15 2010 03:02 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00045 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.070 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5842 CONGRESSIONAL RECORD — SENATE July 14, 2010 bring new transparency and account- be strengthened, take responsibility, date is the action-driving mechanism ability to the shadowy market in de- primarily, for the security of the coun- to demonstrate to the Afghans the ur- rivatives. It will protect taxpayers try, and lead operations which are gency of acting to get their army up to from the need to engage in the kind of joint operations between the Afghan the size and capability where they can multibillion-dollar bailouts required in Army and the coalition forces, includ- succeed in the mission so vital to them the current crisis by allowing for an or- ing American forces. and to us—securing their country derly resolution of failing financial That will be dramatized, that move- against the Taliban. firms. It empowers regulators to estab- ment towards the shift of responsi- A number of steps have been taken in lish tough new capital requirements bility to the Afghans, where it belongs. the last 6 months toward achieving that make it harder for firms to be- A dramatic moment is going to take that goal. come so big they endanger the stability place later in July or early in August First, recruitment for the ANA is up, of the system. It requires hedge funds when, in a major operation in the area partly because, according to General to register with the SEC and provide around Kandahar city, right in the Caldwell, who leads the ISAF training information about their once-hidden heart of Taliban country, there is mission, the announcement of the July operations. It also strengthens the going to be a large number of forces 2011 date last December incentivized process for shareholders to select cor- that are Afghan forces, a large number the Afghan leaders to act to stimulate porate directors and to limit excessive of American forces, and from other recruitment. executive pay. countries, and it will be the Afghans Second, the Afghan army has grown We have seen all too clearly the con- who will be in the lead in that oper- very quickly, exceeding the goals. Last sequences of lax regulation and tepid ation. December the army had 100,000 men; by oversight, the consequences of assum- This is the Taliban’s worst night- May the number was 125,000; and Min- ing that Wall Street can police itself. mare: facing an Afghan-led force that ister of Defense Wardak said he expects That attitude has put millions of is going to clear them from control of to announce that the end of September Americans in unemployment lines, has the area. The Afghan people detest the 2010 goal of 134,000 will be met by the plastered foreclosure signs on millions Taliban, and they respect their own time of the Kabul conference in late of American homes, and has pumped army. And our major goal and mission July. billions of dollars of taxpayer money should be to build up that army, Third, the ratio of ISAF forces to Af- into Wall Street firms that happily strengthen it sizewise and with equip- ghan forces is improving in terms of profited from their risky bets and then ment and training so it can take major Afghans becoming numerically domi- leaned on the rest of us to bail them security responsibility for that coun- nant. When I was with our marines in out when the bill came due. try. This is the path to success in Af- Helmand Province in January, there I say to those colleagues who are ghanistan. were two or three marines for each Af- considering voting against this bill: Again, because of this planned oper- ghan soldier. In Kandahar Province, Knowing what our investigation and ation, which is now announced, and be- where Senator REED and I visited last others have discovered, how can you cause of a number of other steps which week, the ratio is about one to one and oppose this effort to erect a wall be- have been taken—a very significant by September it will be predominantly tween Wall Street’s never-ending appe- number of positive steps in the last 6 Afghan. tite for reckless risk and the rest of the months—I have some confidence we are Fourth, the partnering in the field American economy? on the way to a successful outcome in between the ANA and ISAF is real. It is time to put the cop back on the Afghanistan. Every Afghan unit from battalion down beat on Wall Street. It is time to end Afghanistan has made progress in a to company level is now planning and Wall Street’s ‘‘heads we win, tails you number of ways since my visit there in operating together with ISAF units. lose’’ game. It is time to prevent as January. This has the twin benefits of training best we can the next manmade disaster The progress I refer to is toward the Afghan troops and having the Afghan threatening our jobs, our homes, and key goal of preventing Afghanistan people see that it is their respected our businesses. It is time to pass this from being dominated by a Taliban or- army that they want to provide the se- major financial reform legislation, and ganization that would once again pro- curity which is doing that, rather than I hope we will see a strong vote for it vide a haven for the international ter- foreign troops which have less under- in the day ahead. rorist movement, al-Qaida. standing of their culture and will f To achieve that goal, Afghanistan someday leave. must be able to take principal respon- Fifth, and central to the success of PAKISTAN AND AFGHANISTAN sibility for its own security. We and the mission of Afghans being principal TRIP other outsiders cannot secure Afghani- providers of security, is the fact that Mr. LEVIN. Mr. President, I rise to stan, but we can help the Afghan secu- Afghan troops are more and more in speak about a trip Senator JACK REED rity forces do so. the lead in joint operations. A highly and I recently took to Pakistan and Af- The building blocks to achieve that significant event will take place at the ghanistan. In Pakistan, we met with goal are present. The Afghan National end of July and early August. A major the Prime Minister, the Governor of Army, ANA, is respected by the people joint ANA-ISAF operation will move the critical northern province that in- and the Taliban is despised and feared into the Taliban heartland of the cludes the Swat Valley, the Pakistani because of the terror they spread and Arghandab Valley, just west of general who is commander of their threaten. Kandahar city. Approximately 10,000 Army’s 11th Corps. In Afghanistan, we A capable, strong, large Afghan troops—the Afghan 205th Corps with met in Kabul with General Petraeus, Army is the Taliban’s worst nightmare 5,160 soldiers and ISAF with 4,430 sol- with Ambassador Eikenberry, with because it means that the Taliban’s diers—will clear the area of insurgents. President Karzai, with many of his propaganda that foreigners seek to The planning is complete and the or- ministers. dominate Afghanistan rings hollow. ders signed. It is a major, incredibly Then, in Afghanistan, we traveled to This is particularly true when Afghan important effort and, of great signifi- Kandahar Province, where we met with troops are in the lead in joint oper- cance, the Afghans will be in the lead. General Carter, who is the commander ations with the troops of ISAF. The significance of this will not be of the ISAF forces, the Kandahar Gov- That is why I believed we should lost on the Afghan people, nor on the ernor and the city mayor of Kandahar. have focused on training and equipping Taliban. Then we met with the commander of the ANA, why we should have sent in Kandahar Province is where the the Afghan Army’s 205th Corps, Major trainers and mentors instead of send- Taliban movement was born. Months of General Zazai. ing in more combat troops. That is why effort have been extended to ‘‘shape’’ One of the key things we saw, and when President Obama decided to send the upcoming effort. The city of something which is critically impor- in 30,000 more U.S. troops, I strongly Kandahar and its environs are being se- tant to the success of this mission in supported the decision to begin to re- cured at the cost of many lives—both Afghanistan, is that the Afghan Army duce those troops in July of 2011. That Afghan and coalition forces—so as to

VerDate Mar 15 2010 03:02 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00046 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.075 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE S5844 CONGRESSIONAL RECORD — SENATE July 14, 2010 proceed to a period of morning business Senator Byrd once said, ‘‘The people I’m celebrating the first family reunion with with Senators permitted to speak for of Louisiana have the strength and the my eight children—and their children—from up to 10 minutes each. spirit to rebuild their homes and their across the country. My wife will join me at The PRESIDING OFFICER. Without communities. We owe them the support this event, and I will be prevented from at- tending the ceremony for my great friend, objection, it is so ordered. to get the job done.’’ He did not just Robert Byrd. f pay lipservice to the gulf coast. He de- I worked with Senator Byrd for my entire livered for us time and again, because 36 years in the Senate. Above all else, I found REMEMBERING SENATOR ROBERT he understood the importance of stand- him a man that one could trust implicitly. C. BYRD ing up for those who were hit so hard He and I both served on the Senate Appro- Ms. LANDRIEU. Mr. President, I rise by the tragic storms that battered the priations Committee for many years, where today to honor the memory of one of Louisiana coast. he was a strong advocate for his home state. the Senate’s giants, Robert C. Byrd. Senator Byrd was not just a col- He and I both supported local projects for our states and believed that ‘earmarks’ were My family and I were saddened to learn league who put his weight behind fight- not only legitimate, but part of the Sen- of his passing on Monday morning at ing for the gulf coast region. He was ator’s duty to his state. the age of 92. I will remember Senator also a walking encyclopedia of Senate When history is finally written of the Byrd as a fierce defender of the Con- history, and he was always willing to there is little doubt in stitution, master of Senate procedure impart his vast knowledge to anyone my mind that he will go down as one of the and a proud fighter for West Virginia who wanted to learn about the legends greatest of all. He knew the rules and he and its rural heritage. Senator Byrd that walked these halls for more than played by them. He knew the issues and he fought for them. He understood America’s was more than just a colleague, he was two centuries before us. greatness and he heralded it. But most of all, a mentor. He taught me—and everyone When I was first sworn in as a U.S. he seemed to always remember the working who had the honor of serving with Senator, back in 1997, my entire family men and women of his state and this coun- him—never to apologize for standing came to Washington for the event. try. He will be missed. I must say thank you, up for your State. After it was over, I asked Senator Byrd Robert, for your friendship and all you did During more than a half century of if he would give my family—both for me and all of us. service in Congress, Senator Byrd gave adults and children—a history lesson f a voice to those who would not have on the Senate. He graciously obliged, FINANCIAL REGULATORY REFORM been heard otherwise. There are times and for 2 full hours spoke eloquently Mr. VOINOVICH. Mr. President, I when it is easy to get caught up in the and expertly on the history of this rise today to explain my opposition to petty bickering and partisan squabbles great body. His lecture left a lasting the Restoring American Financial Sta- that seem to be increasingly plaguing impression on every single member of bility Act. When the Senate first this chamber. But, we would all do well the Landrieu family, and it is a mem- passed the bill in May, I opposed it and to follow the example Senator Byrd set ory we will always cherish. Senator Byrd spoke with such pas- explained my reasons for doing so. At for all of us during his legendary Sen- that time I hoped the House and Sen- ate career and never lose sight of the sion about John C. Calhoun, Henry Clay, Daniel Webster, Rebecca Felton, ate would make some changes to the fact that we are sent here to fight for bill during the conference committee those in our home States and across Everett Dirksen and the many other historical figures who shaped the Sen- to address the root causes of the finan- the country who cannot fight for them- cial crisis as well as scale back the selves. ate. It is only appropriate that he will forever be mentioned in the same overreaching powers granted to the Senator Byrd’s work on behalf of his new consumer protection bureau. Un- constituents is well known. West Vir- breath with these men and women he so truly admired. And, it makes me fortunately, neither of these changes ginians knew they could count on their occurred, and I still believe the bill senior Senator to come here to Wash- proud to have had the opportunity to serve with a man who left such an in- largely ignores the glaring, funda- ington and deliver for them. They were mental problems that led to our cur- not alone. I will never forget how help- delible mark on this Chamber. As we reflect on Senator Byrd’s re- rent fiscal catastrophe while increas- ful Senator Byrd was to my State. Lou- markable life and career, our prayers ing regulatory burdens on business isiana lost a true friend. Through are with the Byrd family. But we all when the economy is still struggling to storms and floods, Senator Byrd made take comfort in knowing that while he recover. In addition, as Fareed Zakaria sure that promises made to the gulf leaves behind one of his great loves— recently noted, the uncertainty created coast, particularly to Louisiana, were the Senate—he is finally going home to by this and other expansive legislation, not broken. He kept an eye on the fair be with his greatest love—Erma. such as health care reform and poten- and just distribution of funds to Gulf Mr. ALEXANDER. Mr. President, tially cap and trade, is causing many Coast States, and I and everyone I rep- Senator Pete Domenici from New Mex- businesses to refrain from new invest- resent will always be grateful for his ico served in this body for 36 years. ments until they can understand the dedication to our recovery. During that time, he was the first Re- full implications of these measures. One critical example is his effort to publican chairman of the Budget Com- As for this legislation, it is now clear provide funding for Louisiana’s Road mittee and later chaired the Energy that over the past decade or so, specific Home program. Road Home, which is Committee where, more than almost factors played a critical role in leading the largest single housing recovery anyone, he helped spur the revival of our Nation into the financial crisis program in U.S. history, was designed interest in nuclear energy. He was that first arrested the credit markets to provide compensation to Louisiana truly one of the most consequential in 2007, leading to the collapse of some homeowners whose houses were de- senators of the last half century. As we of our largest financial services firms stroyed by Hurricane Katrina or Rita. mourn the loss of another very con- and a stock market crash in late 2008. In late 2007, as Louisiana faced a sequential Member of this Chamber, The resulting events produced a wide- daunting program shortfall, it was Sen- Senator Robert Byrd of West Virginia, spread foreclosure crisis and a dev- ator Byrd who stepped up to help me I thought it was appropriate to share astating recession with massive job secure $3 billion to keep this rebuilding Senator Domenici’s thoughts on the loss and sustained record unemploy- program going. passing of Senator Byrd. ment, all of which continue to be felt A year later, Senator Byrd once I ask unanimous consent that Sen- by families throughout Ohio and the again stood up for the people of Lou- ator Domenici’s statement be printed Nation. In response, Congress has isiana, when he worked with me to in- in the RECORD. taken up legislation that purports to clude $8.7 billion for gulf coast hurri- There being no objection, the mate- correct what went wrong and restore cane recovery and protection in the rial was ordered to be printed in the safety, soundness, and stability to our emergency supplemental spending bill RECORD, as follows: financial markets to foster recovery for Iraq and Afghanistan. The funding STATEMENT OF SENATOR PETE DOMENICI ON and fortify the foundation for a strong provided for levees, criminal justice THE PASSING OF SENATOR ROBERT C. BYRD economy. needs, health care and housing for low- I’m sorry I can’t be at Senator Robert Why, then, do I oppose the passage of income hurricane survivors. Byrd’s memorial service in person because this legislation? Simply put, because it

VerDate Mar 15 2010 03:09 Jul 15, 2010 Jkt 089060 PO 00000 Frm 00048 Fmt 4624 Sfmt 0634 E:\CR\FM\G14JY6.071 S14JYPT1 pwalker on DSK8KYBLC1PROD with SENATE July 14, 2010 CONGRESSIONAL RECORD — SENATE S5845 does not get the job done. This legisla- tising agencies, and even nonprofits— aged an annual operating budget in ex- tion fails to address the causes of the under new government regulation. At- cess of $200 million which funded the financial crisis, while overreaching in tempts by some of my colleagues to planning, engineering, construction, its expanded regulation of businesses, curtail the largely unchecked reach of operation, and maintenance of the large and small, throughout the econ- this new regulator were mostly re- Pittsburgh district’s 23 locks and dams, omy. I voted to bring the bill to the jected. and 16 reservoirs covering 26,000 square Senate floor because I believed the Finally, new regulations related to miles in a five-State area. American people wanted us to debate over-the-counter derivatives fail to Colonel Crall’s implementation of the issues that caused the financial adequately protect businesses across funding provided to the district collapse and bring forth legislation Ohio and other States that use these through the American Recovery and that would work to minimize the possi- risk management tools. I have heard Reinvestment Act shows that he is an bility of a future collapse, but this bill from many businesses concerned that effective steward of taxpayer dollars. fails in too many respects. they could be forced to divert capital The act provided over $140 million for First, the bill fails to address two away from job-creating investments as the Pittsburgh district, almost dou- primary causes of the financial melt- a result of new clearing procedures in bling the district’s annual budget. down, Fannie Mae and Freddie Mac, the legislation. They also complain Under Colonel Crall’s leadership, the whose push to acquire subprime mort- that they may now be forced to use less district awarded contracts for projects gages—spurred by Congress—helped customized derivative products, which to help reinvigorate the region’s econ- produce a real estate bubble that burst would result in more—rather than omy. These contracts have also as- and sent shockwaves across global fi- less—risk. As businesses sideline more sisted in improving the reliability of nancial markets, forcing the U.S. econ- capital, they become less liquid; as the some of the oldest facilities in the omy and other global economies into a they face more risk, they become less Corps. tailspin. These now-government-owned creditworthy, and in turn have less ac- Early in his tenure, he was faced institutions, which failed in the midst cess to credit. I am fearful that these with the challenge of a severe flash of the financial crisis, continue to new regulatory burdens will serve pri- flooding event where he quickly di- drain taxpayers for billions of dollars. marily to slow any eventual economic rected available Corps authorities to In May, Fannie and Freddie requested recovery rather than address the un- provide emergency relief and offer im- an additional $19 billion of taxpayer derlying causes of the financial col- mediate assistance. Colonel Crall’s ac- moneys to fund operations, bringing lapse. For example, uncertainty over tions strengthened the Corps’ partner- the total government assistance to these potential effects has created ship with local communities and reit- roughly $145 billion, or an average of widespread concern among farmers in erated the Corps value in the region. $7.6 billion per month. Moreover, the particular, who had nothing to do with This event set the foundation for a ten- nonpartisan Congressional Budget Of- the financial meltdown but could face ure that focused on ensuring the safety fice recently estimated that over the consequences under the legislation. of citizens of the region and a commit- next decade, Fannie and Freddie could In sum, the Restoring American Fi- ment to protecting their property. In cost taxpayers almost $400 billion. Yet nancial Stability Act fails to address addition, Colonel Crall’s true compas- these two giant, systemically risky in- the root causes of the problem and sion for the constituents impacted by stitutions—whose bailouts far outsize overreaches in its regulation. I am dis- this unfortunate event set the tone for any of those given to other financial appointed these concerns were not re- his continued engagement in local institutions—are ignored in this legis- solved during the conference com- flood reduction needs throughout the lation. mittee, and thus I will not support the Pittsburgh district. Second, at the heart of this financial bill. Throughout his time at the helm of crisis were residential home loans writ- the Pittsburgh district, Colonel Crall f ten to borrowers who did not have the continued to stress the Army Corp’s ability to pay their mortgages. When ADDITIONAL STATEMENTS concern for maintaining and improving these borrowers defaulted on a massive water quality. For instance, Colonel scale, widespread investment securities Crall recognized the effect of natural TRIBUTE TO COLONEL MICHAEL P. based on their mortgages lost signifi- gas drilling on the Monongahela River CRALL cant value, sending investors panicking and immediately took action to reduce and retreating while portfolios col- ∑ Mr. CASEY. Mr. President, today I any negative impact on public health lapsed and credit froze. These loans honor Colonel Michael P. Crall for the and safety associated with this activ- were made in large part because of poor exceptional service he has provided as ity. underwriting standards and a failure commander of the Pittsburgh district, As a decorated military officer, Colo- by many lenders and brokers to ensure U.S. Army Corps of Engineers during nel Crall exemplified his devotion to that buyers had the means to repay the period from July 13, 2007, to July our soldiers and country through his their loans. During the Senate debate 16, 2010. My colleague from Pennsyl- active role with the flight 93 Memorial. on this legislation, my colleague, Sen- vania, Senator SPECTER, has joined me With a singular focus on overcoming ator BOB CORKER, offered a common- to honor Colonel Crall. unnecessary delays, he directed his sense amendment to establish sound On Friday, July 16, 2010 in Pitts- team to work with the National Park underwriting standards, including a burgh, Pennsylvania the U.S. Army Service to ensure that the Corps in- minimum down payment, full docu- Corps of Engineers Pittsburgh District volvement in the memorial was timely mentation, and proof of income and military Change of Command cere- and done with great care. Colonel ability of the borrower to pay the mony will honor the services of the Crall’s efforts are helping to move the mortgage. Amazingly, my colleagues outgoing commander, Colonel Michael project in a positive direction. Simply rejected this amendment, and thus vir- P. Crall, and welcome the incoming stated, his personal involvement will tually nothing in this legislation ad- commander, Colonel William H. help ensure that the sacrifices of the dresses this problem. Graham. patriots aboard flight 93 will be appro- Third, the new consumer protection Colonel Crall will leave a legacy of priately memorialized. bureau created by this bill is too wide excellence. His leadership focused the Colonel Crall’s excellent communica- in its regulatory scope, and I believe it district’s capabilities on dem- tion skills and collaborative approach will saddle businesses with new, often onstrating the value of the Army Corps greatly improved the district’s image unnecessary burdens. The bureau is to the Pittsburgh region. His superb and reputation among the general pub- granted authority to reach its tenta- leadership and strong personal engage- lic, stakeholders, and the workforce. cles like an octopus into various sec- ment strengthened relationships with- Throughout his entire tour of duty, tors of the economy, and pull busi- in local, State and Federal partner- Colonel Crall’s superb leadership and nesses that were not part of the prob- ships. strong personal engagement was in- lem—including retailers, medical pro- During his tenure as district com- strumental in demonstrating the value viders such as dentists, lawyers, adver- mander, Colonel Crall superbly man- of the Pittsburgh district throughout

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Vol. 156 WASHINGTON, THURSDAY, JULY 15, 2010 No. 105 Senate The Senate met at 9:30 a.m. and was APPOINTMENT OF ACTING She has been the chaplain at the Ari- called to order by the Honorable PRESIDENT PRO TEMPORE zona State Legislature for over 10 KIRSTEN E. GILLIBRAND, a Senator from The PRESIDING OFFICER. The years through her nonprofit organiza- the State of New York. clerk will please read a communication tion called Leadership Challenge of Ar- to the Senate from the President pro izona. She also serves as the Arizona PRAYER tempore (Mr. INOUYE). area coordinator of the Daughters of The PRESIDING OFFICER. Today’s The assistant legislative clerk read Destiny Network, which is a women’s opening prayer will be offered by the the following letter: prison ministry based out of Colorado Springs. She travels throughout the Reverend Donna R. Kafer, Chaplain of U.S. SENATE, the Arizona State Legislature. PRESIDENT PRO TEMPORE, United States sharing her testimony The guest Chaplain offered the fol- Washington, DC, July 15, 2010. with incarcerated women, encouraging lowing prayer: To the Senate: them and sharing the freedom that is Let us pray. Under the provisions of rule I, paragraph 3, offered through the saving grace of Dear Holy and Righteous Father, we of the Standing Rules of the Senate, I hereby Jesus Christ. come before You this day with humble appoint the Honorable KIRSTEN E. Donna is an Arizona native. She and GILLIBRAND, a Senator from the State of New hearts, thoughtful minds, and a pro- her husband Ross, a firefighter para- York, to perform the duties of the Chair. medic for almost 20 years, live in the found understanding of Your majesty. DANIEL K. INOUYE, As the Senate body convenes today, I President pro tempore. Phoenix metropolitan area and have a daughter, Andrea Elizabeth. ask, Lord, that You give each and Mrs. GILLIBRAND thereupon as- every one of our Senators a unique It is our proud opportunity to help to sumed the chair as Acting President host her today and thank her for open- sense of their role in shaping this great pro tempore. Nation. We understand this mantle of ing the Senate with that beautiful leadership holds a great measure of re- f prayer. sponsibility, so we petition You, Fa- RESERVATION OF LEADER TIME f ther, to impart Your wisdom, peace, The ACTING PRESIDENT pro tem- RECOGNITION OF THE MAJORITY and comfort to each one of them. Pro- pore. Under the previous order, the LEADER vide them, Lord, with clarity of mind, leadership time is reserved. vision for the future, and a renewed The ACTING PRESIDENT pro tem- sense of purpose. Fill their hearts with f pore. The majority leader is recog- nized. compassion, discernment, focus, and RECOGNITION OF THE ACTING Mr. REID. Madam President, every the strength to meet the complex tasks MINORITY LEADER at hand. Father, give them complete Thursday Senator ENSIGN and I greet health: mentally, physically, emotion- The ACTING PRESIDENT pro tem- people from Nevada. We had a lot of ally, and spiritually. Embrace them pore. The Senator from Arizona. them today. I was late getting here. I with Your love that they may know f am sorry to have missed the prayer. But I will read the prayer and recog- Your boundless affection for them and WELCOMING THE GUEST nize what Senator KYL said about the Your indepth concern for their well- CHAPLAIN being. We thank You, Lord, for hearing guest Chaplain. She is welcome to the our petitions this day. Mr. KYL. Madam President, it is my Senate. It is in Your precious Name we pray. honor to help host our guest Chaplain f Amen. from Arizona, Rev. Donna Kafer. On be- half of Senator MCCAIN and myself, I SCHEDULE f thank the Senate Chaplain and all oth- Mr. REID. Madam President, fol- ers who have been so courteous to Rev- lowing leader remarks, the Senate will PLEDGE OF ALLEGIANCE erend Kafer on her visit to Washington. resume consideration of the conference The Honorable KIRSTEN E. She, I understand from the Chaplain, is report to accompany H.R. 4173, which is GILLIBRAND led the Pledge of Alle- the first legislative chaplain to provide the Wall Street reform legislation. At giance, as follows: the opening prayer in the Senate and about 11 a.m. this morning, the Senate I pledge allegiance to the Flag of the only the second woman to have done will proceed to a rollcall vote on the United States of America, and to the Repub- so. There are milestones achieved motion to invoke cloture on that con- lic for which it stands, one nation under God, today, and we appreciate her being ference report. If cloture is invoked, we indivisible, with liberty and justice for all. with us. would like to yield back some of the

∑ This ‘‘bullet’’ symbol identifies statements or insertions which are not spoken by a Member of the Senate on the floor.

S5869

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VerDate Mar 15 2010 04:29 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00001 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.000 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5870 CONGRESSIONAL RECORD — SENATE July 15, 2010 postcloture debate time so we may urable goals and benchmarks, must be such as the mishandling of information complete action on the Wall Street re- developed. The administrator of the bu- that could have exposed ponzi schemes form legislation today. There could be reau will serve as vice-chairman of the much earlier. We also worked with our additional rollcall votes this afternoon. Financial Literacy and Education colleagues in the other Chamber to in- For the benefit of Senators, I have Commission to ensure meaningful par- clude an ombudsman that will be ap- spoken to the two Republican leaders. ticipation in Federal efforts intended pointed by and report to the investor We still have some hope of being able to help educate, protect, and empower advocate. to set up votes on the small business working families. I also worked to include in the legis- jobs bill. I hope we can do that; other- The conference report also addresses lation clarified authority for the SEC wise, we will have to proceed to a clo- investor literacy. A financial literacy to effectively require disclosures prior ture vote on that sometime next week. study must be conducted by the Securi- to the sale of financial products and f ties and Exchange Commission, SEC. services. Working families rely on The SEC will be required to develop an their mutual fund investments and MEASURE PLACED ON THE investor financial literacy strategy in- other financial products to pay for CALENDAR—S. 3588 tended to bring about positive behav- their children’s education, prepare for Mr. REID. Madam President, S. 3588 ioral change among investors. retirement, and be better able to attain is at the desk and due for a second Essential consumer and investor pro- other financial goals. This provision reading. tections for working families are in- will ensure that working families have The ACTING PRESIDENT pro tem- cluded in the conference report. A reg- the relevant and useful information pore. The clerk will read the bill for ulatory structure that will have a they need when they are making deci- the second time. greater emphasis on investor and con- sions that determine their financial fu- The assistant legislative clerk read sumer protections is established. Regu- ture. as follows: lators failed to protect consumers and Unfortunately, too many investors A bill (S. 3588) to limit the moratorium on that contributed significantly to the fi- do not know the difference between a certain permitting and drilling activities nancial crisis. Prospective homebuyers broker and an investment advisor. issued by the Secretary of the Interior, and were steered into mortgage products Even fewer are likely to know that for other purposes. that had risks and costs that they their broker has no obligation to act in Mr. REID. I object to any further could not understand or afford. The their best interest. Investment advi- proceedings with respect to this bill. Consumer Financial Protection Bureau sors currently have fiduciary obliga- The ACTING PRESIDENT pro tem- will be empowered to restrict preda- tions. However, brokers must only pore. Objection is heard. The bill will tory financial products and unfair busi- meet a suitability standard that fails be placed on the calendar. ness practices in order to prevent un- to sufficiently protect investors. f scrupulous financial services providers In a complicated financial market- from taking advantage of consumers. place, for investors in which revenue WALL STREET REFORM AND CON- I take great pride in my contribu- sharing agreements and commissions SUMER PROTECTION ACT—CON- tions to the investor protection portion can vary significantly for similar prod- FERENCE REPORT of the legislation. Section 915 will ucts, we must ensure that all invest- The ACTING PRESIDENT pro tem- strengthen the ability of the Securities ment professionals that offer personal- pore. Under the previous order, the and Exchange Commission to better ized investment advice have a fiduciary Senate will resume consideration of represent the interests of retail inves- duty imposed on them. the conference report to company H.R. tors by creating an investor advocate In 2005, I first introduced legislation 4173, which the clerk will report. within the SEC. The investor advocate that would have imposed a fiduciary The assistant legislative clerk read is tasked with assisting retail investors duty on brokers. I knew then that ac- as follows: to resolve significant problems with tion was necessary. I am proud that a Conference report to accompany H.R. 4173, the SEC or the self-regulatory organi- vital investor protection was also in- to provide for financial regulatory reform, to zation, SROs. The investor advocate’s cluded in the conference report that protect consumers and investors, to enhance mission includes identifying areas will ensure that a fiduciary duty is im- Federal understanding of insurance issues, to where investors would benefit from posed on brokers when giving personal- regulate the over-the-counter derivatives changes in Commission or SRO policies ized investment advice. This change is markets, and for other purposes. and problems that investors have with necessary because it will ensure that The ACTING PRESIDENT pro tem- financial service providers and invest- all financial professionals, whether pore. Under the previous order, the ment products. The investor advocate they are an investment advisor or a time until 11 a.m. shall be equally di- will recommend policy changes to the broker, have the same duty to act in vided and controlled by the Senator Commission and Congress on behalf of the best interests of their clients. In- from Connecticut, Mr. DODD, and the investors. vestors must be able to trust that their Senator from Alabama, Mr. SHELBY, or The investor advocate is precisely broker is acting in their best interest their designees, with the final 20 min- the kind of external check, with inde- and we must not allow brokers to push utes divided equally between the two pendent reporting lines and independ- higher commission products that may managers and the two leaders. ently determined compensation, that be inappropriate for a particular client. The Senator from Hawaii. cannot be provided within the current I appreciate all of the efforts of Chair- Mr. AKAKA. Madam President, I structure of the SEC. It is not that the man FRANK, Senator MENENDEZ, and strongly support the Dodd-Frank con- SEC does not advocate on behalf of in- Senator JOHNSON for all of their efforts ference report. I commend the chair- vestors, it is that it does not have a on this important new investor protec- man for all of his work to address so structure by which any meaningful tion. many issues vitally important to work- self-evaluation can be conducted. This This legislation also includes land- ing families. I thank my friend from would be an entirely new function. The mark consumer protections for remit- Connecticut for working closely with investor advocate would help to ensure tance transactions. Working families me to ensure this legislation will edu- that the interests of retail investors often send substantial portions of their cate, protect, and empower consumers are built into rulemaking proposals earnings to family members living and investors. from the outset and that agency prior- abroad. In Hawaii, many of my con- An Office of Financial Education ities reflect the issues confronting in- stituents remit money to their family within the Consumer Financial Protec- vestors. The investor advocate will act members living in the Philippines. tion Bureau is created by the legisla- as the chief ombudsman for retail in- Consumers can have serious problems tion. The office is tasked with devel- vestors and increase transparency and with their remittance transactions, oping and implementing initiatives to accountability at the SEC. The inves- such as being overcharged or not hav- educate and empower consumers. A tor advocate will be best equipped to ing their money reach the intended re- strategy to improve financial literacy act in response to feedback from inves- cipient. Remittances are not currently among consumers, that includes meas- tors and potentially avoid situations regulated under Federal law, and State

VerDate Mar 15 2010 04:29 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00002 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.001 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5871 laws provide inadequate consumer pro- balances or afford monthly fees. Poor tection Act and to vote for final pas- tections. credit histories may also limit their sage. The conference report modifies the ability to open accounts. Cultural dif- First, I congratulate Senator DODD Electronic Fund Transfer Act to estab- ferences or language barriers also for the leadership he has shown in mar- lish consumer protections for remit- present challenges that can hinder the shaling this legislation through some tances. It will require simple disclo- ability of consumers to access financial very difficult challenges in the Con- sures about the cost of sending remit- services. I also want to clarify that in gress, getting it through the Senate tances to be provided to the consumer section 1204, small dollar-value loans floor, working out the differences be- prior to and after the transaction. A and financial education and counseling tween the House and Senate, so we now complaint and error resolution process relating to conducting transactions in are on the verge of passing the most for remittance transactions would be and managing accounts are only exam- significant reform of Wall Street in established. I appreciate all of the ef- ples of, and not limitations on, eligible many years. forts of the chairman, Representative activities. This bill corrects a regulatory struc- GUTIERREZ, and the Department of the More must be done to promote prod- ture that today allows reckless gam- Treasury for working with me on this uct development, outreach, and finan- bling on Wall Street; that creates too important piece of the bill for immi- cial education opportunities intended big to fail, where government bailouts grant communities. to empower consumers. Title XII au- are necessary to keep companies afloat This legislation also includes essen- thorizes programs intended to assist because there are no other options tial economic empowerment opportuni- low and moderate-income individuals available to our regulators. It ends ties for working families. Title XII, Im- establish bank or credit union accounts reckless gambling on Wall Street. It proving Access to Mainstream Finan- and encourage greater use of main- ends the need for government bailouts cial Institutions, is the most important stream financial services. It will also of institutions that are too big to fail. economic empowerment provision in encourage the development of small, It provides for strong consumer protec- the bill. I appreciate the assistance affordable loans as an alternative to tion—protection for many forms of provided by my friend from Wisconsin, more costly payday loans. lending but, most importantly, the res- Senator KOHL in helping me put this There is a great need for working idential mortgage market. We saw in this financial crisis that title together. I appreciate the support families to have access to affordable even responsible consumers suffered at and contributions made to this title small loans. This legislation would en- the hands of aggressive lenders with provided Senators SCHUMER, BROWN, courage banks and credit unions to de- dubious intentions. This legislation MERKLEY, and MENENDEZ. velop consumer friendly payday loan will create a consumer bureau that will I grew up in a family that did not alternatives. Consumers who apply for end those types of practices, that will have a bank account. My parents kept these loans would be provided with fi- be on the side of the consumer, that is their money in a box divided into dif- nancial literacy and educational oppor- independent, so the consumer is rep- ferent sections so that money could be tunities. separated for various purposes. Church resented in the financial structure. The National Credit Union Adminis- I want to highlight some provisions donations were kept in one part. tration has provided assistance to de- that were included in this legislation I Money for clothes was kept in another velop these small consumer-friendly worked on with our colleagues to get and there was a portion of the box re- loans. Windward Community Credit included in the bill. I am very grateful served for food expenses. When there Union in Hawaii implemented a very to Senator DODD, the leadership of the was no longer any money in the food successful program for the U.S. Ma- Banking Committee, and our rep- section, we did not eat. Obviously, rines and other community members in resentatives in conference who were money in the box was not earning in- need of affordable short term credit. able to include provisions that I think terest. It was not secure. More working families need access to add to the importance of this bill. I know personally the challenges affordable small loans. This program The first provision I want to talk that are presented to families unable will encourage mainstream financial about is a provision I worked on with to save or borrow when they need small service providers to develop affordable Senator ENZI and Senator BROWNBACK loans to pay for unexpected expenses. small loan products. that will make permanent the feder- Unexpected medical expenses or a car I thank the Banking Committee staff ally insured deposit limits from $100,000 repair bill may require small loans to for all of their extraordinary work, in- to $250,000. We did that recently in help working families overcome these cluding Levon Bagramian, Julie Chon, order to encourage more deposits, to obstacles. Brian Filipowich, Amy Friend, Cath- help our economy, to provide capital Mainstream financial institutions erine Galicia, Lynsey Graham Rea, for businesses. This limit included in are a vital component to economic em- Matthew Green, Marc Jarsulic, Mark this bill is now made permanent at powerment. Unbanked or underbanked Jickling, Deborah Katz, Jonathan Mil- $250,000. families need access to credit unions ler, Misha Mintz-Roth, Dean Insured deposits have been the stabi- and banks and they need to be able to Shahinian, Ed Silverman, and Charles lizing force for our Nation’s banking borrow on affordable terms. Banks and Yi. system for the past 75 years. They pro- credit unions provide alternatives to I also express my appreciation for all mote public confidence in our banking high-cost and often predatory fringe fi- of the work done by the legislative as- system and prevent bank runs. They nancial service providers such as check sistants of members of the Committee, are particularly important to commu- cashers and payday lenders. Unfortu- including Laura Swanson, Kara Stein, nity banks. I know many of us talk nately, approximately one in four fam- Jonah Crane, Ellen Chube, Michael about what we can do to help our small ilies are unbanked or underbanked. Passante, Lee Drutman, Graham businesses, how can we free up more Many of the unbanked and under- Steele, Alison O’Donnell, Hilary Swab, credit to get small businesses the loans banked are low and moderate-income Harry Stein, Karolina Arias, Nathan they need in order to create the jobs families that cannot afford to have Steinwald, Andy Green, Brian Appel, that are needed for our economy. We their earnings diminished by reliance and Matt Pippin. all know community banks are the on these high-cost and often predatory In conclusion, this bill will improve most stable source of funds for invest- financial services. Unbanked families the lives of working families in our ments in our communities and small are unable to save securely for edu- country because it will educate, pro- businesses. cation expenses, a down payment on a tect, and empower consumers and in- Community banks rely more on in- first home, or other future financial vestors. sured deposits than large banks. needs. Underbanked consumers rely on The ACTING PRESIDENT pro tem- Madam President, 85 percent to 90 per- nontraditional forms of credit that pore. The Senator from Maryland. cent of the funds community banks often have extraordinarily high inter- Mr. CARDIN. Madam President, I have are included in insured deposits. est rates. Regular checking accounts take this time to urge my colleagues to So this amendment that will make per- may be too expensive for some con- vote for cloture on the Dodd-Frank manent the $250,000 limit will help pro- sumers unable to maintain minimum Wall Street Reform and Consumer Pro- vide a more steady source of funds for

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00003 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.002 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5872 CONGRESSIONAL RECORD — SENATE July 15, 2010 our community banks which will allow cluded in this bill—will require public the so-called shadow banking system, them to be able to invest in our com- disclosure of those payments. which evolved in large part simply to munities. Why is that so important? And why avoid regulation. Another provision that is included in was it included in the final conference Decreased regulation led to irrespon- this conference report is one I worked report? First, transparency encourages sible behavior by financiers, investors, on with my colleague from Maryland, and provides for more stable govern- lenders, and consumers. Collectively, Senator MIKULSKI, dealing with the en- ments. We rely on these energy sources we failed to mitigate risk and we ig- hanced supervision for nonbank finan- or mineral supplies in countries that nored established principles of fi- cial companies. What we are talking are of questionable stability. nance—prudence, solvency, and ac- about are mutual funds and their ad- If this disclosure will help make countability. We can shift risk, but we visers, to make sure they are not inad- those countries more stable, it provides cannot make it magically disappear. vertently subjected to unworkable security for the United States in their Bubbles do burst eventually. standards. Here we are talking about supply source, whether it is an energy Everyone played a part in the crisis. promoting funds necessary for venture or mineral supply source. So this Together, we suffer the consequences. capital and equity investments in our amendment that is included in the con- No man is an island; we are all con- communities, to make sure there is a ference report will help with U.S. en- nected. difference between the type of activi- ergy security. Risky mortgage lending—practices ties of mutual fund operators who rely Secondly, investors have a right to including no-doc or stated income primarily on risk investment and those know. If you are going to invest in an loans—no down payments, and that are primarily involved in insured oil company, you have a right to know subprime lending led to unprecedented deposits. I appreciate the conference where they are doing business, where foreclosures. committee clarifying that provision in they are making payments. I would Consumers securing mortgages be- the conference report, which Senator think this is information that may af- yond their means and horrible preda- MIKULSKI and I encouraged them to do. fect your decision as to whether you tory lending practices permeated our Another provision I want to talk want to take this risk in investing in culture. about very briefly is one I worked on that company. So this amendment pro- Even responsible consumers suffered with Senator GRASSLEY dealing with vides greater disclosure for investors to at the hands of aggressive lenders with whistleblower protections at nation- be able to make intelligent decisions as dubious intentions. ally recognized statistical rating orga- to whether to invest in an oil or gas or The mortgage lending system was se- nizations, NRSROs as they are known. mineral company. riously flawed. America got hit by a But I think most people in our country Third, as we know, with the lack of tidal wave of foreclosures. Declining know them as credit rating agencies. transparency, the payments become a home values affect everyone in the These are companies such as Moody’s source of corruption for government of- community. and Standard & Poor’s. There are about ficials in many of these resource- And problems in mortgage lending 10 in our country that are supposed to wealthy countries. It is interesting; it became exacerbated when these bad do independent credit ratings for secu- is known as the ‘‘resource curse,’’ not mortgages were packaged into securi- rities. the ‘‘resource blessing’’ in many coun- ties and sliced and diced and sold to in- As I am sure many people are now tries around the world. It is interesting vestors with AAA credit ratings. aware, they played a significant role in that some of our most wealthy mineral Careful underwriting went out the the unrealistic confidence in securities countries are the poorest countries as window because the loan originators during our recent economic downturn. far as their people in the world. The sold the notes as fast as they could We want to make sure our credit rat- citizens of these countries are entitled write them. ing agencies, in fact, carry out the re- to have their mineral wealth be used to The bill the Senate is considering sponsibilities they are supposed to elevate their personal status. By giving goes a long way to restore the order we carry out as independent evaluators. the citizens the information about how need in the financial markets, improve But competition, pressure, and inher- payments are made to their country, oversight of the mortgage industry, ent conflicts have made that uncertain. they have a much better chance to hold and address the numerous other issues The whistleblower protections that are their government officials accountable. that led to the worst financial crisis extended in this legislation will allow So we not only are protecting inves- since the Great Depression. This bill employees to come forward with infor- tors and helping in energy security, we holds Wall Street more accountable mation without fear of retribution by are helping to alleviate poverty inter- and provides the strongest consumer their employer. It is a very important nationally by allowing the people of protections ever for American families provision, and I am glad it was in- the countries that have mineral wealth and small businesses. cluded in the final legislation. to hold their officials accountable, to I know there are partisan disagree- Lastly, let me talk about the extrac- use those payments to help the people ments on some parts of this legislation tive industries transparency initiative, of that nation. and it was a challenge to get to this an amendment Senator LUGAR and I This proposal has been endorsed by point, but the chairman and ranking worked very hard on, that is included the G8, the International Monetary member of the Banking Committee did in the final conference report. I have Fund, and the World Bank. With the an outstanding job on this bill and are spoken on the Senate floor previously passage of the conference report, the to be commended for their effort. This about this provision, and I particularly United States will be the leader inter- is a landmark bill, like Sarbanes-Oxley thank Senator LEAHY for his leadership nationally on extractive industries and the original Securities and Ex- in the conference on this issue and Sen- transparency, and I think that is a change Commission Act. The lesson we ator DODD for his help in getting it in- proud moment not only for the Senate had to learn, again, is that business— cluded in the final conference report. but for our Nation. especially big business—cannot regu- Oil, gas, and mining companies reg- This is a good bill for many reasons. late itself adequately. I think H.R. 4173 istered with the U.S. Securities and It is a well-organized, commonsense strikes the right balance in reining in Exchange Commission will be required regulatory structure to protect our Na- the financial services industry without under this legislation to disclose their tion from another financial crisis, with being unduly burdensome. payments to governments for access to strong investor and consumer protec- I would like to review some of the oil, gas, or minerals. Many of these oil tion, placing limits on institutions provisions I worked on that have been companies or gas companies or mineral deemed too big to fail, protecting not included in the bill. companies operate in countries that only investors and consumers but also As I have said, Senators ENZI and are autocratic, unstable, or both, and taxpayers. BROWNBACK joined me in proposing they have to make payments to those Over the past 30 years, our regulatory changes to the deposit insurance pro- countries in order to be able to get ac- framework did not keep pace with fi- gram. The Independent Community cess to those mineral rights. This legis- nancial innovation. It was particularly Bankers of America, ICBA, the Amer- lation—the amendment that is in- impotent with regard to oversight of ican Bankers Association, ABA, and

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00004 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.003 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5873 the National Credit Union Association, A Permanent Subcommittee on In- plies is undermined by the instability NCUA, all supported our amendment— vestigations, PSI, hearing made it caused when local populations do not now found in section 335 of the bill—to quite clear that competitive pressures receive the benefit of their resource ex- make the temporary increase in the and inherent conflicts of interest af- ports. Enhancing openness in revenue federally insured deposit limit from fected the objectivity of the ratings flows allows for greater public scrutiny $100,000 to $250,000—a permanent in- issued by the NRSROs. of how revenues are used. Increased crease. An increase in the Federal De- Since NRSRO ratings are used for transparency can help create more sta- posit Insurance Corporation, FDIC, and various regulatory purposes, such as ble, democratic governments, as well National Credit Union Share Insurance determining net capital requirements as more reliable energy suppliers. Fund, NCUSIF, limit is significant be- and the soundness of insurance com- No. 2, strengthening energy markets. cause deposit insurance has been the pany reserves, it makes sense to extend The extractive industries are capital- stabilizing force of our Nation’s bank- whistleblower protections to employ- intensive and dependent on long-term ing system for 75 years. ees who might come across malfea- stability to generate favorable returns. By raising the limit permanently, we sance at a credit rating agency. Leading energy companies recognize provide safe and secure depositories for There are many reasons for the mas- that more transparent investment cli- small businesses and individuals alike. sive failure of the NRSROs. The Wall mates are better for their bottom lines. FDIC insurance prevents bank runs and Street reform bill contains several pro- No. 3, helping to alleviate poverty. has been proven to increase public con- visions to improve SEC and congres- Too many resource-rich countries that fidence in the system. FDIC insurance sional oversight of the NRSROs and should be well off are home to many of limits are especially significant to how they function. Extending whistle- the world’s poor instead. This is a phe- community banks, which rely on de- blower status to the employees of these nomenon known as the ‘‘resource posits much more heavily than larger firms enhances the provisions already curse.’’ Oil, gas reserves, and minerals banks. On average, smaller banks de- in the underlying bill. don’t automatically confer wealth on rive 85 percent to 90 percent of their As I have also said, my distinguished the people who live in countries where funding from deposits. Ensuring a sta- colleague, Senator LUGAR, and I those resources are located. Many re- ble funding source for community worked particularly hard on the energy source-rich countries rank at the bot- banks helps these institutions to con- security through transparency provi- tom of most measures of human devel- tinue providing crucially important sion in this bill, which is section 1504— opment, making them a breeding capital to the small businesses whose Disclosure of Payments by Resource ground for poverty and instability. growth is at the heart of our economic Extraction Issuers. I am especially Revenue transparency will help the recovery. grateful to Senator LEAHY, who cham- citizens of resource-rich countries hold And as I mentioned earlier, during pioned this provision in the conference their governments more accountable Senate consideration of the bill, I of- committee. and ensure that their country’s natural fered an amendment with Senator MI- The geography and nature of the oil, resource wealth is used wisely for the KULSKI to ensure that mutual funds and gas, and mining industry is such that benefit of the entire nation and for fu- their advisers are not inadvertently companies often have to operate in ture generations. subjected to unworkable standards in countries that are autocratic, unstable, The wave of the future is trans- the unlikely event the Financial Sta- or both. Investors need to know the parency, and these principles of trans- bility Oversight Council designates full extent of a company’s exposure parency have been endorsed by the G8, them as systemically risky. In section when it operates in countries where it the International Monetary Fund, the 115 of the bill, the new council is given is subject to expropriation, political World Bank, and a number of regional the flexibility to consider capital and social turmoil, and reputational development banks. It is clear to the fi- structure, riskiness, complexity, finan- risks. nancial leaders of the world that trans- cial activities, size, and other factors In Nigeria, for example, American parency in natural resource develop- when determining heightened regu- companies have had to take oil fields ment is vital to holding the rulers in latory standards. This is important for offline because of rebel activity and in- these countries accountable for the addressing the unique characteristics stability in the Niger Delta. Last year, needs of their citizens and preventing of companies that are structured dif- Nigeria was producing almost a million them from simply building up their ferently from banks and bank holding barrels of oil less than it was able to personal offshore bank accounts. I am companies. produce because of conflict and insta- proud to stand here today and say that Further, I am gratified the House and bility. With so much production off- the United States is now the leader in Senate conferees saw fit to retain an line, American oil companies such as creating a new standard for revenue amendment, amendment No. 3840, Sen- Chevron and Exxon have laid off work- transparency in the extractive indus- ator GRASSLEY and I offered to the bill ers and paid higher production costs tries. to extend whistleblower protections to because of added security. These are some of the provisions I employees of nationally recognized sta- This bipartisan amendment goes a worked on, but they are a small part of tistical rating organizations, NRSROs. long way to achieving transparency in the overall bill, which is very strong. The provision is section 922(b) of the this critical sector by requiring all for- Forty years ago, conservative econo- bill. eign and domestic companies reg- mist Milton Friedman wrote a New NRSROs are the companies, such as istered with the U.S. Securities and York Times Magazine article entitled Moody’s and Standard & Poor’s, which Exchange Commission, SEC, to include ‘‘The Social Responsibility of Business issue credit ratings that the U.S. Secu- in their annual report to the SEC how is to Increase its Profits.’’ In this arti- rities and Exchange Commission, SEC, much they pay each government for ac- cle, quoting from his earlier book permits other financial firms to use for cess to its oil, gas, and minerals. This ‘‘Capitalism and Freedom,’’ from 1962, certain regulatory purposes. There are amendment is a critical part of the in- he concluded: 10 NRSROs at present, including some creased transparency and good govern- There is one and only one social responsi- privately held firms. ance that we are striving to achieve in bility of business—to use its resources and The NRSROs played a large role—by the financial industry. engage in activities designed to increase its overestimating the safety of residen- Our amendment is vitally important. profits so long as it stays within the rules of tial mortgage-backed securities, Transparency helps create more stable the game, which is to say, engages in open RMBS, and collateralized debt obliga- governments, which in turn allows U.S. and free competition without deception or tions, CDOs—in creating the housing companies to operate more freely—and fraud. bubble and making it bigger. Then, by on a level playing field—in markets Even this minimalist position sug- making tardy but massive simulta- that are otherwise too risky or unsta- gests that markets need rules. And yet neous downgrades of these securities, ble. we embarked on a 30-year path to de- they contributed to the collapse of the Let me point out three key results regulate financial services, to ease the subprime secondary market and the we expect from this provision: rules, and remove the watchdogs. We ‘‘fire sale’’ of assets, exacerbating the No. 1, enhancing U.S. energy secu- have learned a bitter lesson that mar- financial crisis. rity. The reliability of oil and gas sup- kets are not self-correcting—at least

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00005 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.004 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5874 CONGRESSIONAL RECORD — SENATE July 15, 2010 not without catastrophic consequences. proponents of the legislation have ac- house. So this bill will not eliminate Millions of Americans have lost their knowledged government failures were a risk, but it simply transfers risk from jobs, their savings, their homes, and significant cause of our economic tur- one place to another and imposes costs their retirement security. Businesses moil. But they still believe bigger gov- on market participants who had noth- have been wiped out. We have gone ernment is the solution going forward, ing to do with creating the financial from easy credit to no credit. and despite failure after failure among crisis. I truly fear that consumers will Now that the financial hurricane has various regulatory agencies, a new ultimately pay the price. wreaked its devastation, it is time to agency is the answer to these short- For example, this legislation would rebuild. comings, and this time it is going to be force the farm credit system institu- H.R. 4173 is part of that process. The different. tions to run their interest rate swaps bill creates well-organized, common- Instead of addressing the problems of through a clearinghouse which will re- sense regulatory structures to protect the consumer protections in place sult in additional costs in the form of our Nation from another financial cri- under our current regulatory structure, higher interest rates to their cus- sis. Chairman DODD and Chairman this new oversight agency is an added tomers without doing anything to less- FRANK have produced a bill that ad- layer of bureaucracy with the author- en the systemic risk. Let me be clear dresses the feasibility of our reliance ity to examine and enforce new regula- as to who this will ultimately affect. It on credit rating agencies, our appetite tions for not only all mortgage-related is very clear that our farmers and for systemic risk, and the need to limit businesses, but also small mom-and- ranchers, our electric cooperatives, and the regulatory burden on our small in- pop businesses on Main Street such as our ethanol facilities which seek fi- stitutions. They have produced a bill payday lenders, check cashers, and nancing from these institutions will that provides strong investor and con- other nonfinancial firms. These types bear this burden. sumer protections, encourages whistle- of entities were clearly not the cause of Institutions such as Cobank will be blowers, reduces interchange fees for the economic crisis, yet they will now forced to clear their swaps and execute small businesses, and places limits on be subject to the same regulations as them on a trading facility which will institutions deemed too big to fail. I the large financial institutions on Wall impose significant new costs and result know that Maryland banks and invest- Street. This is simply another example in higher rates for their customer, or, ment companies appreciate the atten- of the majority party’s preference for a worse, discourage them from managing tion paid in this bill to their concerns one-size-fits-all regulatory structure, their risk which will again result in regarding bank and thrift oversight, stifling economic growth. higher costs for their borrowers. And systemic risk regulation, and the ef- Having participated in the con- why? Because this legislation broadly fects of the mortgage crisis. ference committee, I unfortunately applies regulation, treating all finan- While Members of Congress may not witnessed firsthand the complete dis- cial institutions the same. Cobank and agree on every aspect of this bill, it is regard for addressing the real issues at Goldman Sachs are not the same and worthy of our support. Indeed, given hand. As ranking member of the Agri- should not be regulated in the same the stakes, it is imperative that we culture Committee, I have spent a manner. Cobank should have the op- pass H.R. 4173. great deal of time understanding the tion to clear their swaps, not be man- I urge my colleagues to vote for clo- over-the-counter derivatives market— dated to do so. ture and support passage. its complexities, and its legitimate While the conference report provides Madam President, I yield the floor. utility. I have found that both Repub- an exemption for some businesses from The ACTING PRESIDENT pro tem- pore. The Senator from Georgia. licans and Democrats generally agree this derivative clearing mandate, it Mr. CHAMBLISS. Madam President, on the major issues relating to deriva- also imposes new margin requirements I rise today in strong opposition to tives regulation. We all generally agree on derivative dealers for these same H.R. 4173. I think it is interesting to there needs to be greater transparency, uncleared transactions. Who will likely note we have had a number of speakers registration, more clearing, and com- pay for these new margin requirements who are proponents of this legislation pliance with a whole host of business in the form of higher fees? Again, it is come forward—just as my good friend conduct and efficient market operation pretty clear the public and private from Maryland just did—and say we regulations. This is important, because companies across the Nation that had are going to be the leader, the United it is a 180-degree shift away from cur- nothing to do with the financial crisis States is going to be the leader in the rent law where over-the-counter swaps and that are simply seeking to mini- financial world market with these are essentially unregulated today. mize risk will bear this burden. The en- changes. Within this general agreement that tire point of exempting some of them Well, the fact is, other countries that swaps need to go from unregulated to from the clearing mandate was to en- have strong financial markets have fully regulated, we have had disagree- sure that they do not bear the burden said publicly just the opposite. What I ments about who should be required to of increased margin costs, but this lan- am afraid we are setting ourselves up clear their transactions and how best guage would indirectly subject these for, and what I talked about a lot dur- to require swaps to be transacted and businesses to the expense of margins ing the course of the debate on the reported. These disagreements are sig- imposed on their dealer counterpar- Senate floor relative to this bill, is nificant because they involve real bur- ties—counterparties that will be forced that what we are going to wind up dens and duties which will result in to recoup this cost in the form of fees, doing is we are going to be driving jobs real costs to businesses and consumers. and businesses will be forced to pass and business overseas with this mas- I wish to make sure our new regula- their costs on to consumers. sive piece of legislation that truly does tions are targeted to serve a useful pur- I encourage all Members of this body not address the problem. pose. Unfortunately, this legislation to look at yesterday’s Wall Street There is nothing in these 2,300 pages will enable regulators to impose re- Journal. There is a front-page story on that deals with the primary catalyst of strictions on businesses that had abso- derivatives. When we come to the floor the market instability in our econ- lutely nothing to do with creating the and start debating derivatives, most omy—the bailout behemoths, Fannie financial crisis. Every industry in the people’s eyes glaze over because it is Mae and Freddie Mac. The bill simply country uses derivatives to manage complex and an issue that is very dif- ignores the devastating impact these their business risks and many of them ficult to understand. But in that arti- two entities continue to have not only will now be forced to clear their deriva- cle it explains the simplicity that the on our capital markets but also on our tive transactions. This seems simple derivatives world imparts itself in. The Nation’s deficit, already demanding enough, until you realize that clearing article goes through a process of a over $145 billion in taxpayer assistance, does not make risk within the financial farmer in Nebraska and his use of de- and with no end in sight as to what it system disappear. Risk is simply trans- rivatives; then his ultimate purchaser is ultimately going to cost the tax- ferred from the individual counterpar- of his product—the rancher—and how payers of this country. ties to the clearinghouses, a service that rancher uses derivatives to elimi- The newly created consumer protec- provided at considerable expense in the nate risk and hopefully guarantee a tion bureau is an affirmation that the form of margin posted to the clearing- profit in his business. Then it describes

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00006 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.004 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5875 how the slaughterhouse takes the prod- ficult job, and while we disagreed on a Mr. SHELBY. Madam President, I uct from the livestock operator, the lot of major issues, he was always open rise today to offer some remarks on the market operator, and uses derivatives for discussion. He allowed participation Dodd-Frank regulation conference re- in their business; and then ultimately on the floor as well as discussions off port, which is now before the Senate. the guy who owns the trucking com- the floor, and for that I thank him. He Nearly 2 years ago, the financial cri- pany and how he uses derivatives. It is knows that I obviously cannot vote for sis exposed massive deficiencies in the very clear in this article that these this bill, but he has proven himself to structure and culture of our financial guys’ lives are going to change from a be a very valued Member of the Senate regulatory system. Years of techno- business perspective. They are not by the way he has conducted himself logical advances, product development, going to be able to use derivatives in throughout this whole process, and for and the advent of global capital mar- the way they used them before. They that I thank him. kets rendered the system ill-suited to had nothing to do with the financial I yield the floor. achieve its mission in the modern crisis that developed in this country. Mr. DODD. Madam President, before economy. Decades of insulation from Also related to derivatives were con- my colleague leaves the floor, let me accountability distracted regulators siderable improvements made to the thank him as well. Of course, hope al- from focusing on that mission. Instead so-called ‘‘swap desk push out’’ provi- ways springs eternal. The vote hasn’t of acting to preserve safe and sound sion. I commend the chairman for his occurred yet, so we never know. We markets, the regulators primarily be- work on that. Banks would be able to might get his vote yet. came focused on expanding the scope of I don’t serve on the Agriculture Com- continue to engage in interest rate and their bureaucratic reach. mittee with him. Senator CHAMBLISS foreign currency swaps which is essen- After the crisis, which cost trillions was a very valued member of this con- of dollars and millions of jobs, it was tial to the business of banks. However, ference. Obviously, a lot of work took I remain concerned that forcing swap clear that significant reform was nec- place in the Agriculture Committee essary. Despite broad agreement on the dealer banks to spin off their com- dealing with areas of the bill that he modity trading will hurt those utilities need for reform, the majority decided has spent several minutes talking it would rather move forward with a and airlines wishing to hedge their en- about. He raises very good points. I ergy risks in the immediate future. partisan bill. The result is the 2,300- would be the last person to suggest as page legislative monster before us that They will be forced to establish new a coauthor of the bill that we have credit ratings and standings with these expands the scope and the power of in- crafted the perfect piece of legislation. effective bureaucracies. It creates vast affiliates rather than take advantage As he points out, these are highly com- of their longstanding relationship with new bureaucracies with little account- plicated areas. One of the reasons we ability and seriously undermines the their current bank. I fail to understand tried not to write a series of regula- why forcing these entities to spin off competitiveness of the American econ- tions far beyond the competency of omy. any aspect of their swap business is those of us in this Chamber is because Unfortunately, the bill does very lit- necessary. it is complicated. Obviously, we have tle to make our financial system safer. I wholeheartedly support efforts to delegated the ultimate responsibility Therefore, I will oppose the Dodd- make the swaps market more trans- that we now have, which is to watch, Frank bill and urge my colleagues to parent. It needs to be. I believe this the oversight, to the regulatory com- do the same. will be accomplished once regulators munity, to make sure they do this This was not a preordained outcome; have access to the data which has to right. it is the direct result of decisions made date been completely unavailable to I pointed out yesterday, and he has by the Obama administration. Had them. The public will benefit from pointed out again today, when we get they sincerely wanted to produce a bi- knowing who is participating in these into a situation such as this crisis, cer- partisan bill, I have no doubt we could markets, and we will finally have the tain words become pejorative, and ‘‘de- have crafted a strong bill that would data we need to make informed policy rivatives’’ unfortunately has become garner 80 or more votes in the Senate. decisions related to derivatives. that, and it shouldn’t. These are very If the American people haven’t noticed Our economy needs more opportuni- critical components for capital forma- by now, that is not how things work tion, job growth, and wealth in our ties for all businesses to grow and pros- under the Democratic rule. per. Time and again, it is the small- country. Hedging against risk is abso- Unfortunately, the partisan manner and medium-sized businesses that cre- lutely essential. So they are vitally in which this bill was constructed is ate the lion’s share of jobs after a important elements in our economy. I not its greatest shortcoming. One major economic recession. We need to hope people, when they hear the word would have assumed that the scope of foster and incubate these small- and ‘‘derivative’’ being spoken won’t as- the crisis—trillions of dollars lost and medium-sized businesses right now and sume this is somehow a bad idea. One millions of jobs eliminated—would almost gets the sense that people feel not hamper them. We need to ensure have compelled the Banking Com- that way. I don’t at all. they are able to access capital and mittee to spend the time necessary to I look forward in the coming weeks manage their risk through the use of thoroughly examine the crisis and de- derivatives. Right now, there are a lot and months, as regulators begin to work with this bill if, in fact, it passes, velop the best possible legislation in of these small- and medium-sized com- response. Unfortunately, such an as- panies that are ready to expand but that we will do that. A lot of the record has been established in this area, and sumption would be entirely unfounded. cannot get adequate access to capital The Banking Committee never pro- because lenders are saying it is too through no small measure due to the Senator from Georgia, and I thank him duced a single report on or conducted risky and regulators won’t allow these for his work as well. an investigation into any aspect of the lenders to help. Madam President, I yield the floor. financial crisis. So I believe there is a need to re- Madam President, I note the absence In contrast, during the Great Depres- spond to what went wrong in our finan- of a quorum, and I ask that the time be sion, the Banking Committee set up an cial system and I support doing so in a equally divided on both sides. entire subcommittee to examine what responsible way that will continue to The ACTING PRESIDENT pro tem- regulatory reforms were needed. The allow Main Street businesses to man- pore. Without objection, it is so or- Pecora Commission, as it came to be age their risk appropriately, hold those dered. known, interviewed, under oath, the responsible for this mess accountable, The clerk will call the roll. big actors on Wall Street and produced and not create huge new government The legislative clerk proceeded to a multivolume report. bureaucracies. Unfortunately, this leg- call the roll. Unfortunately, this time around, the islation falls short of these goals. Mr. SHELBY. Madam President, I Democratic-run committee gave Wall I am pleased the chairman of the ask unanimous consent that the order Street executives a pass, I believe. Banking Committee is here, because I for the quorum call be rescinded. There were no investigations, no depo- do want to say publicly—and I have The ACTING PRESIDENT pro tem- sitions, and no subpoenas. In fact, told him this privately and I will con- pore. Without objection, it is so or- Chairman DODD, my friend and col- tinue to say it—that he had a very dif- dered. league, never called on the likes of

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On the government-sponsored the Federal Reserve System.’’ Make no tioned by the committee or its staff. enterprises, Fannie and Freddie, the mistake, ‘‘paid for by the Fed’’ means Although Congress did establish the Fi- bill is silent, aside from a mere study. paid for ultimately by the taxpayers. nancial Crisis Inquiry Commission to On the triparty repo market, the bill is Taxpayers will be on the hook for bil- do the work that the majority party, I silent. On runs in money markets, the lions of dollars of unchecked, believe, refused to do, the Commis- bill is silent. On the reliance of market unencumbered, and unappropriated sion’s work will not be completed until participants on short-term commercial spending financed by the inflationary the end of this year. paper funding, the bill is silent. On ma- money printing authority of the Fed- Most amazingly, the Banking Com- turity transformations that allowed eral Reserve which will be hidden from mittee didn’t even hold a single hear- the shadow banking system to effec- the American people in the arcane Fed- ing on the final bill before its . tively create money out of AAA-rated eral budget. The committee never took the time to securities, thereby making the system Congress could have also used this receive public testimony or survey ex- much more vulnerable, the bill is si- legislative opportunity to begin the perts about the likely outcomes the lent. On the financial system’s overall process of reforming the failed mort- legislation would produce. We know vulnerability to liquidity crises, the gage giants Fannie and Freddie, whose the majority heard from Wall Street bill again is silent. We know with cer- ever growing bailouts have no upper lobbyists, government regulators, and tainty that all of these factors—none limit. When it became clear that this liberal activists, but they clearly de- of which is addressed in the bill—were was not the intention of the Demo- cided they did not want the American integral to the recent financial crisis. crats, Republicans sought to address people to have a chance to understand While we don’t want to write legisla- the current and worsening conditions and comment on the bill before us tion that only deals with the last cri- of the GSEs. today before it was enacted. The ques- sis, we do want to enact a law that ad- We suggested establishing taxpayer tion is, Why? The majority knows that dresses what we know were systemic protections, such as portfolio caps, on this bill is a job killer and will saddle the mortgage giants. We recommended Americans with billions of dollars in problems. This bill fails to do so. Congress could have written a bill to making the cost of Freddie and Fannie hidden taxes and fees. Allowing the streamline regulation and eliminate bailouts transparent to the public; that public to weigh in on this bill would the gaps that firms exploit in a race to is, to the taxpayer. We offered initial have spelled the end of the Democratic the regulatory bottom. This bill does steps toward the inevitable unwinding version of reform. I believe we owed the opposite by making our financial of these failed institutions. Yet at more to those who lost their jobs, their regulatory system even more complex. every turn, the Democratic majority homes, and their life savings. I believe We will still have the Fed, FDIC, SEC, this truly was a missed opportunity. blocked Republican efforts to establish The difference between what we need- CFTC, OCC, and the remainder of the at least a foundation for reform. ed to do, what we could have done, and regulatory alphabet soup. In fact, most The Democratic-preferred approach what the majority has chosen to do is of the existing regulators that so re- in this bill to reforming the mortgage considerable. I will speak on this. cently failed us have been given ex- giants is a study. Let me repeat that Congress could have focused this leg- panded power and scope. This bill will notion. In order to address a bailout islation on financial stability. It could also add new letters to the already-con- that has already cost American tax- have utilized the findings of the Finan- fused soup, such as the CFPB and the payers roughly $150 billion to date, cial Crisis Inquiry Commission. In- OFR. In addition to increased regu- with unlimited future taxpayer expo- stead, the Democratic majority chose latory complexity, there will be new sure, the Democrats propose a study. It to adopt legislative language penned special activist offices within each reg- does not take a study to determine by Federal regulators in search of ex- ulator for almost every imaginable spe- that $150 billion in unlimited loss expo- panded turf. They chose to legislate for cial interest. sure needs to be addressed imme- the political favor of community orga- Congress could have set up reason- diately—now. nizing groups and liberal activists able new research capabilities in its Congress could have focused on secu- seeking expansive new bureaucracies new Stability Oversight Council to rities market practices that were that they could leverage for their own complement financial research per- known to have contributed to systemic political advantage. The result is an formed by the Federal Reserve and oth- risks in our financial system. Instead, activist bill that has little to do with ers. Instead, the Democrats decided to Democrats overreached once again. the recent or any crisis and a lot to do establish the Office of Financial Re- For example, the bill gives the Secu- with expanding the government to sat- search with an unconstrained director rities and Exchange Commission, isfy special interests. and a focus on broad information col- which has failed to carry out its exist- Congress could have written a bill to lecting and processing. ing mandates, a new systemic risk address the problem of too big to fail I believe this office will not only fail mandate to oversee advisers to hedge once and for all. In fact, the Shelby- to detect systemic threats in the asset funds and private equity funds. Yet no Dodd amendment began to address this price bubbles in the future, it will one contends private funds were a problem right here on the floor. Unfor- threaten civil liberties and the privacy cause of the recent crisis or that the tunately, the Democrats once again of Americans, waste billions of dollars demise of any private fund during the overreached at the eleventh hour and of taxpayer resources, and lull markets crisis resulted in a systemwide shock. undermined the seriousness of our ef- into the false belief that this new gov- Congress could have acted to curtail fort by emphasizing social activism ernment power will protect the finan- Wall Street’s speculative excesses and over financial stability. Democrats in- cial system from risky trades. enhance Main Street’s access to credit. sisted that the overall financial sta- Congress could have been transparent But instead, in this bill large financial bility mission of the Financial Sta- in identifying the bill’s fiscal effects firms on Wall Street seem to have ben- bility Oversight Council was less im- and costs. Instead, the majority wrote efited, judging by the behavior of the portant than the political needs of cer- a bill that hijacks taxpayer resources stock prices, while the legislation al- tain preferred constituencies. This dan- but hides that fact from public view. most surely will increase uncertainties gerous mixing of social activism and fi- Just as the administration refuses to and costs for Main Street and Amer- nancial stability follows the exact acknowledge trillions of dollars of con- ica’s job creators. same model that led us to the crisis in tingent taxpayer liabilities residing The actual provisions in the bill will the first place; that is, private enter- with Fannie and Freddie, this bill re- benefit big Wall Street institutions be- prise co-opted through political man- fuses to provide Americans with a cause they substantially increase the dates to achieve social goals. Fannie transparent view of the costs of the amount and cost of financial regula- and Freddie proved this combination new multibillion-dollar consumer pro- tion. Only large financial institutions can be highly destructive. tection bureaucracy. will have the resources to navigate all

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00008 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.021 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5877 of the new laws and regulations that Congress could have written a bill to lated financial institution wants is a this legislation will generate. As a re- put an end to overreliance on credit new regulator. After all, they spent sult, this bill, disproportionately will agencies and underreliance on their years and millions of dollars devel- hurt small and medium-sized banks own due diligence. Instead, the Dodd- oping a relationship with our current which had nothing to do with the cri- Frank bill sets up new regulations and regulators. sis. liability provisions to give the impres- A major regulatory reorganization While the largest financial institu- sion that ratings are accurate. It then would seriously upset the status quo tions will get special regulation under takes a contradictory direction and in- and cost them a great deal of money. this bill, the unintended result will be structs regulators to replace references Neither Chairman DODD nor I were per- lower funding costs for these firms. to ratings with other standards of cred- suaded, however. Change was necessary That will benefit the big banks and itworthiness. and change was going to come. hurt the small banks. Therefore, this To make matters even more con- Unfortunately, that vision of reform bill will result in higher fees, less fusing, the bill also provides for the es- began to die as the bureaucrats and the choice, and fewer opportunities to re- tablishment of a government-sponsored liberal left began to exercise their in- sponsibly obtain credit for blameless body that will select a credit rating fluence over the bill. When it became consumers. agency to perform an initial rating of a apparent that I was not willing to em- Moreover, this bill raises taxes security issue. brace the left’s expansive consumer bu- which, as we all know, are ultimately I anticipate the net effect of these reaucracy, it also became apparent borne by consumers. Make no mistake, conflicting provisions will be a reduc- that actual regulatory reform was not when Wall Street writes a check to pay tion of competition among credit rat- what the majority was seeking. its higher taxes, the ones who end up ing agencies. Potential competitors ei- All other serious reform was scuttled paying those taxes are American con- ther will be deterred by all of the new by the Democrats in defense of the new sumers and workers. regulatory requirements or be de- consumer bureaucracy. That was the Congress could have written legisla- stroyed by the liability provisions set point at which Chairman DODD and I tion for consumer protection that re- up in the bill. The lack of competition began to seek a new negotiating part- spects both American consumers and led to poor quality ratings in the runup ner, ultimately to no avail. the need for safety and soundness in to the crisis. This bill perpetuates and, As the Fed and the other regulators our financial system. in fact, worsens that problem. began to regain their foothold with the Instead, the Dodd-Frank bill was ba- Congress could have eased regulatory Democrats and the administration and sically constructed by architects in the burdens on small and medium-sized the activist left consolidated its sup- Treasury Department who have a cer- businesses not integral to the recent port around an expansive new bureauc- tain condescension for American con- crisis or any crisis. Instead, Main racy, all the Democrats will succeed in sumers and their choices. Street corporations will be subject to a doing, with the help of a few Repub- The ultimate goal is to substitute panoply of new corporate governance licans, is give the failed bureaucracies the judgment of a benevolent bureau- and executive compensation require- more power, more money, and a pat on crat for that of the American con- ments. the back with the hope they will do a These new requirements will be cost- sumer, thereby controlling consumer better job next time. ly and potentially harmful to share- behavior without regard for the safety That is not real reform. That is just holders because they empower special and soundness of our banking system. more of the same. The American people are being told interests and encourage short-term We had an opportunity to lead the thinking by managers. These features not to worry, however, because it is all world by creating a modern, efficient, were included solely for the purpose of being done for their own good. and competitive regulatory structure appeasing unions and other special in- While a consumer protection agency that will serve our economy for years terest lobbyists, and there is no dem- might sound like a good idea, the way to come. Instead, I believe we squan- onstrated link between these changes it is constructed in this bill will slow dered that opportunity by barely ex- and the enhanced stability of our fi- economic growth and kill jobs by im- panding our obsolete, inefficient, and nancial system or improved investor posing massive new regulatory burdens uncompetitive system. To make it protection. on businesses, large and small. It will We are getting toward the end. Con- even worse, they have added to the bu- stifle innovation in consumer financial gress could have held hearings or ana- reaucratic morass several more unre- products, and it will reduce small busi- lyzed a number of changes this bill strained and unaccountable agencies. ness activity. It will lead to reduced makes to the securities laws. Instead, It became apparent early on to me consumer credit and higher costs for dramatic changes in those laws were that the administration and the Demo- available credit. written with little discussion and no cratic majority were not interested in Less credit at higher price will analysis. regulatory reform. All they were try- dampen the very small business en- Throughout this process, there has ing to do is exploit the crisis in order gines of job creation that our economy been a lot of talk about the influence to expand government further and re- desperately needs right now. That is a of Wall Street over this bill. To be ward special interests. price I am not willing to pay. sure, in the early stages of the negotia- The Dodd-Frank bill will not enhance Congress could have implemented re- tions, Wall Street and the big banks systemic stability. It will not prevent forms to improve derivatives market were very engaged. future bailouts of politically favored activities. Instead, the bill’s deriva- I think the American people know, institutions and groups by the govern- tives title seems to be inspired by a de- however, that in the end, the real influ- ment. sire to be punitive or to provide short- ence peddlers on this bill were not Wall The bill serves only to expand the term political support during an elec- Street lobbyists but rather liberal ac- Federal bureaucracy and the govern- tion, or both. Instead of imposing a ra- tivists and Washington bureaucrats. ment control of the private sector. It tional and effective regulatory frame- Wall Street and the big banks just hap- will impose large costs on the tax- work on the OTC derivatives market, pen to be the incidental beneficiaries of payers and businesses. the bill runs roughshod over the Main their success. For these reasons, I urge my col- Street businesses that use derivatives When Chairman DODD and I began leagues to reject this bill. to protect themselves every day. this process, we agreed that the bu- The ACTING PRESIDENT pro tem- The Dodd-Frank bill will increase reaucratic status quo was unacceptable pore. The Senator from Connecticut. companies’ costs and limit their access and that radical change was necessary. Mr. DODD. Madam President, I to risk-mitigating derivatives without With that in mind, we agreed to con- thank my colleague from Alabama. making our financial system safer in solidate all the financial regulators Once again—I say this with the re- the process. As a result, there will be and constrain the Fed to its monetary spect—I feel as if I am listening to the fewer opportunities for businesses to policy role. first speech back in November when I grow, fewer jobs for the unemployed, This was not a result the big banks offered the original proposal of this bill and higher prices for consumers. wanted. The last thing a large regu- and wonder if we have been in the same

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00009 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.022 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5878 CONGRESSIONAL RECORD — SENATE July 15, 2010 Chamber and same city over the last caused so much of the difficulty. The So this is a major undertaking, one several years. derivatives market was a $90 billion that is historic in its proportions, and I am not going to use the time be- market, and it mushroomed in less it is an attempt to set in place a struc- tween now and 11 a.m. when we are than a decade to $600 trillion, putting ture that will allow us to minimize going to vote on the cloture motion. I our Nation at risk because of a lack of problems in the future. I can’t legislate will not go through the long list, page transparency and accountability to de- integrity. I can’t legislate wisdom. I after page of amendments that were termine what was occurring in those can’t legislate passion or competency. adopted as part of this bill offered by markets. To consider it a radical idea What we can do is to create the tools my good friends on the minority side. that we might want to have account- and the architecture that allow good We had 80 hearings held over 2 years, ability and transparency I find remark- people to do a good job on behalf of the with countless efforts to reach out and able considering what our country has American public. That is what a bill bring in people. One can make a lot of been through. like this is designed to do. accusations about the bill, but this was Also, we provided a consumer protec- I regret I can’t give jobs back, re- a very inclusive process. Half the tion bureau. What a radical idea that store foreclosed homes, or put retire- amendments adopted on the floor in is—the idea that people who buy mort- ment monies back into accounts. What this Chamber during consideration of gages or have a student loan, a credit I can do is to see to it that we never, this legislation over 4 weeks were ones card, a car loan, might have someplace ever again have to go through what offered by the minority and were ac- in this city that watches out for them this Nation has been through. That is cepted and bipartisan amendments. so their jobs, their homes, their retire- what this effort has been about over There was never an alternative offered. ment accounts are not lost. So while the last several years, to try to create There was never a substitute offered. It this bureau is in place in this bill, the that structure, that architecture. It was a question of whether people want- idea was at least to see to it that peo- will be incumbent now on the present ed to amend this legislation. It is not a perfect bill, I will be the ple, when they have the problems they administration and those who follow to first to admit. We do not know ulti- have been through or are going nominate good people to head up these mately how well the ideas we incor- through, someone is watching out for operations, to attract good public serv- porated will achieve the results we all them. ants who will fill the jobs of these var- desire. It will take the next economic We have a Consumer Product Safety ious regulatory bodies to see to it that crisis—as certainly it will come—to de- Commission to address the purchase of they do the work we all want them to termine whether the provisions of this a faulty product, but what happens do. bill will provide this generation or the when someone abuses or takes advan- Again, I can’t legislate that. I can next generation of regulators with the tage, as happens in so many cases in fi- merely create the opportunity for that tools necessary to minimize the effects nancial areas? People should have a kind of protection to occur—to mod- of that crisis when it happens. But we chance to have a redress of their griev- ernize a financial system, to lead the believe we have done the best we could ance or to at least from the outset world, if we can, in harmonizing rules under the circumstances to see to it we have an opportunity to address that be- so we don’t have the kind of sovereign never have another bailout of another fore it becomes a broader problem. shopping that was going on with regu- major financial institution at taxpayer So, Madam President, again, we have latory bodies, where major financial expense. debated this now for 2 years and count- institutions would shop around the In fact, it was the Shelby-Dodd less opportunities. We spent 4 weeks on world as to the nation of least resist- amendment adopted in this Chamber— the floor of this Chamber, amendments ance or the regulator of least resist- it was the second amendment we con- were offered, and never once—I guess ance. sidered—that actually completed the on one occasion we had a super- We need to see to it that we have the process of seeing to it there would be majority vote. There was only one ta- unanimity or at least the harmoni- bankruptcy or resolution of financial bling motion I know of. I did every- zation of rules that will allow us to institutions that got themselves into thing I could to make this as inclusive have a more orderly system in our so much trouble that they put the en- a process as possible. globe because, as we have all painfully tire system at risk. We set up an over- I understand some people don’t like learned, matters that occur thousands sight council to make sure we could ob- the bill. It saddens me, in a way, that of miles away can affect the economy serve what was occurring not only here it has once again become sort of a in our own country. at home but around the globe—matters mindless partisan argument rather So for all those reasons, Madam such as Greece or Spain that could put than talking about what we need to be President, I thank my colleagues for our economy at risk. So it isn’t just doing. This is not the end of all of it, their efforts over the last 2 years. I one set of eyes but having those re- obviously. Oversight will be required, thank the leadership for providing the sponsible for seeing to it that our econ- consultation in the coming weeks and opportunity and time for us to do this omy remains safe and sound have the months and years, to make this work in this Chamber. I thank my colleague opportunity to provide the early warn- well. But, Madam President, I can’t in the House, BARNEY FRANK, and his ing that never occurred. imagine another process that has been colleagues for the work in which they We didn’t need a Pecora Commission as inclusive. engaged in order to produce a bill to find out what was going wrong. We My colleagues will recall that almost there. We spent 2 weeks, some 70 hours had mortgages being sold in this coun- 10 months, going on almost a year ago, of debating the conference report, try to people who couldn’t afford them, I invited both Democrats and Repub- where more amendments were adopt- marketing them in a way that guaran- licans on the Banking Committee to ed—again, offered by my colleagues, teed failure, securitizing them so they assume responsibility for major sec- Republicans and Democrats—to make could be paid and then skipping town tions of this bill, which they did do, by this as good a bill as we could in all of in a sense. I didn’t need to have hours the way, and made a significant con- this. of hearings to find out what was the tribution to the product. So while I re- So with that, Madam President, I cause of it. The question was, How do spect those who want to vote against will reserve some comments for later, we try to put a system in place to min- the bill, and that is their right to do so, but as we approach this vote in the imize the future kind of risks our Na- find some arguments based on the mer- next few minutes, I urge my colleagues tion would face. It wasn’t just to deal its rather than arguing about whether to invoke cloture, to allow us to then with those who created the problem there was a process that was inclusive have an up-or-down vote on this bill, but, rather, to look ahead—not in a pu- or that allowed people the opportunity and to do what we can to restore some nitive way—and to set up an architec- to be heard. trust and confidence and optimism for ture and structure to allow us to get to Again, we have the right to be heard, the American people. In the midst of that point where we could be confident but we don’t have the right necessarily the worst economic crisis in the lives we were addressing these issues. to have our ideas become the law of the of most Americans, this institution— Thirdly, of course, we tried to deal land. That is what a body like this is the Senate—rose to the occasion and with exotic instruments that had for. crafted a bill to address the financial

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00010 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.023 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5879 service structure of our Nation to once just this kind of uncertainty that will Mr. REID. Madam President, the again give us the hope that we can see deter lending and freeze up credit as Wall Street earthquake that sent wealth created, jobs produced, and an lenders wait to see how they will be af- shock waves around the world has not economy that will offer opportunities fected by the new regulations. It is just hit anywhere as hard as it hit Nevada. for the next generation of Americans. this kind of uncertainty that busi- You can draw a straight line from un- I urge my colleagues to support the nesses cite time and time again as one checked greed on Wall Street to the cloture motion, and I urge them to sup- of the greatest challenges to our eco- collapse of the housing market on Main port the bill when the vote occurs later nomic recovery. Streets throughout my State and today. So here is a bill that fails to address around the country. As soon as the big I yield the floor. the root causes of the kind of crisis it banks went down, foreclosure signs The ACTING PRESIDENT pro tem- is meant to prevent, that creates a vast went up. pore. The Republican leader. new unaccountable bureaucracy, that— How did this happen? Let’s put it this Mr. MCCONNELL. Madam President, if past experience is any guide—will way: When you go to any of the great later today, we will have a decisive lead to countless burdensome, unin- casinos across Nevada and put your vote on the financial regulatory bill tended consequences for individuals chips on the table, you are gambling that does nothing to reform the gov- and small businesses; a bill that con- with your own money. If you win, you ernment-sponsored enterprises that stricts credit and stifles growth in the win, and if you lose, you lose. But Wall many people believe to have been at middle of the worst economic period in Street rigged the game. They put our the root of the financial crisis this bill memory; and perhaps most distressing money on the table. When they won, grew out of—a bill that was meant to of all, a bill that punishes farmers, flo- they won big. The jackpots they took rein in Wall Street but which is now rists, doctors, retailers, and countless home were in the billions. And when supported by some of Wall Street’s big- others across the country and far away they lost—and, boy, did they lose— gest banks and opposed by small com- from Wall Street who had absolutely they came crying to the taxpayers for munity banks in my State; a bill that nothing to do with the panic of 2008. help. The winnings were theirs to enjoy is meant to help the economy but In other words, once again, the ad- but the losses were all of ours, to share which is widely expected to stifle ministration and its Democratic allies and to shoulder. growth and kill more jobs in the mid- in Congress have taken a crisis and That is the way the market worked. dle of a deep recession; and a bill that, used it rather than solving it. How else It worked for a few fortunate ones in according to the papers, the vast ma- can you explain the fact a bill that was the big firms and worked against ev- jority of Americans simply don’t think meant to address the excesses on Wall eryone else. So when I say that is how will work. Street is expected to hit individuals the market worked, what I mean is As it turns out, the American people and industries that had nothing to do that it didn’t work at all. It was badly don’t seem to like this government- with the crisis it was meant to pre- broken and it nearly bankrupted us. It driven solution to the financial crisis vent? cost 8 million workers their jobs, mil- any more than they liked the Demo- Did anybody think when this bill was lions of retirees their savings, and mil- crats government-driven solution to first proposed that it would end up lions of families their homes. It shat- the Nation’s health care crisis. They do hurting storefront check cashers, city tered our faith in our financial system. not think this bill will solve the prob- governments, small manufacturers, But there is another problem. We lems in the financial sector any more home buyers, credit bureaus, and farm- have been talking about this rigged than they think the health care bill ers in places such as Kansas and Ken- system, this raw deal, in the past will lead to lower costs or better care. tucky? tense, but it is not a thing of the past. One survey this week indicates that 7 This is precisely the kind of thing It is very much in the present. The in 10 Democrats have little confidence Americans are tired of—a government rules that allowed Nevada’s economy the proposals in this bill will avert or simply out of control. Only in Wash- to collapse are still the same rules of lessen the impact of another financial ington would you create a commission the road today. That means every new catastrophe, and nearly 70 percent of aimed at looking into the causes of a day we do not act we run the risk of it them doubt it will make their savings crisis, then put together and pass a happening all over again. That is a more secure. 2,300-page bill in response to that crisis gamble I am not willing to take. It is easy to see why. The Wall Street before the commission even has a The bill before us makes sure we do Journal calls this bill’s 2,300 pages ‘‘the chance to report its findings and issue not have to take that gamble. The first biggest wave of new Federal financial recommendations. The White House question was, How did this happen? The rulemaking in three generations.’’ The will call this a victory. But as credit next question is, What are we going to chairman of the Banking Committee tightens, regulations multiply, and job do about it? has famously said last month we would creation slows even further as a result No. 1, we are saying to those who not know how this bill works until it is of this bill, they will have a hard time gamed the system that the game is in place. But here are some initial indi- convincing the American people this is over. We are cracking down on those cators about its scope according to a a victory for them. who gambled away what so many have study by the U.S. Chamber of Com- Obviously, I will be opposing this worked so hard to put away. merce on the new bureaucratic land- bill, and I would encourage my col- No. 2, we are saying to the families scape under this bill: 70 new Federal leagues to oppose it as well. and taxpayers, never again will you be regulations through the new Bureau of Madam President, I yield the floor. asked to bail out a big bank when the Consumer Financial Protection, 54 new Mr. DODD. Madam President, I sug- bank loses its risky bets. Federal regulations through the U.S. gest the absence of a quorum, and I ask Let me say that again because it is Commodity Futures Trading Commis- unanimous consent the time during the one of the most important parts of this sion, 11 new Federal regulations quorum be equally charged to both bill: No more bailouts because no bank through the Federal Deposit Insurance sides. is too big to fail. We are going to give Corporation, 30 new Federal regula- The ACTING PRESIDENT pro tem- consumers and investors the strongest tions through the Federal Reserve, and pore. Without objection, it is so or- protections they have ever had against 205 new regulations through the Secu- dered. abusive banks, mortgage companies, rities and Exchange Commission. The clerk will call the roll. credit card companies, and credit rat- Those are just some of them. All The legislative clerk proceeded to ing agencies. We are going to bring de- told, this bill would impose 533 new call the roll. rivative markets that operate in the regulations on individuals and small Mr. REID. Madam President, I ask darkness out into the light. We are businesses, regulations that will inevi- unanimous consent the order for the going to hold Wall Street accountable tably lead to the kind of confusion and quorum call be rescinded. because we know we are accountable to uncertainty that will make it even The ACTING PRESIDENT pro tem- the American people. This is about our harder for struggling businesses to dig pore. Without objection, it is so or- ability to trust our financial system, it themselves out of the recession. It is dered. is about giving families the peace of

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But there also have to be some adoption of the conference report. rules, not to stifle but to safeguard us; The ACTING PRESIDENT pro tem- pore. By unanimous consent the man- The ACTING PRESIDENT pro tem- rules so that when these firms fail they pore. Without objection, it is so or- don’t bring us down with them. datory quorum call has been waived. The question is, Is it the sense of the dered. When this earthquake hit there was Mr. DODD. I yield the floor. Senate that debate on the conference not nearly enough oversight, trans- The ACTING PRESIDENT pro tem- report to accompany H.R. 4173, Restor- parency, or accountability to shield us pore. The Senator from New Hamp- ing Financial Security Act of 2010, from the fallout. This law will change shire. shall be brought to a close? that. It will strengthen all three. Mr. GREGG. Madam President, I rise The yeas and nays are mandatory We are at the finish line this morning to make a point of order that the Sen- under the rule. but getting here has not been easy. ator from Connecticut alluded to. We The clerk will call the roll. Wall Street doesn’t like this bill. Of have rules around here we have set up course it doesn’t. Why would they want The legislative clerk called the roll. Mr. KYL. The following Senator is to discipline ourselves on spending. Un- us to change the system they rigged, fortunately, we consistently ignore and the system that made them all rich? necessarily absent: the Senator from Idaho (Mr. CRAPO). waive them. That is one of the reasons Their cronies in Washington don’t like we have a $13 trillion debt. That is one it either. The top Republican in the The ACTING PRESIDENT pro tem- pore. Are there any other Senators in of the reasons we will have a $1.4 tril- House very publicly said the plight of lion deficit this year alone. This bill millions was as small and insignificant the Chamber desiring to vote? The yeas and nays resulted—yeas 60, violates those rules. This bill violates as an ant, an insect; foreclosures, one of the sections of those rules which homes underwater, jobs lost—like an nays 38, as follows: [Rollcall Vote No. 206 Leg.] says that in any 10-year period, we ant. The head of the Republican party shall not have more than a $5 billion YEAS—60 asked us to simply trust Wall Street to effect on the deficit in a negative way; look after itself. Akaka Franken Murray that we need to otherwise pay for what We all know this crisis is enormous Baucus Gillibrand Nelson (NE) we are doing. Therefore, this bill does and we all know Wall Street is not Bayh Hagan Nelson (FL) Begich Harkin Pryor violate the Budget Act. going to reform itself. Rather than Bennet (CO) Inouye Reed If we are going to have any fiscal dis- standing up for the taxpayers, those Bingaman Johnson Reid cipline around here—and we hear a lot who are about to vote no are standing Boxer Kaufman Rockefeller Brown (MA) Kerry Sanders of people talking about that—we with the same bankers who gambled Brown (OH) Klobuchar Schumer should be living by the rules we have to away our jobs and homes and our eco- Burris Kohl Shaheen assert fiscal discipline. Therefore, I nomic security in the first place. Just Cantwell Landrieu Snowe make a point of order that the pending like their Wall Street friends, it seems Cardin Lautenberg Specter Carper Leahy Stabenow bill violates section 311(b) of S. Con. our opponents care more about making Casey Levin Tester Res. 70 of the 110th Congress. Collins short-term gains than they do about Lieberman Udall (CO) Mr. DODD. Madam President, pursu- what is right for the economy in the Conrad Lincoln Udall (NM) Dodd McCaskill Warner ant to section 904 of the Congressional long run. I think that is a mistake and Dorgan Menendez Webb Budget Act of 1974 and the waiver pro- I think it is a shame. Durbin Merkley Whitehouse visions of applicable budget resolu- This is not about dollars and cents Feinstein Mikulski Wyden tions, I move to waive all applicable only, it is about fairness. It is about NAYS—38 sections of that act and those budget justice. It is about making sure there Alexander Ensign Lugar resolutions for purposes of the pending is not a next time. It is about jobs. It Barrasso Enzi McCain conference report and ask for the yeas is about rescuing our economy. Bennett (UT) Feingold McConnell I know Wall Street reform is com- Bond Graham Murkowski and nays. Brownback Grassley Risch The ACTING PRESIDENT pro tem- plicated. There are not many people Bunning Gregg who know all the ins and outs of deriv- Roberts pore. Is there a sufficient second? Burr Hatch Sessions There appears to be a sufficient sec- ative trading and credit default swaps Chambliss Hutchison Shelby Coburn Inhofe ond. or mortgage-backed securities. But the Thune Cochran Isakson Vitter The yeas and nays were ordered. principle before us is quite simple. It is Corker Johanns Voinovich Mr. GREGG. I understand the vote not complicated at all. You either be- Cornyn Kyl DeMint LeMieux Wicker will occur somewhere around 2 o’clock. lieve that we need to strengthen the The ACTING PRESIDENT pro tem- oversight of Wall Street or you don’t. NOT VOTING—1 pore. The Senator is correct. You either believe we need to strength- Crapo Mr. DODD. Madam President, I see en protections for consumers or you The ACTING PRESIDENT pro tem- my colleague from Texas is seeking don’t. pore. On this vote, the yeas are 60 and recognition. I wish to publicly thank Our choice today is between learning the nays are 38. Three-fifths of the Sen- her. She made a substantial contribu- from the mistakes of the past or dan- ators duly chosen and sworn having tion to this bill on several amendments gerously letting them happen all over voted in the affirmative, the motion is that were adopted during debate on the again. agreed to. floor. I thank her for them. They added CLOTURE MOTION Mr. DODD. Madam President, I am to the value of the legislation. I am not The ACTING PRESIDENT pro tem- about to propose a unanimous-consent sure what her comments will be right pore. The cloture motion having been request that has been agreed to by the now, but I thank her for her contribu- presented under rule XXII, the Chair respective leaders. tions. directs the clerk to report the motion I ask unanimous consent that the The ACTING PRESIDENT pro tem- to invoke cloture. postcloture time be considered expired pore. The Senator from Texas is recog- The legislative clerk read as follows: at 2 p.m., with the time until then nized. CLOTURE MOTION equally divided and controlled between Mrs. HUTCHISON. Madam President, We, the undersigned Senators, in accord- Senators DODD and SHELBY or their I appreciate the comments of the ance with the provisions of rule XXII of the Standing Rules of the Senate, hereby move designees; that during this period, if chairman. He accommodated many of to bring to a close debate on the conference and when a budget point of order is the amendments I had, particularly as report to accompany H.R. 4173, the Wall raised against the conference report, it concerns community banks. That Street Reform and Consumer Protection Act. then an applicable waiver of the point was a huge concern in the original

VerDate Mar 15 2010 04:29 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00012 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.026 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5881 draft of the bill. I thank the chairman Street banks and executives to create a impose margin requirements, I worry for accommodating those concerns. It cumbersome new bureaucracy which that there is not a statutory exemption did make it a better bill. will impose job-killing regulation at for end users. End users may even I wish to return to the aftermath of the expense of Main Street small busi- choose market volatility instead of the financial crisis, when Congress was nesses and families. The Consumer Fi- risk-controlling derivatives altogether, tasked with the responsibility of mod- nancial Protection Bureau, with end- exposing Americans to higher prices, ernizing our financial regulatory struc- less authority over all facets of our slower economic growth, and more job ture so that we would have proper economy, is not the answer. losses. oversight of today’s banking system I am particularly concerned about We should seek transparency through and financial markets. We were called the effect this bureau will have on greater reporting requirements, but to fill in gaps in regulations which al- well-regulated, safe, sound community businesses should not be forced to arbi- lowed American home buyers to simply banks. These banks largely avoided the trarily move money to margin ac- sign on the dotted line to purchase a subprime market, and they didn’t en- counts. house that was in many instances be- gage in the risky speculative trades I am concerned that this legislation yond their means, to let companies that contributed to the financial melt- will cost more jobs at a particularly hide trillions of dollars in assets from down. However, these community harmful time with national unemploy- regulators, and ultimately led our gov- banks are going to have 27 new or ex- ment hovering around 10 percent. The ernment to lose hundreds of billions of panded types of regulation after this Chamber of Commerce reports that the taxpayer dollars to bail out financial bill is passed. The consumer bureau margin requirement on OTC deriva- institutions—Fannie Mae, Freddie could ultimately determine what prod- tives could cost 100,000 to 120,000 jobs in Mac, GM, , and AIG. Thus, ucts community banks can offer, on S&P 500 companies alone. were financial regulatory reform to what terms they can offer these prod- This legislation does nothing to rein succeed, we needed to enhance mort- ucts, and under what settings and cir- in Fannie Mae and Freddie Mac. Since gage underwriting standards, bring cumstances. Overall, the consumer bu- the government takeover of these two greater transparency to the derivatives reau will result in fewer products and GSEs, taxpayers have paid $145 billion markets, and once and for all end too services for American families and to keep them afloat. The CBO reports big to fail. The conference report be- small businesses. that the government’s cost to bail out fore us takes steps toward these goals. The Texas Bankers Association tells Fannie and Freddie will eventually The legislation puts in place meas- me consumer bureau rules could result reach $381 billion. ures to address too big to fail; however, in the end of free checking accounts, These costs contributed to a Federal it falls short in fully addressing the higher fees on all consumer services, deficit which has topped $1 trillion for risk of future government bailouts by and less opportunity to negotiate on the first 9 months of fiscal year 2010. failing to make changes to the Bank- loans. It is not the big banks on Wall They have helped push our national ruptcy Code. In this legislation, we Street voicing concerns and opposition debt to $13 trillion. A couple of weeks have also made strides to strengthen to this bill. The opposition is coming ago, the CBO reported that United mortgage underwriting standards. from community bankers in Texas who States debt will reach 62 percent of I am concerned that a newly formed are worried they will be unduly penal- GDP by the end of this year, the high- Consumer Financial Protection Bureau ized for faults they did not commit. est since just after World War II. We will take the lead rather than our Small businesses are also against cannot continue to this dangerous path banking regulators, and this is one of this new consumer bureau. The U.S. and mirror the crisis that currently Chamber of Commerce and the Na- the biggest concerns I have with the ravages Europe. tional Federation of Independent Busi- bill. We cannot sustain these debts and I am pleased that the conference re- ness are very concerned about this bu- deficits. We offered solutions to rein in port includes numerous measures for reau. Fannie Mae and Freddie Mac. During We need community banks to con- which I fought. I thank Chairman DODD Senate consideration of this legisla- tinue extending credit to worthy fami- for his willingness to work with me and tion, I cosponsored amendments—No. lies looking for a home and to small his constructive approach to making 3839 and No. 4020—which would have re- businesses to invest in and create jobs. changes to the bill, including a more imposed the cap of Federal assistance I cosponsored an amendment during level playing field for community Senate consideration to ensure that to the GSEs at $200 billion each. These banks across the country to compete safety and soundness regulators would amendments would have brought through my amendment to bring parity have a say in the rules and regulations Fannie Mae and Freddie Mac onto our to FDIC insurance assessments; my imposed on their institutions. That budget so that Americans could see amendment, along with Senator amendment was rejected, leaving com- their true cost. And they would have KLOBUCHAR, to allow State-chartered munity banks subject to this new bu- brought an end to Fannie and Freddie’s banks and small and medium-size bank reau’s unlimited and unchecked rule- government conservatorship in 2 years. holding companies to retain Federal making authority. Unfortunately, these amendments were Reserve supervision so that our mone- I am also concerned with the treat- rejected. Furthermore, the conference tary policy truly reflects economic ment of derivatives in this legislation. committee would not even permit conditions throughout the country, not I am concerned that the lack of trans- amendments to be offered on the GSEs. just on Wall Street; relief for small and parency that needed reform has been Instead, this legislation calls for a re- medium-size public companies from the exchanged for a regulation I do not port, punting the plan for Fannie and burden of rule 404(b) of Sarbanes-Oxley; think is going to properly regulate de- Freddie that we need to the future. We and assurance that the Volcker rule’s rivatives. need reform of Fannie Mae and Freddie proprietary trading restrictions will However, we must also protect end Mac now, but this legislation does not not extend to the insurance affiliates users such as airlines, utilities, manu- even allow for debate of the GSEs. of insurance companies with depository facturers, and oil and gas companies. The American people are frustrated institutions. These are positive These companies use derivatives as a with our government, and this legisla- changes for which I give the chairman cost effective strategy to control price tion is an example of why. Under the great credit. However, these positive and risk. Many structure derivatives guise of financial regulatory reform, changes are greatly outweighed by mis- contracts are unique to their business, this legislation continues the unprece- placed priorities to create new layers making it difficult to clear and trade dented growth in government. of bureaucracy while failing to address on a market. I share concerns from de- The American people want sensible the root causes of the financial crisis— rivatives end users that this mandate financial reform. However, this pur- Fannie Mae and Freddie Mac. to post margins with cash, rather than ported financial regulatory reform leg- Additionally, there are a series of collateral, will remove capital from in- islation does not even address the root provisions that are troubling to me. vestment and job creation. causes of the crisis: Fannie Mae and No. 1 is this consumer protection bu- While Senator DODD and Senator LIN- Freddie Mac. Instead, it uses the crisis reau. It is using the faults of Wall COLN say that this legislation will not to add layers of Federal bureaucracy,

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00013 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.030 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5882 CONGRESSIONAL RECORD — SENATE July 15, 2010 and threatens to slow down our eco- has been criticized by both the left and of our institutions, just on size alone, I nomic recovery, risking job loss and re- the right. Some on the left, some on think the chairman wisely decided as stricting access to credit. the Democratic side, have said the bill we went through a year and a half of For these reasons, this legislation is has not gone far enough in putting hearings, what often precipitated the not the reform we need, which is why I more requirements and restrictions on greatest risks to our system was not must oppose the conference report for our financial institutions. Some of my size alone—America has only 4 of the 50 H.R. 4173. colleagues on the Republican side, on largest banks in the world—but it was We need to fully look at some of the the right, have said this bill goes too the interconnectedness, their leverage, concerns in this bill with the hope that far. their failure to have appropriate risk when it passes—I cannot support it, but The fact that it is getting perhaps management plans in place. it will pass—these cautions will be that left-and-right criticism puts us This new systemic risk council is looked at going forward to perhaps, maybe in that right-in-the-middle sec- specifically charged with making sure when the problems come to light later, tion, which is the appropriate balance our large, more complex institutions make some changes to the law that we tried to strike since the chairman have more stringent capital require- will better accommodate the needs of started this effort well over 2 years ments, leverage ratios, liquidity re- consumers and small businesses and ago. quirements, and risk management community banks in the country. I think it is important at times we tools. We even created two whole new There are good parts of this bill. I remember why we are here. Two years categories, that while not fully test- think the chairman deserves a lot of ago, the markets were in chaos. Presi- ed—both of these categories actually credit for pushing this financial re- dent Bush and Secretary Paulson had came from colleagues on the other side form, knowing that we needed to do it. created TARP with a $700 billion un- of the aisle—they could be important I don’t think it fully meets the test of precedented bailout to shore up our fi- new steps to prevent these large insti- doing what we should be doing, but I do nancial system. President Obama was tutions from failing. One is contingent debt that large in- think it is a first step, and the chair- in crisis mode with our economy still stitutions would have to have that if man is to be commended for his leader- in free-fall from day one. The Dow was they get themselves even close to trou- ship. at 6,500, and there was a lot of talk of ble, that debt would convert into eq- I yield the floor. nationalizing banks. The ACTING PRESIDENT pro tem- Well, close to a year and a half to 2 uity, consequently diluting existing pore. The Senator from Connecticut. years later, we have seen stimuluses shareholders and management and Mr. DODD. Madam President, my and stress tests. We have seen a DOW keeping pressure on the board to make friend and colleague from Texas serves that now has touched 11,000. While the sure management would not take that on the Banking Committee. I thank economy is not creating jobs at the risk. rate any of us would like to see, the Finally, a tool that, again, if imple- her and Senator KLOBUCHAR. There was talk of financial Armageddon or com- mented correctly, will be tremendously a series of amendments in which Sen- plete collapse has disappeared. powerful; that is, to ensure that all ator HUTCHISON was involved. They I think we went into this process these large, complex institutions pro- added value to this bill, and I thank with three goals: First, the taxpayers vide a plan about how they will be able her for it. must never again hear that a company to unwind in an orderly fashion I mentioned yesterday, as a rel- is too big to fail. Second, we had to fix through traditional bankruptcy provi- atively junior member of the Banking our regulatory system to make sure sions. Our goal is to always have bank- Committee, there was no Member of the huge gaps that existed that allowed ruptcy be the appropriate response. If this Chamber who added as much to systemic regulatory arbitrage could no that liquidation plan or if that debt the bill as the Senator from Virginia. longer take place. And, finally, con- plan is not blessed by the council of There are not words nor time for me to sumers and investors had to have con- regulators, the council of regulators adequately express my gratitude for fidence that our markets were fair, can dismember, break up, or put other his involvement. Literally almost on transparent, and that there would be restrictions on these large institutions. an hourly basis, he was involved, along an officer on the beat to make sure I think Senator DODD made the deci- with Senator CORKER of Tennessee. some of the excesses that took place in sion to task my good friend, Senator They spent hours on their own talking 2005, 2006, and 2007—where folks were CORKER of Tennessee, and I with this with other people about how to fashion being put into homes they could never issue: If those processes still do not two of the most critical titles of this afford to pay for or having financial in- work, how do we make sure we have an bill. Let me express my gratitude once struments that were being created orderly liquidation process? Our goal again to Senator MARK WARNER of Vir- under the guise of lowering the cost of was twofold: One, taxpayers should ginia and thank him immensely for his risk that were more about simply cre- never have to bear the risk; and, two, if contribution. He did a great job. ating fee income—would never again an entity goes into liquidation, it will The ACTING PRESIDENT pro tem- prey on unweary investors or on home- not come out. Liquidation or resolu- pore. The Senator from Virginia. owners who got themselves into trou- tion is not an attempt to stand up an Mr. WARNER. Madam President, I ble. institution. But we wanted to make thank the chairman for those kind re- I think one of the most interesting clear to shareholders, to management, marks. It is a good feeling for all of us critiques that some still make of the if you go into resolution, you are toast, who have labored on this legislation— bill is that we have not addressed too as my colleague, Senator CORKER, Members and staff—that we are finally big to fail. Well, candidly, with the often said. coming to a successful conclusion on United States moving first on this leg- We think we have reached that goal, the Dodd-Frank Wall Street Reform islation, and the rest of the world wait- and I am particularly proud of titles I and Consumer Protection Act and it is ing for the United States to move, we and II of this bill. Actually, when going to be enacted into law. hear from our European colleagues Chairman DODD and Senator SHELBY As those equally controversial pieces that the framework we have set up, ac- put some amendments to it, it was en- of legislation in the 1930s stood the test tually, they hope to emulate. We have dorsed by 95 of our colleagues. It is the of time for decades, I think this bill created a new regulatory structure so broadest bipartisan section of this leg- will stand the test of time for decades the regulators can get out of their islation. This bill addresses a number as well in terms of creating a new set silos—depository institutions on one of other vital areas as well. It allows a of rules of the road for not just Amer- side, security institutions on another, single depository place to get the ap- ica’s financial sector but, in a sense, derivatives trading on a third—and propriate day-to-day information on the world’s financial sector for decades make sure we have a full systemic risk our financial institutions—that still to come. council so we can measure risk wher- did not exist until we created the Fi- While not perfect—no piece of legis- ever it exists, regardless of the charter nancial Services Oversight Council— lation is—one of the things that gives of the organization. and having the ability to get on a daily me some confidence that the right bal- While some said we ought to go basis the level of interconnectiveness ance has been struck is that this bill ahead and limit the asset size of some of a future AIG.

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00014 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.004 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5883 It puts in place a consumer protec- morning, 4 o’clock in the morning, I is the harm to the availability of cred- tion bureau to make sure, for example, believe at one point, telephone calls it, something our colleague, Senator mortgages are regulated in a way that and meetings with other Members. GREGG from New Hampshire, has consumers can understand, regardless As the Senator from Texas men- talked a lot about. It implements one- of the charter of the organization. We tioned earlier, even though the Senator size-fits-all capital standards and uses often found banks had a fairly good from Texas could not support the over- flawed funding mechanisms. It also ability to regulate some of their mort- all bill, our chairman has worked with perpetuates bailouts, and burdens gages; whereas, mortgage lenders and all Members regardless of party to try small businesses with new regulations, others, who were unregulated, had no to accommodate their interests. I com- which I will speak about in a moment. such restrictions. Now we have an even mend the Senator from Texas for Let me address a few of these prob- playing field. pointing out, for example, the commu- lems in more detail: First, the cost and It finally puts in place—there is some nity-based and independent banks offsets of the bill; second, the failure to debate on this issue—an appropriate come out of this legislation as one of address the GSEs, Fannie Mae and process to regulate derivatives and to the real winners in terms of their abil- Freddie Mac; and, third, the job-killing bring these critical but potentially ity to have more fair competition with Consumer Financial Protection Bureau dangerous instruments out of the shad- the larger institutions. that will reduce available credit for ows, and the vast majority of these in- So I commend the chairman, and I American businesses and thus reduce struments will now be traded in a more commend all of my colleagues on both job creation. transparent way on exchanges. sides of the aisle, even those who per- First, the cost and offsets. The Con- There is more to be done. Domestic haps will not vote for the final product gressional Budget Office has put the 10- and international implementation is but were a part of building the product, year cost of the conference report bill vitally important. As I mentioned at where their ideas were implemented. at approximately $19 billion. That is the outset, the United States—and this When we think about the Glass- the cost of this alleged new reform. is one of the things that is kind of re- Steagalls, and when we think about the Democrats initially tried to fund this markable, when I hear from some of bills that created the SEC, when we obligation with a new tax imposed on my colleagues we have moved too think about the legislation in the 1930s, large financial institutions. When that quickly or this bill does too much— in the moment of crisis, that created could not be sustained, they decided on a new funding mechanism that, as Na- candidly, the whole rest of the world the financial framework for 20th-cen- tional Review recently editorialized, has been waiting on America to act to tury American capitalism, what this ‘‘were a corporation to try it, would set the template for broad-based finan- bill has done—there will be work done get its accountants sent to prison for cial reform. Now that we have acted, I to improve and fully implement it, but what this bill has done has set a frame- fraud.’’ think particularly Europe and Asia Here is how it works. The bill would will follow our stead. But making sure work for 21st-century American cap- italism and, in a certain way, a frame- now ‘‘cancel’’ the Troubled Asset Relief we do this with appropriate inter- work for 21st-century capitalism across Program, or TARP, a few months national implementation is terribly the world in a way that America can early, thus ‘‘saving,’’ theoretically, the important—the Basel circumstances— remain the center for financial mar- government around $11 billion, even but also making sure we have the regu- kets but at the same time making sure though it is highly unlikely that latory approach across the world cor- both consumers and the investing pub- money would ever have been used to rect so there is not an international lic are protected in this new and very make additional TARP loans. That $11 ability to arbitrage with these large fi- challenging world. billion would then be used to partially nancial institutions. With that, I yield the floor. I again offset the cost of the bill. I know some of my colleagues on the extend my compliments to the chair- Remember, that is money that has to other side of the aisle have also raised man and all who have been involved in be borrowed. So instead of simply bor- the question that this bill does not this legislation. rowing 11 billion fewer dollars, we are fully address the GSEs. They are right. The ACTING PRESIDENT pro tem- going to pretend as though we already But I think it was the right and con- pore. The Senator from Arizona. have that money and that we can save scious decision of the chairman and Mr. KYL. Madam President, I, too, it by not spending it on TARP, so we others that to disrupt an already still would like to speak to the conference will spend it on this legislation. It is a fragile housing market at this moment report on financial regulatory reform, double counting that National Review in time in a piece of legislation that which we will presumably vote on in a is right about: It would have put a pri- has already been accused by some as couple of hours. I think we all agree vate business CEO or CFO in jail if he being too broad and covering too many that the purpose of financial regu- had tried to do an accounting trick items was not the appropriate choice. latory reform should have been to such as that. We will have to come back and deal tackle the problems that led to the fi- The TARP law moreover states that with GSEs. We have to make sure, as nancial crisis in the first place. That any money rescinded from TARP shall we deal with GSEs, international im- means serious reform must, at the very not be counted for the purpose of budg- plementation, we stay vigilant. We least, end too-big-to-fail financial in- et enforcement. But to avoid violating have given the regulators the tools. stitutions and rein in two government- the so-called pay-go rule in the House, How they use these tools will be up to sponsored enterprises, the GSEs, the conference report nevertheless uses us in Congress to make sure they are Fannie Mae and Freddie Mac. this alleged savings to pay for the fi- implemented correctly with appro- But despite its size and the hype be- nancial reform provisions, thereby vio- priate oversight. hind it, the bill before us fails in those lating both the letter and the spirit of I am, in certain ways, disappointed two key respects. Moreover, even the TARP law. And, as I said, taking this bill is not being passed with broad- though Main Street did not cause the these funds to pay for something else er bipartisan legislation. But we have problem, the bill is so pervasive in its rather than rescinding them simply only gotten here because there is bipar- regulatory reach that it creates new pushes our Nation deeper into debt. tisan support. burdens for Main Street businesses. I So with regard to the cost of the I want to close acknowledging am not sure that is what the bill’s sup- bill—$19 billion—and the offset, much again—the chairman was very kind in porters want or its authors intend, but of which is not a true offset but simple his remarks—I cannot think, in my that will be the result. double accounting with money we short tenure in the Senate, of any For example, a July 4 Wall Street don’t own or have anyway, but have to other Senator who has worked harder Journal news article entitled ‘‘Finance borrow, is a bad way to do business, to on a piece of legislation, who has been Overall Casts Long Shadow on the say the least, especially on something more relentless, who has had more Plains’’ explains how new derivatives that is called a financial reform bill. twists and turns, who has had more rules will harm America’s livestock Now, I guess, fortunately, we have ‘‘we are there; but, oh, my gosh, we farmers. changed the name to reflect the au- may not be there,’’ who has had prob- There are other problems with the thors of the bill. It is no longer the fi- ably more 10 o’clock, 2 o’clock in the bill. The biggest new problem it causes nancial reform bill; it is now the Dodd-

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00015 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.033 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5884 CONGRESSIONAL RECORD — SENATE July 15, 2010 Frank bill. I appreciate the naming of By 2008 they held nearly $5 trillion in The new bureau will have a say in al- the bill for my good friend, the Senator mortgages and mortgage-backed secu- most every aspect of American busi- from Connecticut, but it is supposed to rities. They were overleveraged but, ness. In an attempt to ensure—and I be about financial reform, and it isn’t unfortunately, deemed too big to fail. am quoting now—‘‘ensure the fair, eq- financial reform when you take money So what do we have today? Fannie uitable and nondiscriminatory access you don’t have, spend it for something and Freddie hold a combined $8.1 tril- to credit for individuals and commu- you are not legally able to spend it for, lion of outstanding debt. Think of that: nities’’—the wording in the law—the and call that an offset for the cost of $8.1 trillion. In total, taxpayers have new bureau will have latitude to im- the bill. lost already $145 billion bailing them pose its will, with few checks and bal- Nevertheless, problem No. 2: Fannie out. When Secretary of the Treasury ances, on American credit providers, and Freddie. It is just unconscionable Geithner lifted the bailout cap last De- all of which will result in more ex- that this bill doesn’t attempt to reform cember, it put the taxpayers on the pense, more regulation, higher costs in any way the two biggest causes of hook for the remainder of these losses, for consumers, and less availability of the problem: Fannie Mae and Freddie for unlimited losses at these two insti- credit. Mac. It was their reckless behavior tutions. The CFPB also exposes companies to that was a major cause of the financial So let’s be clear. Every day that very costly compliance and extensive crisis. It is not for lack of trying on Fannie and Freddie remain in their enforcement proceedings, including po- Republicans’ part. Our Democratic current form is a day that U.S. tax- tentially frivolous lawsuits, by elimi- friends say: Well, we will do that later, payers are subsidizing the failed poli- nating national preemption and other maybe next year. I suggest doing that cies of the past. I think it is very means. is highly improbable. The way things doubtful we are going to get meaning- In my view, the potentially serious work around here is, when you do a ful reform of Fannie and Freddie when costs of this bureau do not justify its comprehensive bill such as this, there it couldn’t be done in the bill that is purported benefits. Consumer protec- are a lot of tradeoffs, a lot of different supposed to deal with all of the under- tion could have been accomplished in lying problems that created the reces- interests involved. If you can’t include much less intrusive and fairer ways. sion we are in now. all of the elements in one bill, it is We all want to shield consumers from The third problem: Harming small abuses and exploitation, but this is ob- very difficult to find the political will business through ‘‘consumer protec- viously not the right way to do it. to tackle the biggest problem of all— tion.’’ It harms far more than small So we should ask ourselves one ques- Fannie and Freddie—next year without business; it harms everyone who is at- tion: Why is it that the CEOs of some the leverage of the other provisions of tempting to get credit. As our friend the bill to deal with. of the largest companies on Wall and colleague, Senator GREGG, has said The behavior of these two institu- Street, some of the largest financial in- many times on this floor, perhaps the tions—these GSEs that have come to stitutions, actually favor this bill? biggest problem with this legislation is epitomize too big to fail—has surged the fact that it is going to make credit Well, it is no skin off their backs. They through the entire commercial banking much more expensive for everyone. But have the money, and they have the re- sector and our economy as a whole and let’s start with small businesses. sources and the personnel to deal with has turned out to be one of the most In my home State of Arizona and its complexity and to put the money up expensive aftereffects of the financial across the country, these are the enti- front and then charge the consumers crisis. For years, Fannie and Freddie ties that hire. They are supposed to be on down the line. It would entrench made mortgages available to too many the first ones that hire coming out of a their privileged status, as they have people who could not afford them. recession. The way they do that is to the resources to maneuver around its Smaller companies were crushed while have access to credit. Well, they are provisions, as I said, and would cer- the two GSEs and their shareholders obviously very wary of the intrusive tainly institutionalize the idea that reaped enormous profits, recklessly new bureaucracy that masquerades as certain big financial firms deserve pref- taking advantage of the government’s consumer protection in this bill, but erential treatment by Federal regu- implicit guarantee to purchase tril- which would compound the problem of lators. lions of dollars worth of bad mort- credit availability. So for all of the reasons I have dis- gages, including those made to risky, All of us here support the concept of cussed, as well as others, and despite so-called subprime borrowers. It was a consumer protection, so let’s don’t get my strong desire to enact prudent fi- textbook example of moral hazard on a off on a tangent of being for or against nancial reforms, I think this legisla- massive scale. consumer protection. We all support tion is misguided. I can’t support it, I was reminded of what I am speak- that. The question is, How do you do and I urge my colleagues to vote ing of this morning driving in and it? Safeguards can be strengthened against it. hearing an ad on the radio which said without creating a new regulatory bu- The PRESIDING OFFICER (Mrs. that through Fannie Mae, you could reaucracy with the powers that exist in HAGAN). The Senator from Con- get a mortgage for 105 percent of the this bill and all of the untoward rami- necticut. value of your home. Now that means fications that result. Unfortunately, Mr. DODD. Madam President, I rec- that immediately you are so-called un- the conference report maintains, with ognize my friend and colleague from derwater; that is to say, you owe more very little change, the flawed Con- Delaware. than your home is worth. sumer Financial Protection Bureau The PRESIDING OFFICER. The Sen- Why are we immediately making the from the bill that was passed in the ator from Delaware. same mistake with Fannie Mae that Senate, the so-called CFPB. It is Mr. KAUFMAN. Madam President, I got us into the problem in the first housed in and funded by the Federal rise today to speak on the Dodd-Frank place, where the mortgages exceeded Reserve but theoretically would oper- bill. I must start by expressing my the value of the homes? I don’t under- ate as an independent agency with an awe—that old expression from Iraq, stand it. enormous budget and with rule-writing ‘‘shock and awe’’—at what Chairman The easy credit that was provided be- ability and enforcement authority that DODD has been able to do during this fore is what helped to fuel the rising I think will, in fact, create independ- session of the Congress. I have been home prices that created the inflated ence from the Fed. around this place since 1973, and I housing bubble, especially in the The CFPB could significantly reduce genuinely cannot think of an example subprime mortgage market. As prices credit access for small businesses and where an individual Senator ever par- rose, so too did the demand for even thereby jeopardize America’s economic ticipated in passing three bills in one larger mortgages, so Fannie and recovery. Without available credit, Congress of the magnitude of the Freddie looked for ways to make even companies cannot grow and con- health care bill, the credit card reform more credit available to borrowers. sequently will not hire additional bill, and now the Dodd-Frank bill. If But, of course, when the market col- American workers. Obviously, that is there is a legislative hall of fame, there lapsed, the two GSEs were left with bil- not what the bill’s authors intended, is a spot for CHRIS DODD in that hall of lions of dollars of bad debt. but it is the inevitable result. fame.

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00016 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.039 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5885 I am going to speak today about clearing of standardized over-the- mental problem of ‘‘too big to fail.’’ In- areas where I don’t agree with this bill. counter derivatives contracts, as well stead of erecting enduring statutory Anyone who has followed my speeches as more robust collateral margin re- walls as we did in the 1930s, the bill in- on the floor would recognize that I quirements. The bill’s inclusion of the vests the same regulators who failed to have a difference of opinion on a num- Kanjorski provision will give regu- prevent the financial crisis with addi- ber of issues. However, I wish to make lators the explicit authority to break tional discretion and relies upon a res- it clear from the beginning—and I will up megabanks that pose a ‘‘grave olution regime to successfully unwind raise it again in my speech—to the ex- threat’’ to financial stability. complex and interconnected mega- tent this bill doesn’t reach where I I was pleased that the bill includes a banks engaged across the globe. I am want it to reach, the responsibility lies provision I helped develop to give regu- also disappointed that key reform pro- on my friends—and I truly mean my lators enhanced tools and powers to visions like the Volcker Rule and the friends—and colleagues on the other pursue financial fraud. Through the Lincoln swaps dealers spin-off provi- side of the aisle. Collins provision, the bill also estab- sion were scaled back in conference. Time and again, vote after vote, they lishes minimum leverage and risk- The bill mainly places its faith and voted as a block to block meaningful based capital requirements for bank trust in regulatory discretion and on reform on many issues. We can talk holding companies and systemically international agreements on bank cap- about the Brown-Kaufman amendment risky nonbank institutions that are at ital requirements and supervision. to break up the banks or we can talk least as stringent as those that apply After decades of deregulation and in- about the maneuvers that were done on to insured depository institutions, an dustry self-regulation, it is incumbent the Brownback bill so we never got a important reform in this bill. upon the regulators now to reassert In light of the failures of past inter- vote, and on Levin-Merkley. So as I themselves and establish rulemaking national capital accords, this require- give this speech today, the reason we and supervisory frameworks that not ment will set a much-needed floor on didn’t get the things I wanted in this only correct their glaring mistakes of how low capital can drop in the upcom- bill is because 41 Republicans, time and the past, but also anticipate future ing Basel III negotiations on capital re- time and time again—when there was a problems, particularly risks to finan- quirements. It will also ensure that the cial stability. Unfortunately, the early vote up they could have changed the capital base of megabanks is not adul- indications we are seeing out of the G– way we do things; they could have in- terated with debt that masquerades as 20 and so-called Basel III discussions stituted the kinds of reforms I wanted equity capital. in this bill—voted against it. That being said, unfortunately, I be- are not encouraging, as critical re- So Chairman DODD was left with the lieve the bill suffers from two major forms are already being watered down problem of, How do we get the votes to- problems. First, the bill delegates too and pushed back in part because some gether to pass the bill? It is essential much authority to the regulators. I foreign regulators carelessly refuse to that we pass a bill, and a good bill, and have been around the Senate for 37 heed the risks posed by their we did, and I am voting for it. But it years. As I said on the Senate floor on megabanks. The legislation also puts in place a could have been, in my opinion, a bet- February 4 of this year and in several ter bill if several votes had gone the speeches since then, I know that many resolution authority to deal with these other way. times laws are not written with hard institutions when they inevitably get After months of careful consider- and clear lines. Laws are a product of into trouble. While such authority is ation, landmark financial reform legis- legislative compromise, which often absolutely necessary, it is not suffi- lation moves toward final passage. means they are vague and ambiguous. cient. That is because no matter how While this bill is a vast improvement We often justify our vagueness by say- well Congress crafts a resolution mech- over the existing regulatory structure, ing the regulators to whom we grant anism, there can never be an orderly I believe it should go further with re- statutory authority are in a better po- wind-down of a $2-trillion financial in- spect to erecting statutory rules that sition than we are to write the rules— stitution that has hundreds of billions address the fundamental problem of and then to apply those regulatory of dollars of off-balance-sheet assets, too big to fail. rules on a case-by-case basis. But, as I relies heavily on wholesale funding, Anyone who has heard my speeches have said, this was not one of those and has more than a toehold in over 100 on the Senate floor starting 4 or 5 times. This was a time for Congress to countries. Of course, since financial months ago will understand my posi- draw hard lines that get directly at the crises are macro events that will un- tion on that. I made it abundantly structural problems that afflict Wall doubtedly affect multiple megabanks clear. I will support the conference re- Street and our largest banks. simultaneously, resolution of these in- port, but I do so with reservations Despite repeated urging from me and stitutions will be enormously expen- about a missed opportunity to enact others to pass laws that would help sive. And until there is international meaningful reforms that would prevent regulators to succeed, Congress largely agreement on resolution authority, it another financial crisis. But as I said has decided instead to punt decisions is probably unworkable. before, ultimately, given the makeup to the regulators, saddling them with a Given the history of financial regu- of the Senate and the requirement for mountain of rulemakings and studies. latory failures and the enormous bur- 60 votes and the intransigence on the The law firm Davis Polk has estimated den of rulemakings and studies with other side of the aisle, this was the that the SEC alone must undertake which the regulators are being tasked, best bill that could pass. close to 100 rulemakings and more than Congress has a critical oversight re- For those who wish the bill were a dozen studies. Indeed, Congress has sponsibility. Congress first must en- stronger, let there be no confusion so choked the agencies with sure that the regulators have enough about where the blame lies. It is be- rulemakings and studies, the totality staff and resources at their disposal to cause almost every Senator on the of the burden threatens to undermine follow through on their serious obliga- other side of the aisle did everything the very ability of the agencies to ac- tions. Just as important, Congress they could to stall, delay, and oppose complish their ongoing everyday mis- must monitor the regulatory phase of Wall Street reform. sion. I for one urge the agencies care- this bill’s implementation closely to To be sure, the bill that has come out fully to triage these required ensure that the regulators don’t return of conference includes some extremely rulemakings and studies, establish a to ‘‘business as usual’’ when the experi- important reforms. It establishes an hierarchy of priorities, and ensure that ence of the most recent financial crisis independent Consumer Financial Pro- the agencies do not shift all resources fades into memory. tection Bureau with strong and auton- to new rules meant to address old prob- How quickly we forget. Time and omous rulemaking authority and the lems to such a degree that they fail to again, I have heard people speak as if ability to enforce those rules for large stay on top of current and growing there was no big financial crisis, say- banks and nonbank entities such as problems. I will have more to say on ing: I have a bank in my hometown payday lenders and mortgage finance this subject in a future speech. that is going to have a problem with companies. In addition, it requires Second, the legislation does not go this legislation. So we should let all electronic trading and centralized far enough in addressing the funda- the banks be free to do whatever they

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00017 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.040 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5886 CONGRESSIONAL RECORD — SENATE July 15, 2010 want to do. We had a crisis here that megabanks began to falter. Because of task of safeguarding our financial sta- practically destroyed the country, the the reputational consequences of liqui- bility. Like many others, I am con- world, and these people are bringing up dating these funds and allowing them cerned whether they have the capacity anecdotal evidence to give these banks to default on their funding obligations, and wherewithal to succeed in this en- more responsibility and not go after they were bailed out by the megabanks deavor. the root cause. that spawned them even though the I repeat again, Congress has an im- For example, in addition to granting SIVs themselves were generally sepa- portant role to play in overseeing the great discretion to regulators on how rate, off-balance-sheet entities with no enormous regulatory process that will they interpret the ban on proprietary official backing from the banks. ensue following the bill’s enactment. trading at banks, the scaled-back Finally, the strength of the core part The American people, for that matter, Volcker Rule contains a large loophole of the Volcker Rule—the ban on propri- must stay focused on these issues, if that allows megabanks to continue to etary trading—will depend greatly on just to help ensure that Congress in- own, control and manage hedge funds the interpretation of the regulators. deed will fulfill its oversight duty and and private equity funds under certain They will ultimately be the arbiter of its duty to intervene if the regulators conditions. Most notably, it includes a whether broad statutory exceptions for fail. Likewise, although I will be leav- de minimis exception that permits ‘‘market making’’ or ‘‘risk-mitigating ing the Senate in November, I will be banks to invest up to three percent of hedging’’ or ‘‘purchases’’ or ‘‘sales’’ of watching closely to see how the regu- Tier 1 capital in hedge funds and pri- securities on ‘‘behalf of customers’’ are lators follow through on the enormous vate equity funds so long as their in- allowed to swallow the putative prohi- responsibilities they are being handed. vestments don’t constitute more than bition. I therefore urge the regulators Let us not forget why reform is so three percent ownership in the indi- to construe narrowly those activities necessary and important. After years vidual funds. that constitute exceptions to propri- of Wall Street malfeasance and the sys- The impact of a supposedly small etary trading to ensure that the tematic dismantling of our regulatory three percent de minimis exception for Volcker Rule has some teeth in it. structure, our financial system went investments in hedge funds and private Senator LINCOLN’s original swap deal- into cardiac arrest and our economy equity firms has the potential to be er spin-off provision would have prohib- nearly fell into the abyss. Wall Street, massive. For example, a $2 trillion ited banks with swap dealers from re- which had grown out of control on le- bank that has $100 billion in Tier 1 cap- ceiving emergency assistance from the verage and financial gimmickry, blew ital would be able to invest $3 billion Federal Reserve or FDIC. By essen- up. More than 8 million jobs were into hedge funds. Since that $3 billion tially forcing megabanks to spin off wiped out; millions more have lost could only constitute three percent their swap dealers into an affiliate or their homes. We spent trillions of dol- ownership, it would need to be invested separate company, this section would lars in monetary easing and emergency alongside at least $97 billion of funds have helped restore the wall between measures to avert the wholesale failure from outside investors. The bank would the government-guaranteed part of the of many of our megabanks. Not sur- therefore be able to manage $100 billion financial system and those financial prisingly, we continue to feel the after- in hedge fund assets, a massive amount entities that remain free to take on shocks of the worst financial crisis equal to the current size of the largest greater risk. It would also have forced since the Great Depression. Every single thing you look at, al- hedge funds in the world combined. derivatives dealers to be adequately most without exception, when you read What’s more, that $100 billion in assets capitalized. our newspapers, is related to our can be leveraged several times over While the final bill includes the Lin- present economic situation, which was through the use of borrowed funds and coln provision, it limits its application caused by lack of regulatory action on to derivatives that reference assets derivatives into overall exposures that Wall Street. could exceed a trillion dollars. And that are permissible for banks to hold The banks are not lending. Fed given the ambiguity of the legislative and invest in under the National Bank Chairman Bernanke just days ago language, unless clarified by a rule- Act. Since that exception covers inter- urged them to do more for small busi- making, some commentators have indi- est rates, foreign exchange and other nesses. Companies and consumers alike cated that megabanks could poten- swaps, it ultimately exempts close to remain shaken in their confidence. And tially provide prime brokerage loans to 90 percent of the over-the-counter de- despite dramatic stimulus measures, hedge funds they partially own and rivatives market. Regulators must the economic recovery has been slow run. therefore reduce counterparty expo- and tentative. Many of the opponents Fortunately, the final bill does place sures by requiring the vast majority of of Wall Street reform would like to costs on banks’ de minimis invest- derivatives contracts to be cleared and make the dubious claim that the recov- ments in hedge funds and private eq- calibrate carefully the amount of cap- ery is being held back by uncertainty uity funds. Specifically, the legislation ital that bank derivatives dealers must about future regulations and taxes. requires a 100 percent capital charge on maintain. Only then can we be sure we Can you believe that? In reality, it is these proprietary investments, making never again face a meltdown caused by being held back by the financial shock them expensive for banks to hold. excessively leveraged derivatives expo- and the fact that we are still in a pe- While this may be a helpful deterrent, sure that no regulator helps to keep in riod of financial instability and under- I am concerned that it will not be check. going an excruciating process of enough of one, particularly when con- The financial reform bill places enor- deleveraging. Even now it is unclear sidering how lucrative and risky an ac- mous responsibilities and discretion whether a European banking crisis tivity it is for banks to run hedge funds into the hands of the regulators. Its ul- based on their holdings of sovereign and private equity funds. timate success or failure will depend debt will continue to impede that re- The overarching problem is that on the actions and follow-through of covery. banks will continue to be able to offer these regulators for many years to It is also being caused by the fact and run—never mind, partially own— come. that Americans are losing faith in the risky investment funds. Even though One of my main concerns is, if we credibility of our markets. Who the scaled-back Volcker Rule includes elected another President who believed wouldn’t, after what has happened? a ‘‘no bailout’’ provision, I have con- we should not have regulators and reg- I think it has been an important fac- cerns about the credibility of that ulation, they would again have the tor in our present hiccup—hopefully, it edict. Under any circumstance, the ability to do what they did to cause a was a hiccup and not a double dip. failure of a massive hedge fund run by meltdown. It is, therefore, imperative that we a megabank would pose serious It is estimated that various Federal build a financial system on a firmer reputational and financial risks to that agencies will be charged with writing foundation. The American economy institution. over 200 rulemakings and dozens of cannot succeed—cannot succeed—un- Just look at what happened when the studies. Many of the same regulators less we restore and maintain financial structured investment vehicles, or who failed in the run-up to the last cri- stability—not only restore and main- SIVs, of Citigroup and other sis will once again be given the solemn tain financial stability but maintain

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00018 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.041 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5887 the credibility of our financial system. this bill. I do not want the record to with a bill—every one of my concerns I We simply cannot afford another finan- persist in suggesting that was not the raised today, if we had gotten some cial crisis or continued financial insta- case. Even people on the other side who help from the other side might have bility if the American economy is to ended up not voting for the bill—at gone another way. But they were not succeed in the coming decades. Getting least have not so far—added substan- going to go another way with the group financial regulation right and main- tially to the value of this bill. In some we had. taining it for years to come should be cases, they might not want to acknowl- I could not agree with Senator DODD one of this Nation’s highest priorities edge that, but they did. more. I think it is easy to stand up in because the price of failure is far too In the case of our two colleagues our caucus and be for this bill. I think high. from Maine and our colleague from what they did was truly courageous. I yield the floor. Massachusetts, they have taken an But I also think that on every major The PRESIDING OFFICER. The Sen- awful lot of abuse in the last number of issue, to have to figure out how we get ator from Connecticut. weeks because they worked with us on 60 votes is a special, difficult problem. Mr. DODD. Madam President, I the bill and made significant contribu- It is not like a swan dive. It is not, like thank my colleague from Delaware. He tions. While they do not agree with they do in the Olympics, a double sum- highlighted the difficulty in passing every dotted ‘‘i’’ and crossed ‘‘t,’’ as I mersault. Putting all those things to- legislation. There are those who think do not with this bill, they decided our gether is a triple summersault in the it goes too far and those who think it country would be better off with the pike position. That is the point I want does not go far enough. We do not write passage of this legislation than not. to make—the difficulty of getting a a bill on our own. There are 100 of us in I do not want the record to be uncor- bill when we need to get 60 votes on this Chamber and 435 in the other. rected when it comes to the number of every issue and there is a constant There are stakeholders, the adminis- people, including those three in par- pressure on the other side for all to tration—all sorts of people we deal ticular, who will, I presume, continue vote together one way. with on these matters. What we try to to take some abuse from others be- Mr. DODD. Madam President, I see do is fashion the best proposal we can cause they did not toe the party line, our colleague from New Hampshire is that moves us forward and addresses nor have they on repeated occasions. here. I will save this for a later debate, the underlying causes, as we tried to They have acted as U.S. Senators, but I know there is talk about chang- with this bill. which is our first responsibility. I ing the rules of the Senate because of I appreciate the Senator’s points that know what that feels like. I have been the frustration Senators feel. I will were raised during the debate and dis- there on numerous occasions in my 30 make, in my waning hours here, as cussion. We tried to accommodate years. Several times, I was the only strong a plea as I can to not succumb them where we could in fashioning leg- Democrat to vote with Republicans on to the temptation to change the insti- islation. It is always a difficult process. substantive matters. It is a lonely mo- tution because of the current frustra- You do not get to write your own bill. ment. I can tell my colleague what tions people feel. There is a reason this You can write your own bill and intro- happens. It is painful, and you get institution exists and has the rules it duce it, but ultimately, for it to be- those long looks from your colleagues. does. All of us one day are in the mi- come law requires cooperation. We had It is uncomfortable, to put it mildly. I nority or majority. The fact that some that cooperation. I appreciate his in- will also tell my colleague that some of may abuse the rules, as has happened volvement very much. the proudest moments a colleague will here without any question, ought not The PRESIDING OFFICER. The Sen- have when they serve here is when they to be a justification for fundamentally ator from Delaware. make those decisions and do so for the changing them. There are ways to deal Mr. KAUFMAN. Madam President, I right reasons. with the problem without losing the es- just laid it out. I taught a course on While I am deeply grateful to my sence of the Senate. He is no longer Congress in law school for 20 years. I Democratic colleagues, many of whom with us, but my seatmate, Robert C. say this in all sincerity: Houdini could had concerns about the bill, as my Byrd, would speak for hours on end not have gotten through this process. friend from Delaware did, and have about the importance of not letting the Really and truly, when one looks at it, been supportive all the way through, I vagaries of the moment dictate the Houdini could not have gotten through guess there is a bit of the prodigal long-term interests of the institution. this process with a bill. son—prodigal daughter in the case of I will leave that for another day, but I try very hard to be bipartisan in ev- our colleagues from Maine and prodigal I appreciate it. erything I do, and I try to speak well of son in the case of our colleague from My colleague from New Hampshire is my colleagues because I really do like Massachusetts—when they decided to here. every one of my colleagues on the stand up and help us get a bill done de- The PRESIDING OFFICER. The Sen- other side. That is not hyperbole. But spite the criticism they have received. ator from New Hampshire. when we start out with 41 Senators Everyone who has been supportive and Mrs. SHAHEEN. Madam President, I bound and determined to slow down, helpful deserves credit, but I think am pleased to join my colleague from delay, stop, and block, it makes the job those who were willing to take an Connecticut, Senator CHRIS DODD, and the Senator from Connecticut has done awful lot of abuse in the process of be here on the floor this afternoon to even more incredible. And then we doing so deserve commendation. talk about the financial regulatory re- have to get 60 votes on anything of sub- I did not want to let that number form bill that is pending. stance. Then we have to go over to the stand—41—because it implies somehow Before I begin my remarks, I wish to House side. And God bless our friends there were people on the other side who recognize Senator DODD for his leader- on the House side. When I talk with were not helpful, and they were, in- ship and hard work in getting this con- them, they just look over here and can- cluding people who did not vote for the ference report to the floor so that we not believe we ever get anything done. bill who were helpful as well. can hopefully adopt it this afternoon. Getting this bill done, getting it Mr. KAUFMAN. Madam President, I It is important because of what has through the Senate, dealing with all totally agree with the Senator. It is happened in this country and what has the stakeholders, dealing with the ad- oversimple. I know the Senator from happened in my State of New Hamp- ministration, dealing with the folks on Connecticut received a lot of support shire. the House side, and, with all due re- from the Republican side. I know how Over the past 2 years, people in New spect, doing it three times in one Con- difficult it is to be the person standing Hampshire and across the country have gress, is definitely a Hall of Fame per- in your caucus when everyone in your suffered the consequences of Wall formance. caucus wants to vote another way. I Street’s gambles. While we are seeing I thank the Senator again. appreciate that. our economy in New Hampshire begin Mr. DODD. Madam President, my What is amazing to me is what to rebound, which is thanks in no small colleague talked about 41. There are a passed was what the three of them part to the job creation that was number of Republicans who played a would sign on to or others would sign spurred by the Recovery Act, it is crit- very critical and supportive role on on to. The idea that the Senator came ical that we act to prevent Wall

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00019 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.045 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5888 CONGRESSIONAL RECORD — SENATE July 15, 2010 Street’s risky, reckless behavior from strong bill that reins in the reckless fered losses either through the stock ever again bringing our economy to its Wall Street conduct that brought us to market plunge, bond market turbu- knees. the edge of financial disaster. It keeps lence, or passbook savings interest We need to put in place reforms to community banks strong, and it pro- rates that hovered near zero percent. stop Wall Street firms from growing so tects consumers and taxpayers. Lending at our Nation’s banks con- big and so interconnected that they I look forward to voting ‘‘aye’’ this tracted, spending fell, and overall con- can threaten our entire economy. We afternoon when we get to the vote on sumer confidence plummeted. need to protect consumers from abu- the conference report. Americans were rightly angry that sive practices and empower them to The PRESIDING OFFICER. The Sen- while they were losing their homes, make sound financial decisions for ator from Connecticut. jobs, and long-term savings, they were their families. We need more trans- Mr. DODD. Madam President, briefly, also expected to foot the bill for the ir- parency and regulation in the now I thank my colleague from New Hamp- responsible actions of Wall Street shadowy markets where Wall Street shire. I see my other colleague from CEOs. Their outrage only grew when executives and investment banks have New Hampshire as well. It is a New these same CEOs continued collecting made gambles. In those shadowy mar- Hampshire moment. I thank Senator unprecedented bonuses—presumably kets, the Wall Street firms got all the SHAHEEN and our colleague from for their work in recklessly taking our upside and American families got all Maine, Senator SNOWE, for working as Nation to the brink of collapse. Frank- the downside. We need to do everything they did on the community bank ly, I share that anger. we can to ensure that a financial crisis, issues. It is clear that our economy has not such as the one we experienced in late I was pleased, as I noted yesterday, yet fully recovered, but in the last year 2008, never happens again. We need to that the Independent Community and a half, Congress has dedicated ensure that taxpayers will not be asked Bankers Association, while not endors- itself to turning our economy around. to bail out Wall Street. In short, we ing the entire bill but specifically on We are now on the verge of passing his- need to pass the strong Wall Street re- their issues involving community toric legislation that creates better ac- form bill that is before us today. banks expressed strong support for this countability and transparency for Wall It is also important to note that bill and how much stronger these Street and the financial sector. while this bill requires Wall Street banks are today as a result of our ef- banks to be held more accountable, it forts than would be the case if we were As a senior member of the Banking does not unfairly burden community to defeat the legislation. Their ability Committee, and a member of the con- banks. Community banks did not cause to compete with these larger banks has ference committee, I have worked hard the financial crisis, and they should been enhanced tremendously by what to identify the causes of the crisis and not have to pay for Wall Street’s reck- we have done in this bill. If these provi- find the right solutions to address less behavior. That is particularly im- sions were not adopted, they would be these causes. I have talked at length portant to us in New Hampshire, where back in a situation where there would with South Dakotans of all back- community banks make a huge dif- be significant disadvantages for them grounds and political stripes to gain ference for our cities and towns. That under the current law. their perspective, and there are some is why I joined with Senator SNOWE on I am very grateful to Senator things that get mentioned time and again: there were many causes for the her amendment to eliminate the un- SHAHEEN and Senator SNOWE and oth- necessary, burdensome requirement ers who supported their efforts to meltdown, but gaps in regulation con- that community banks and credit strengthen the role of our community tributed to the problem; rules that ap- unions collect and report on various banks that play such a critical role. As plied to some financial companies but data about their depositors. the Senator from New Hampshire not all opened loopholes that bad ac- I also sponsored another bipartisan pointed out, they were never a source tors could exploit; the lack of a system amendment, one to make large, riskier of the problems in the residential to monitor risks across the banking banks pay their fair share of FDIC pre- mortgage market at all. That deserves sector left taxpayers vulnerable; regu- miums and lower assessments for com- to be repeated over and over. lators were not very focused on looking munity banks. Community bank lend- I thank the Senator for her com- out for consumers; and large Wall ing is really the lifeblood of New ments. Street firms operated with little or no Hampshire’s economy. Every dollar Mr. JOHNSON. Madam President, accountability to either their share- community banks have to pay for Wall Congress is now on the brink of passing holders or their customers. In addition, Street’s mistakes is a dollar that could a landmark deal on legislation to re- it became clear we needed a system to be going to extend credit to small busi- form Wall Street and prevent another unwind big financial firms like AIG, nesses and to home and consumer loans financial crisis like the one we faced Lehman Brothers, and Bear Stearns in to families. nearly 2 years ago. This legislation is an orderly fashion and without tax- I also joined Senator COLLINS on her payer bailouts. Doing nothing is not an amendment to require Wall Street an important and long overdue meas- ure that will help to safeguard the option, and I do not think anyone can banks to follow the same capital and say with a straight face that our cur- risk standards small depository banks long-term stability of our economy. In the closing months of the Bush ad- rent system of financial regulation must follow. This amendment will works for America. make the risky banks that led us into ministration, our Nation faced an eco- While not perfect, the Wall Street re- this financial crisis—banks such as nomic situation so dire that many form measure does a great deal to ad- Bear Stearns and Lehman Brothers— feared our financial system was on the dress many of these problems. It cre- follow the same standards that already verge of collapse. Though we were able ates a mechanism to monitor systemic apply to small depository banks. to avert such a collapse, the impact of This bill requires the big Wall Street the crisis spread across America, leav- risk in the financial sector, as well as banks to have adequate capital to pre- ing few untouched. regulating risky derivatives, credit de- vent taxpayers from having to bail Virtually all of us have been im- fault swaps and other complicated fi- them out again. pacted by the economic meltdown in nancial products that were not trans- I am very pleased that those bipar- some way: businesses shed jobs, work- parent and had previously gone unregu- tisan amendments, which have ers’ hours were cut, some folks had lated. It affords consumers better rules strengthened the bill by protecting great difficulty making their mortgage governing the products they use and community banks, have been adopted. payments when their pay was cut, better information about those prod- It speaks to the conversation Senator small businesses lost customers and ucts by creating a consumer watchdog DODD was having with Senator KAUF- revenue in the downturn. South Da- agency. Importantly, it also creates a MAN earlier that this is a bill that has kota homeowners, regardless of wheth- way to unwind large financial firms gotten broad support in this body and a er they had a mortgage or owned their without having to bail them out. lot of input that has made it better. home outright, saw their equity drop, Specifically, I want to mention two I am glad we have been able to work and most folks with investments for re- provisions. First, I am pleased that the in this bipartisan manner to craft a tirement or other long-term goals suf- conference committee accepted the

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00020 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.046 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5889 Carper-Bayh-Warner-Johnson amend- There are certainly provisions in this tations under section 619(d)(4)(B)(ii)— ment, which I strongly supported, re- bill that I would have written dif- will only apply to a banking entity at garding the preemption standard for ferently as any of my colleagues would the end of the period that is 2 years State consumer financial laws. This if we wrote this legislation ourselves. after the section’s effective date. This amendment received strong bipartisan But that is not how the Senate and our date for the regulators to begin apply- support on the Senate floor and passed legislative system works, and overall I ing the new rules can also be extended by a vote of 80 to 18. One change made think this conference report is very into the future for up to three 1-year by the conference committee was to re- strong legislation. I look forward to its periods under section 619(c)(2) and can state the preemption standard in a passage. also separately be extended for illiquid slightly different way, but it is clear There is no doubt that after the funds with contractual commitments that this legislation is codifying the President signs this bill into law, there as of May 1, 2010, under section preemption standard expressed by the will be an important focus on imple- 619(c)(3), on a one-time basis for up to U.S. Supreme Court in Barnett Bank of menting this legislation correctly, as 5 years. Only after all of these time pe- Marion County, N.A. v. Nelson, Florida well as continued oversight by Con- riods and extensions have run will any Insurance Commissioner, 517 U.S. 25 gress of the agencies and covered finan- of the limitations under section (1996) case. This will provide certainty cial institutions, and efforts at inter- 619(d)(1)(G) and section 619(d)(4) be ap- to consumers and those that offer con- national coordination with our coun- plied by regulators. sumers financial products. terparts in other countries. It is also Second, as an added protection, sec- Also, section 913 of the conference re- likely that there may need to be cor- tion 619(f) applies sections 23A and 23B port reflects a compromise between the rections and adjustments to the bill in of the Federal Reserve Act to trans- House and Senate provisions on the the future. That said, passage of this actions between all of a banking enti- standard of care for brokers, dealers, bill is important to our nation’s eco- ty’s affiliates and hedge or private eq- and investment advisers. It includes nomic recovery, and we must get it to uity funds where the banking entity the original study provisions passed by the President’s desk. organizes, offers, serves as an invest- the Senate, together with additional Mrs. HAGAN. Madam President, I ment manager, investment adviser, or areas of study requested by the rise today to discuss the conference of such funds under section House—a total of 13 separate consider- agreement on financial services regu- 619(d). These restrictions are also ap- ations and a number of subparts, where latory reform and specifically an issue plied to transactions between a bank- we expect the SEC to thoroughly, ob- in section 619 of title VI, known as the ing entity’s affiliates and other funds jectively and without bias evaluate Volcker rule. The section’s limitations that are ‘‘controlled’’ by a hedge or pri- legal and regulatory standards, gaps, on financial organizations that own a vate equity fund permitted for the shortcomings and overlaps. We expect depository institution from investing banking entity under 619(d). Impor- the SEC to conduct the study without or sponsoring in hedge funds or invest- tantly, these 23A and 23B restrictions prejudging its findings, conclusions, ments in private equity to 3 percent of do not apply to funds not ‘‘controlled’’ and recommendations and to solicit an organization’s assets, in the aggre- by funds permitted for the banking en- and consider public comment, as the gate, references ‘‘tier 1 capital.’’ tity under section 619(d), and it should statute requires. As Chairman FRANK The term ‘‘tier 1 capital’’ is a concept also be clear that under section 619 described the compromise when he pre- currently applied strictly to banks and there are no new restrictions or limita- sented it to the committee, section 913 bank holding companies and consists of tions of any type placed on the port- does not immediately impose any new core capital, which includes equity folio investments of any hedge or pri- duties on brokers, dealers and invest- capital and disclosed reserves. How- vate equity fund permitted for a bank- ment advisers nor does it mandate any ever, there are financial organizations ing entity under section 619. particular duty or outcome, but it subject to the Volcker rule’s invest- Third, as a condition of sponsorship, gives the SEC, subsequent to the con- ment constraints that do not have a section 619(d)(1)(G)(v) requires that a clusion of the study, the authority to principal regulator that utilizes tier 1 banking entity does not, directly or in- conduct a rulemaking on the standard capital measurements to determine an directly, guarantee or assume or other- of care, including the authority to im- entity’s financial strength. In order to wise insure the obligations or perform- pose a fiduciary duty. I think this is a ensure a level playing field with tradi- ance of any sponsored hedge or private strong compromise between the House tional banks, I would hope the appro- equity fund or of any other hedge or and Senate positions. priate regulators would determine a private equity fund in which the spon- This bill gives financial institutions, suitable equivalent of tier 1 capital to sored fund invests. While this restricts regulators and consumers the right determine the investment limit, while guarantees by the banking entity as tools to make good decisions, and it still satisfying the intent of the well as the insuring of obligation or also provides the right tools to prevent Volcker rule. performance, it does not limit other another crisis like the one we recently I ask the regulators to make certain normal banking relations with funds experienced. Many of the bill’s provi- that these types of financial organiza- merely due to a noncontrol investment sions, including those mentioned pre- tions will be subject to the Volcker by a fund sponsored by the banking en- viously, have bipartisan support; in rule in a manner that takes into ac- tity. As described above, section 619(f) fact, many of the core ideas incor- count their unique structure. limits transactions under 23A and 23B porated into the bill originated from In addition, I am pleased that as part of the Federal Reserve Act with a fund my Republican colleagues. of the conference report that the ‘‘controlled’’ by the banking entity or Critics of this legislation have said Volcker language was modified to per- a fund sponsored by the banking enti- that it tackles the wrong problems, mit a banking entity to engage in a ty. However, 619(f) does not limit in hurts small banks and businesses, and certain level of traditional asset man- any manner transactions and normal burdens struggling financial institu- agement business, including the ability banking relationships with a fund not tions. I appreciate those points of view, to sponsor and offer hedge and private ‘‘controlled’’ by the banking entity or but feel very confident in saying we equity funds. With that in mind, I a fund sponsored by the banking enti- have taken specific steps to ensure wanted to clarify certain details ty. that small banks and businesses are around this authority. Finally, section 619(d)(4)(I) permits not negatively affected, to make it First, I was pleased to see that the certain banking entities to operate more difficult for firms to take dan- Volcker Rule, as modified, will permit hedge and private equity funds outside gerous risks, and to strike the right banking entities several years to bring of the United States provided that no balance between regulation and flexi- their full range of activities into con- ownership interest in any hedge or pri- bility. But the bottom line is this: the formance with the new rule. In par- vate equity fund is offered for sale or kind of free-wheeling, self-regulating, ticular, section 619(c)(2) ensures that sold to a U.S. resident. For consist- anything goes environment that we the new investment restrictions under ency’s sake, I would expect that, apart had before the crisis is simply not an section 619(d)(1)(G)(iii) and section from the U.S. marketing restrictions, option. 619(d)(4)—including the numerical limi- these provisions will be applied by the

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00021 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.006 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5890 CONGRESSIONAL RECORD — SENATE July 15, 2010 regulators in conformity with and in- tiatives which will hopefully mute that allow people to do business and make corporating the Federal Reserve’s cur- type of potential for another event of a sure they can insure over the risks that rent precedents, rulings, positions, and systemic meltdown. they have in a business. This bill cre- practices under sections 4(c)(9) and The second purpose of this bill—and ates a new regime for how we handle 4(c)(13) of the Bank Holding Company it is an equally important purpose—is derivatives in this country. Act so as to provide greater certainty that we not do something that harms Our goal should have been to make and utilize the established legal frame- one of the unique strengths and charac- derivatives more transparent and work for funds operated by bank hold- teristics of our Nation, where if you sounder. That could have been done ing companies outside of the United are an entrepreneur and have an idea easily by making sure most derivatives States. and are willing to take a risk and try were on over-the-counter exchanges— The PRESIDING OFFICER. The Sen- to create jobs, you can get credit and went through clearinghouses I mean, ator from New Hampshire. capital reasonably easily compared to and had adequate margins behind Mr. GREGG. Madam President, let the rest of the world. That has been the them, adequate liquidity behind them, me begin by thanking the Senator from engine of the economic prosperity of and were reported immediately to the Connecticut and congratulating him. our Nation—the availability of credit credit reporting agencies as to what He has been pretty effective in his last and capital, reasonably priced and rea- they were doing. It didn’t involve a lot year in the Senate. He got a lot of stuff sonably available to entrepreneurs in of complications, just changing the moving and a lot of stuff through. And our Nation. rules of the road. Instead of doing that, I have not agreed with all of it, by the Those should have been our two we have changed the entire process. In way. Most importantly, he has done it goals. If we match this bill to those changing the entire process, we are ba- in a fair and balanced way, always with goals, does it meet the test of meeting sically going to contract significantly a sense of humor and an openness and those goals? Unfortunately, I don’t the availability of these products to willingness to listen to those with think it does. There are some very basically fund and to be the engine or whom he may not agree entirely and positive things in the bill. The resolu- the grease or the lubricant for the abil- allow us to participate at the table in tion authority is a good product in this ity of a lot of American businesses to discussions about the problems at the bill, and it will, in my opinion—though do business. very beginning of the process in a very I know there is a lot of discussion End users in this country who use de- substantial way. So I thank him for his about this—pretty much bring an end rivatives are going to find it very hard courtesy and for the way he runs the to the concept of too big to fail. to have an exemption. They are basi- committee and the way he ran the If an institution gets overleveraged cally going to have to put up capital, HELP Committee when he succeeded to to a point where it is no longer sustain- put up margin—something they do not that leadership on the unfortunate able, and it is a systemic risk institu- do today on commercial derivative passing of Senator Kennedy. It has tion, it is going to be collapsed. The products—and that is going to cause been a pleasure to serve with him on stockholders will be wiped out, the un- them to contract their business. They this bill and on some very significant secured bond holders will be wiped out, will have to contract their business or issues as we tried to work through and the institution will be resolved they are going to have to go overseas. them. under this bill. Believe me, there is a vibrant market I have reservations about this bill— That is positive because we do not in derivatives overseas. They will go to they are more than reservations. I, ob- want to send to the markets a signal London, and this business will end up viously, believe the bill doesn’t get us that the American taxpayer is going to offshore. to where we need to go. When we start- stand behind institutions which are Then we have this push to put every- ed on this effort, our purpose was, in simply large. That perverts capital in thing on an exchange. Well, there are a the beginning, twofold: First, we want- the markets, and it perverts flow of lot of derivatives that obviously should ed to make sure we could do everything economic activity in the markets when go through clearinghouses but are too we could to build into the system of people think there is that sort of guar- customized to go on exchanges, and we regulatory atmosphere and the mar- antee standing behind certain institu- are going to end up inevitably with a ketplace the brakes and the ability to tions in this country. And I think contraction in the derivatives market avoid another systemic meltdown of progress is made in this bill on the as a result. the type we had in late 2008, which was issue of resolution. Then we have the swap desk initia- a traumatic event. But, unfortunately, in a number of tive, which was simply a punitive exer- Nobody should underestimate how other areas, the opportunity to do cise, in my opinion. It is going to ac- significant the events of late 2008 were. something constructive was not accom- complish virtually nothing in the area If action had not been taken under the plished. In fact, in my opinion, there of making the system sounder or more TARP proposal, and under the leader- will be results from this bill which will stable. But what it will do is move a ship of President Bush, Secretary cause us to see a negative effect from large section of derivative activity—es- Paulson, and then President Obama this bill. The most negative effects I pecially the CDS markets—offshore. and Secretary Geithner, this country think will occur from this bill lie in They will go offshore because they will would have gone into a much more se- two areas. First, in the area of the for- not be done here any longer. Banks and vere economic situation—probably a mation of credit. financial houses which historically depression. Secretary Paulson once es- It is very obvious that under this bill have written these instruments are not timated the unemployment rate would there is going to be a very significant going to put up the capital to write have gone to 25 percent. The simple contraction of credit in this country as them because they don’t get a return fact is the entire banking system we head into the next year, 2 years, that makes it worth it to them. would have probably imploded—most maybe even 3 years. We are in a tough I guarantee we are going to see a likely imploded—and certainly Main fiscal time right now. It is still very massive contraction in a number of de- Street America would have been put in difficult on Main Street America to get rivatives markets as a result of this dire straits. credit. The economy is slow. We should swap desk initiative, which was more a But action was taken. It was difficult not be passing a bill which is going to political initiative than a substantive action. We are still hearing about the significantly dampen down credit, but initiative, and which is counter- ramifications of it, but it was the right it will. This bill will. It will for three productive. It is a ‘‘cut off your nose to action, and it has led to a stabilization reasons: spite your face’’ initiative, and it will of the financial industry. But we never First, the derivatives language in move overseas a lot of the products we want to have to see that happen again. this bill is not well thought out. It just do here and make it harder for Ameri- We never want to have to go through isn’t. Most people don’t understand cans to be competitive—especially for that type of trauma again as a nation, what derivatives are, but let’s describe financial services industries to be com- where our entire financial community them as the grease that gets credit petitive—in the United States. So that is teetering. So the purpose of this bill going in this country and everywhere. will cause a contraction and a fairly should be to put in place a series of ini- It is basically insurance products that big one.

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00022 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.009 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5891 The estimates are that the contrac- problems in the industry did exist and come out of a government entity. They tion may be as high as $3⁄4 trillion. should have been addressed. used to say: You know, the government That is a lot of credit taken out of the Another area of concern, of course, is produces a camel when it is supposed system. On top of that, there is the this consumer agency. Consumer pro- to be producing a horse. issue of the new capital rules in this tection is critical. We all agree to that. There is just a disconnect between bill. What we proposed on our side of the the reality of what we are supposed to It isn’t constructive for the Congress aisle was that we link consumer pro- be doing in the area of producing effec- to set arbitrary capital rules. That tection and safety and soundness at the tive regulation relative to protecting should be left to the regulators. But same level of responsibility and the consumers and what this bill ends up this bill pretty much does that. As a same level of authority within the en- finally doing. result, a lot of the regional banks, the tire bank regulatory system so that I would not be here to oversee it or middle-sized banks—the larger banks the prudential regulator—whether it is participate in it. In fact, nobody gets would not be affected too much—will the Fed or the Office of the Comp- to oversee it, by the way. This con- find they are under tremendous pres- troller—when they go out to regulate a sumer protection agency is not respon- sure as their tier I capital has to be re- bank and check on it for safety and sible to the Banking Committee of the structured relative to trust preferred soundness—or the FDIC—they, at the Senate or the Banking Committee of stock. same time, have the same standard of the House. It is not responsible to the This is not a good idea because, as a importance placed on making sure that Fed. This person is a true czar. practical matter, we will again cause a the consumer is being protected in the The term ‘‘czar’’ is thrown around contraction in the market of capital— way that bank deals with the con- here a lot, but this person is a true czar of credit. As banks grow their capital, sumers. That is the way it should be in the area of consumer activity. I sus- they will have to contract credit. When done. The two should be linked because pect we will see that this agency be- a bank has to get money back in order the regulator that regulates the bank comes a very controversial agency, to build its capital position up, it for safety and soundness is the logical with a very political social justice type doesn’t go to its bad loans because the regulator to regulate the bank to make agenda, not an agenda which is aimed bad loans aren’t performing. It goes to sure it is complying with consumers’ at primarily protecting consumers. its good loans, and it doesn’t lend to needs. So that is a big problem with this them. Or it says: We are going to draw But this bill sets up this brandnew bill, and there are a lot of other issues down your line of credit, because that agency, which it calls consumer protec- with this bill. At the margin, the issue is where they can get capital. That is tion, but it will not be at all, in my of how we restructure the regulatory what will happen, and we will see cap- opinion. It will be the agency for polit- regimes is of some concern, the whole ital contract there. ical correctness or correcting political question of how stockholders’ rights in On top of that, we have the Volcker justice or issues of political justice this bill—and probably not relevant to rule. The concept is a very good idea. that somebody is concerned about. It is the banking issue so much—could have We should never have banks using in- totally independent of everybody else. been improved on. The bill overall sured deposits to do their proprietary It doesn’t answer to anyone except on a could have been a much better product. activity. But straightening out what very limited and narrow way to the But the primary concern I have goes this Volcker rule means will take a systemic risk council. It is a single per- back to this issue of what was the while. It may be a year or two before son with an $850 million unoversighted original purpose—to protect systemic anybody can sort out what it means revenue stream with no appropriations. risk in the outyears and make sure we and before the regulations come down Basically, the person just gets the continue to have a strong and vibrant that define it. So there will be a period money and can go off and do whatever credit market for Americans who want of uncertainty, and that uncertainty they want. There is no relationship be- to take risks and create jobs. means less credit available. tween this person and the prudential Two major issues were totally ig- Of course, this is another situation regulator. So what we will have is an nored in the bill which would address where the international banks are the individual who may get on a cause of that question: What drove the event of winners and the domestic banks are social justice and say that XYZ group this meltdown? What caused this finan- the losers because the international isn’t getting enough loans, and they go cial downturn? It was the real estate banks will be able to go and do the out to the banks and say: You have to market and the way it was being lent same business—the proprietary trade— send XYZ group more loans. into. Two things were the basic engines in London, if they are based in London We might have the bank regulator of that problem, that were government or in Singapore, if they are based in over here saying to the local banks, the controlled. There were a lot of things Singapore or Tokyo, if they are based regional banks: You can’t lend to XYZ which caused it, but the two things in Tokyo. But the American banks group because we know they are not which the government controlled were, they compete with aren’t going to be going to pay you back or they will not No. 1, underwriting standards. Basi- able to do it. So that makes no sense at pay you back at a rate that is reason- cally we divorced underwriting stand- all. able. So we are going to have this in- ards from the issue of whether a person But as a practical matter, that is herent conflict. got a loan, so loans were being made on what this bill does. So we will end up Now, what will be the result of that? assets which could not cover the cost again with a tentativeness in the mar- The banks will probably have to lend of the loan. It was presumed the asset kets as to what they are supposed to be to the XYZ group, which means the was going to appreciate, a home was al- doing and what they can do in the area people borrowing from that bank who ways going to appreciate in these com- relative to the Volcker rule, and this pay their loans back will have to pay munities and therefore they could loan will end up creating further credit con- more because the bank will have to at 100 percent of the value of the home tractions. make up for the loss of revenues. As a or 105 percent of the value and still So my guess is, when we add it all to- result, the cost of credit will go up, es- have a safe loan. That was a foolish as- gether, this bill will lead to a credit pecially for individuals who are respon- sumption, to say the least. contraction of probably $1 trillion or sible and paying down their debts and Second, we didn’t look at whether more in our economy. What does that paying for their credit—paying back the person could pay the loans back translate into? It translates into fewer their loans. We are going to end up when these loans were made at zero in- jobs and less economic activity. It with layers and layers of conflicting terest for a year or 2 years. But then didn’t have to happen this way. This regulation which will cost the banking they reset, these loans reset at a fairly could have been done in a way that community money—a significant reasonable or sometimes very unrea- would have been clearer, where the amount of unnecessary money. sonable interest rate and nobody clarity would have been greater, and Who pays for that? Well, the con- looked at whether the person could pay where we would not have had to take sumer pays for it. Clearly, that gets them back. arbitrary action which was more polit- passed through. This is one of those These loans were being made not for ical than substantive to address what Rube Goldberg ideas that can only the purposes of actually recovering the

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00023 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.050 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5892 CONGRESSIONAL RECORD — SENATE July 15, 2010 loans. That was not the reason these poorly structured derivatives language, Mr. SPECTER. I ask unanimous con- loans were being made. These subprime the Consumer Protection Agency— sent I may have 30 minutes when the loans were being made because there which I think is going to end up being two votes which are scheduled for 2 were fees on the loans and the people counterproductive to consumers—and o’clock conclude. making the loans were getting the fees. the failure to take up the Freddie and Mr. DODD. Certainly I would have no There was a whole cottage industry of Fannie issue, and the failure to do objection to that whatsoever. Take people down in Miami who had just stronger underwriting standards. some time at this juncture too, if you gotten out of prison who figured this For that reason, I remain opposed to wish. out while they were in prison and they this bill. I understand it is going to Mr. SPECTER. I will do it all at developed an entire cottage industry of pass. I hope some of my concerns do once. I don’t want to truncate it. former prisoners who had been re- not come to fruition because, if they I ask unanimous consent that I may leased, legally, and actually went back do, unfortunately this economy is have the floor for 30 minutes at the into the loan business and were making going to be slowed and our Nation will conclusion of the two votes scheduled these loans and getting the fees. be less viable economically. But I am for 2 o’clock. Then what aggravated it—first what afraid they will come to fruition. The PRESIDING OFFICER. Is there aggravated it was the underwriting I yield the floor. objection? standards, but then it was that these The PRESIDING OFFICER (Mr. Mr. DODD. Again, let me reserve the loans got securitized. They got picked BURRIS). The Senator from Connecticut right to object. I see the minority up by Freddie Mac and Fannie Mae, is recognized wants to check on such a request. I with the understanding—it was im- Mr. DODD. I see my other colleagues have no objection myself but obviously plicit but it was obvious, as we found here, including Senator SPECTER who that is a matter—in fairness to the mi- out—that Fannie Mae and Freddie Mac wants to be heard, but I want to ad- nority, we want to let them know of would essentially insure these loans. dress my colleague from New Hamp- such a request. Here we are eating up So if you bought one of these shire because we are both going to be time right now. I see my friend from securitized loans, Fannie Mae and walking out of this Chamber in about 5 North Dakota here as well. I am deeply Freddie Mac would be standing behind months. I thank him for his work going grateful to the chairman of the Budget it even though the loans were not via- back to 20-some-odd months ago when Committee. ble. we were involved in the critical weeks Go ahead with that request. I am told This bill ignores both those issues. It and days in September and October. it is OK. has very marginal language on the JUDD GREGG was invaluable putting to- The PRESIDING OFFICER. Without issue of underwriting. It doesn’t get us gether a moment here while, not ter- objection, it is so ordered. back to standards which would basi- ribly popular, I think saved the econ- Mr. SPECTER. I thank the Chair and cally protect us from overly aggressive omy and the country. I will not address my colleague and the unknown persons underwriting. all his concerns here. We have a dif- in the cloakroom. People say Canada did not have a ferent point of view on the issues he Mr. DODD. I thank my colleague problem, Australia didn’t have a prob- raised. They are not illegitimate from Pennsylvania and the unknown lem. Why didn’t they have a problem? issues. We think we addressed them persons in the cloakroom. Let the They didn’t have a problem because properly. He has a different view, and I record show they acknowledged the they required people who were bor- respect that. I appreciate his work and Senator’s request. rowing to put money down and they re- that of his staff on this bill. He made a The PRESIDING OFFICER. The Sen- quired that people who were borrowing significant contribution to this effort ator from North Dakota is recognized. actually be able to pay the money and I thank him for it. Mr. CONRAD. Mr. President, I come back. It seems like a perfectly reason- I see my colleague from Pennsyl- to the floor to discuss the budget point able thing to require, but this bill ig- vania here and I yield the floor. of order that has been raised against nores it. The PRESIDING OFFICER. The Sen- the financial reform conference report. Second, this bill does nothing about ator from Pennsylvania is recognized. I will be voting to waive this point of Fannie or Freddie—nothing. Talk Mr. SPECTER. Mr. President, at the order. As Budget Committee chairman, about ignoring the elephant in the outset I wish to ascertain with preci- I do not take this step lightly. In fact, room, this is the whole herd of ele- sion that I have 20 minutes, as had the point of order that has been offered phants in the room. The American tax- been arranged with the floor monitors. is a point of order that I created in the payer today is on the hook for some- I had looked for 30 but I ask consent I 2008 budget, so it is something I feel thing like $500 billion to $1 trillion. may speak for up to 20 minutes now. strongly about as a general matter. The estimates vary. Some people say it The PRESIDING OFFICER. Is there But its applicability here is false in the is even higher than that—the American objection? face of the importance of the legisla- taxpayer, for bad loans, securitized by Mr. DODD. Reserving the right to ob- tion we need to consider. Fannie and Freddie. This bill says ject, I want to be clear so my colleague The legislation before us is critical to nothing. It is as if this problem doesn’t will understand this. I had a sheet of our economic strength. I think we all exist. It is as if this problem doesn’t paper in front of me—I do not have it understand that financial reform is exist. Not only was it one of the pri- in front of me now—with the order of long overdue. It has been almost 2 mary drivers of the financial meltdown those who sought time. I want to be years since the financial sector col- but it is one of the biggest problems we careful, as my colleague from Pennsyl- lapse brought our economy to the have going forward. The administra- vania will understand. We are going to brink of global financial collapse. I was tion says we will do it next year. Well, vote at 2 o’clock. I want to be sure I in the room and Senator DODD was in if you do a financial reform bill with- can accommodate my colleagues. the room when we were informed by out Fannie and Freddie, you essen- The PRESIDING OFFICER. Twenty- the Chairman of the Federal Reserve tially are not doing a financial reform three minutes remains to the majority. and the Secretary of the Treasury in bill at all. I apply the same to the issue Mr. DODD. I know Senator CONRAD, the previous administration that if we of underwriting. chairman of the Budget Committee, failed to act at that dire moment, we In my opinion, this bill has some has to be heard and it is critical to me could face a global financial collapse. pluses. I know this was worked very he be heard on the budget point of That is how serious it was. hard and I admire the efforts of the order. Now that the economy has stabilized, Senator from Connecticut and actually Could you make it a little less than it is easy to forget the crisis that swept the chairman in the House, Congress- 20? through the financial markets and man FRANK from Massachusetts. But Mr. SPECTER. I really cannot. I had threw us into the worst downturn since the negatives of this bill unfortunately started at 30 and 20 is tough. How early the Great Depression—in fact, which are too significant to ignore, especially might I return for my 30 minutes? risked a second great depression. But in the area of the short-term credit Mr. DODD. After 2 o’clock? Any point we cannot afford to forget. We need to contraction that is going to occur, the after—— remember that the problems on Wall

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This bill is an insurance policy order to wind down substantially risky prevent another financial sector col- against an expensive future taxpayer firms, then not only do you get paid lapse, or at least will help prevent it. I bailout. back, but the interest on the cost of do not think any of us can say this will The point of order that has been that money is also part of the deal. So prevent any future collapse, but it is raised is the long-term deficit point of it is 100 percent-plus coming back to critically important to helping us pre- order, a point of order I established in the Treasury. vent another collapse. It will allow the the budget resolution of 2008. This But his analysis and that of his com- government to shut down firms that point of order prohibits legislation that mittee—and there is no one who has threaten to crater our economy and en- worsens the deficit by more than $5 bil- been more disciplined or guarded about sure that the financial industry, not lion in any of the four 10-year periods the budgetary process over the years taxpayers, is on the hook for any costs. following 2019. we have served together, and so I ap- It will rein in risky derivatives and CBO has determined that at least in preciate the Senator’s analysis of this other risky trading practices that un- one of those four 10-year periods, the particular point on the long-term def- dermined some of our largest financial conference report would exceed this icit. institutions. It will help level the play- threshold. But this is really just a tim- I commend the Senator for including ing field for smaller banks and credit ing issue caused by the new bipartisan the provisions he has and trying to unions by cracking down on the risky resolution authority created by the build some discipline into the process practices of Wall Street and nonbank bill. This is the new authority given to of how we expend taxpayer moneys, financial institutions that caused the the government to wind down failing collect taxes in the first place to pay financial crisis. financial firms. Under the resolution for the needed expenditures of our gov- I am grateful to Senator DODD, the authority, if a financial firm is about ernment. So I thank the Senator for Banking Committee, and members of to collapse, the government will use that. the conference for working with me to the firm’s assets to wind it down and I thank him for his comments as well make certain that the final bill recog- put it out of business. If the firm’s as- about the bill and his support and also nizes the special circumstances of com- sets are insufficient, the government the substantive contributions the Sen- munity banks and credit unions in will temporarily borrow funds from the ator from North Dakota has made, be- rural States such as mine. In par- Treasury. The financial industry will cause one of the things we tried to be ticular, I appreciate the committee’s then reimburse the government and very careful about—JON TESTER of modification to the lending limit the taxpayers for 100 percent of the Montana, who sits on the committee standards. This is very important to cost. Again, 100 percent of the money with me, has been very careful and farming communities across the coun- will be paid back by the banks. So the been tremendously active in seeing to try. net impact on the deficit is zero. it that rural America is going to be The final bill also provides added Overall, the bill saves $3.2 billion well served by this legislation. And flexibility for rural lenders in the new over the first 10 years, according to the there are differences. It is not all Wall mortgage standards as well as provi- Congressional Budget Office. So while Street, New York, and major financial sions to improve interchange reform technically this budget point of order centers. The importance of the avail- for smaller financial institutions. Fi- lies, if you pierce the veil and look at ability of credit in rural communities nally, I am pleased the committee in- what really happens, this bill reduces is critical, as my colleague from North cluded a risk-focused deposit insurance the deficit, according to the Congres- Dakota has informed me over the years fund assessment formula and modified sional Budget Office, which is the non- we have served together. That ability risk retention requirements for high partisan scorekeeper here in the Sen- of a local farmer to borrow that money quality loans. ate. Because there is a lag time for the in the spring, to be able to pay back in Especially I thank Senator DODD for government to collect this money from the fall, at harvest time, has been es- his extraordinary leadership. What a the financial industry, CBO scores the sential, and knowing how difficult it final year in the Senate. What a re- bill as increasing the deficit in some of has been throughout the country to markable legacy he is leaving. I think the later decades. But all of that have access to credit is essential. the annals of the Senate will show very money will be paid back in ensuing So his contributions to the legisla- few Senators have had a record of ac- years, and that is what matters most tion make sure that what we do here is complishment that matches what Sen- in this case. going to enhance the capability of ator DODD will have done in this year. So although this bill does technically rural America to not only come out of With respect to the budget point of violate the long-term deficit point of this crisis we are in but to prosper in order that has been raised against the order, it is insignificant. The fact is, the years ahead with this legislation. conference report, let me make a cou- this bill reduces the deficit, according So beyond the budgetary consider- ple of general points. First, this budget to the Congressional Budget Office. So ations and the points of order before violation is not significant enough to I urge my colleagues to waive the point us, I thank him for his contributions to merit derailing this important legisla- of order, to support passage of this fi- the substance of the bill, which has tion. Second, we must bear in mind the nancial reform legislation, which is made it a far better bill to begin with. risks of failing to act. If we fail to pro- clearly a significant step in the right I see my colleague from Oregon is tect against a future collapse and cre- direction in preventing the kind of risk here. I yield the floor. ate an orderly process for dealing with to our Nation’s economy that is so ap- The PRESIDING OFFICER. The Sen- giant insolvent financial institutions, parent with the current structure. ator from Oregon is recognized. it is inevitable that taxpayers will Again, I thank the chairman for his Mr. MERKLEY. Mr. President, I again at some future point be asked to extraordinary work not only on this thank Chairman DODD for yielding to bail out the financial sector and pre- bill but throughout the year and, I me and for his leadership on financial vent a catastrophic financial collapse. think all of us know, throughout his reform. If one measures on any scale the dif- career. I yield to Senator LEVIN. ferences between the technical viola- I yield the floor. Mr. LEVIN. Mr. President, Senator tion in this budget point of order The PRESIDING OFFICER. The Sen- MERKLEY and I, as the principal au- against what would happen if this leg- ator from Connecticut thors of sections 619, 620, and 621 of the islation fails, they cannot even be com- Mr. DODD. Mr. President, before my Dodd-Frank Act, thought it might be pared. I mean, it is a gnat against an friend, the chairman of the Budget helpful to explain in some detail those elephant. So let’s keep things in mind Committee, leaves, let me thank him sections, which are based on our bill, S. here. immensely for his analysis of this 3098, called the Protect Our Recovery

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Such quantitative lim- ference Committee. blame squarely on proprietary trading. its and capital charges are to be set by I yield the floor to my colleague, This report, largely authored by former the regulators to address risks similar Senator MERKLEY. Federal Reserve System Chairman to those which lead to the flat prohibi- Mr. MERKLEY. I thank Senator Paul Volcker, recommended prohib- tion for banking entities. LEVIN and will be setting forth here our iting systemically critical banking in- Subsection (h), paragraph (1) defines joint explanation of the Merkley-Levin stitutions from trading in securities ‘‘banking entity’’ to be any insured de- provisions of the Dodd-Frank Act. Sec- and other products for their own ac- pository institution (as otherwise de- tions 619, 620 and 621 do three things: counts. In January 2010, President fined under the Bank Holding Company prohibit high-risk proprietary trading Barack Obama gave his full support to Act), any entity that controls an in- at banks, limit the systemic risk of common-sense restrictions on propri- sured depository institution, any enti- such activities at systemically signifi- etary trading and fund investing, ty that is treated as a bank holding cant nonbank financial companies, and which he coined the ‘‘Volcker Rule.’’ company under section 8 of the Inter- prohibit material conflicts of interest The ‘‘Volcker Rule,’’ which Senator national Banking Act of 1978, and any in asset-backed securitizations. LEVIN and I drafted and have cham- affiliates or subsidiaries of such enti- Sections 619 and 620 amend the Bank pioned in the Senate, and which is em- ties. We and the Congress specifically Holding Company Act of 1956 to broad- bodied in section 619, embraces the rejected proposals to exclude the affili- ly prohibit proprietary trading, while spirit of the Glass-Steagall Act’s sepa- ates and subsidiaries of bank holding nevertheless permitting certain activi- ration of ‘‘commercial’’ from ‘‘invest- companies and insured depository in- ties that may technically fall within ment’’ banking by restoring a protec- stitutions, because it was obvious that the definition of proprietary trading tive barrier around our critical finan- restricting a bank, but not its affiliates but which are, in fact, safer, client-ori- cial infrastructure. It covers not sim- and subsidiaries, would ultimately be ented financial services. To account for ply securities, but also derivatives and ineffective in restraining the type of the additional risk of proprietary trad- other financial products. It applies not high-risk proprietary trading that can ing among systemically critical finan- only to banks, but also to nonbank fi- undermine an insured depository insti- cial firms that are not banks, bank nancial firms whose size and function tution. holding companies, or the like, the sec- render them systemically significant. The provision recognizes the modern tions require nonbank financial compa- While the intent of section 619 is to reality that it is difficult to separate nies supervised by the Federal Reserve restore the purpose of the Glass- the fate of a bank and its bank holding Board, the ‘‘Board’’, to keep additional Steagall barrier between commercial company, and that for the bank hold- capital for their proprietary trading and investment banks, we also update ing company to be a source of strength activities and subject them to quan- that barrier to reflect the modern fi- to the bank, its activities, and those of titative limits on those activities. In nancial world and permit a broad array its other subsidiaries and affiliates, addition, given the unique control that of low-risk, client-oriented financial cannot be at such great risk as to im- firms who package and sell asset- services. As a result, the barrier con- peril the bank. We also note that not backed securities (including synthetic structed in section 619 will not restrict all banks pose the same risks. Accord- asset-backed securities) have over most financial firms. ingly, the paragraph provides a narrow transactions involving those securities, Section 619 is intended to limit pro- exception for insured depository insti- section 621 protects purchasers by pro- prietary trading by banking entities tutions that function principally for hibiting those firms from engaging in and systemically significant nonbank trust purposes and do not hold public transactions that involve or result in financial companies. Properly imple- depositor money, make loans, or access material conflicts of interest. mented, section 619’s limits will tamp Federal Reserve lending or payment First, it is important to remind our down on the risk to the system arising services. These specialized entities colleagues how the financial crisis of from firms competing to obtain greater that offer very limited trust services the past several years came to pass. and greater returns by increasing the are elsewhere carved out of the defini- Beginning in the 1980’s, new financial size, leverage, and riskiness of their tion of ‘‘bank,’’ so we do not treat products and significant amounts of de- trades. This is a critical part of ending them as banks for the purposes of the regulation undermined the Glass- too big to fail financial firms. In addi- restriction on proprietary trading. Steagall Act’s separation of commer- tion, section 619 seeks to reorient the However, such institutions are covered cial banking from securities brokerage U.S. banking system away from lever- by the restriction if they qualify under or ‘‘investment banking’’ that had kept aged, short-term speculation and in- the provisions covering systemically our banking system relatively safe stead towards the safe and sound provi- important nonbank financial compa- since 1933. sion of long-term credit to families and nies. Over time, commercial and invest- business enterprises. Subsection (h), paragraph (3) defines ment banks increasingly relied on pre- We recognize that regulators are es- nonbank financial companies super- carious short term funding sources, sential partners in the legislative proc- vised by the Board to be those financial while at the same time significantly ess. Because regulatory interpretation companies whose size, interconnected- increasing their leverage. It was as if is so critical to the success of the rule, ness, or core functions are of suffi- our banks and securities firms, in com- we will now set forth, as the principal ciently systemic significance as to peting against one another, were race authors of Sections 619 to 621, our ex- warrant additional supervision, as di- car drivers taking the curves ever more planations of how these provisions rected by the Financial Stability Over- tightly and at ever faster speeds. Mean- work. sight Council pursuant to Title I of the while, to match their short-term fund- Section 619’s prohibitions and restric- Dodd-Frank Act. Given the varied na- ing sources, commercial and invest- tions on proprietary trading are set ture of such nonbank financial compa- ment banks drove into increasingly forth in a new section 13 to the Bank nies, for some of which proprietary risky, short-term, and sometimes theo- Holding Company Act of 1956, and sub- trading is effectively their business, an retically hedged, proprietary trading. section (a), paragraph (1) establishes outright statutory prohibition on such When markets took unexpected turns, the basic principle clearly: a banking trading was not warranted. Instead, the such as when Russia defaulted on its entity shall not ‘‘engage in proprietary risks posed by their proprietary trad- debt and when the U.S. mortgage- trading’’ or ‘‘acquire or retain . . . own- ing is addressed through robust capital backed securities market collapsed, li- ership interest[s] in or sponsor a hedge charges and quantitative limits that quidity evaporated, and financial firms fund or private equity fund’’, unless increase with the size, interconnected- became insolvent very rapidly. No otherwise provided in the section. ness, and systemic importance of the

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As with banking in paragraph (4) covers a wide range of tecting against risks arising from asset entities, these restrictions should also financial instruments, including secu- management services. help reduce the size and risk of these rities, commodities, futures, options, Subsection (h), paragraph (2) sets financial firms. derivatives, and any similar financial forth a broad definition of hedge fund Naturally, the definition of ‘‘propri- instruments. Pursuant to the rule of and private equity fund, not distin- etary trading’’ is critical to the provi- construction in subsection (g), para- guishing between the two. The defini- sion. For the purposes of section 13, graph (2), the definition should not tion includes any company that would proprietary trading means ‘‘engaging generally include loans sold in the be an investment company under the as a principal for the trading account’’ process of securitizing; however, it Investment Company Act of 1940, but is in transactions to ‘‘purchase or sell, or could include such loans if such loans excluded from such coverage by the otherwise acquire or dispose of’’ a wide become financial instruments traded to provisions of sections 3(c)(1) or 3(c)(7). range of traded financial products, in- capture the change in their market Although market practice in many cluding securities, derivatives, futures, value. cases distinguishes between hedge and options. There are essentially Limiting the definition of propri- funds, which tend to be trading vehi- three key elements to the definition: etary trading to near-term holdings cles, and private equity funds, which (1) the firm must be acting ‘‘as a prin- has the advantage of permitting bank- tend to own entire companies, both cipal,’’ (2) the trading must be in its ing entities to continue to deploy cred- types of funds can engage in high risk ‘‘trading account’’ or another similar it via long-term capital market debt activities and it is exceedingly difficult account, and (3) the restrictions apply instruments. However, it has the dis- to limit those risks by focusing on only to the full range of its financial instru- advantage of failing to prevent the one type of entity. ments. problems created by longer-term hold- Despite the broad prohibition on pro- Purchasing or selling ‘‘as a prin- ings in riskier financial instruments, prietary trading set forth in subsection cipal’’ refers to when the firm pur- for example, highly complex collat- (a), the legislation recognizes that chases or sells the relevant financial eralized debt obligations and other there are a number of low-risk propri- instrument for its own account. The opaque instruments that are not read- etary activities that do not pose unrea- prohibition on proprietary trading does ily marketable. To address the risks to sonable risks and explicitly permits not cover trading engaged with exclu- the banking system arising from those those activities to occur. Those low- sively client funds. longer-term instruments and related risk proprietary trading activities are The term ‘‘trading account’’ is in- trading, section 620 directs Federal identified in subsection (d), paragraph tended to cover an account used by a banking regulators to sift through the (1), subject to certain limitations set firm to make profits from relatively assets, trading strategies, and other in- forth in paragraph (2), and additional short-term trading positions, as op- vestments of banking entities to iden- capital charges required in paragraph posed to long-term, multi-year invest- tify assets or activities that pose unac- (3). ments. The administration’s proposed ceptable risks to banks, even when held While paragraph (1) authorizes sev- Volcker Rule focused on short-term in longer-term accounts. Regulators eral permitted activities, it simulta- trading, using the phrase ‘‘trading are expected to apply the lessons of neously grants regulators broad au- book’’ to capture that concept. That that analysis to tighten the range of thority to set further restrictions on phrase, which is currently used by investments and activities permissible any of those activities and to supple- some bank regulators was rejected, for banking entities, whether they are ment the additional capital charges however, and the ultimate conference at the insured depository institution or provided for by paragraph (3). report language uses the term ‘‘trading at an affiliate or subsidiary, and Subparagraph (d)(1)(A) authorizes the account’’ rather than ‘‘trading book’’ whether they are short or long term in purchase or sale of government obliga- to ensure that all types of accounts nature. tions, including government-sponsored used for proprietary trading are cov- The new Bank Holding Company Act enterprise, GSE, obligations, on the ered by the section. section 13 also restricts investing in or grounds that such products are used as To ensure broad coverage of the pro- sponsoring hedge funds and private eq- low-risk, short-term liquidity positions hibition on proprietary trading, para- uity funds. Clearly, if a financial firm and as low-risk collateral in a wide graph (3) of subsection (h) defines were able to structure its proprietary range of transactions, and so are appro- ‘‘trading account’’ as any account used positions simply as an investment in a priately retained in a trading account. ‘‘principally for the purpose of selling hedge fund or private equity fund, the Allowing trading in a broad range of in the near term (or otherwise with the prohibition on proprietary trading GSE obligations is also meant to recog- intent to resell in order to profit from would be easily avoided, and the risks nize a market reality that removing short-term price movements)’’ and to the firm and its subsidiaries and af- the use of these securities as liquidity such other accounts as the regulators filiates would continue. A financial in- and collateral positions would have sig- determine are properly covered by the stitution that sponsors or manages a nificant market implications, includ- provision to fulfill the purposes of the hedge fund or private equity fund also ing negative implications for the hous- section. In designing this definition, we incurs significant risk even when it ing and farm credit markets. By au- were aware of bank regulatory capital does not invest in the fund it manages thorizing trading in GSE obligations, rules that distinguish between short- or sponsors. Although piercing the cor- the language is not meant to imply a term trading and long-term invest- porate veil between a fund and its view as to GSE operations or structure ments, and our overall focus was to re- sponsoring entity may be difficult, re- over the long-term, and permits regu- strict high-risk proprietary trading. cent history demonstrates that a finan- lators to add restrictions on this per- For banking entity subsidiaries that do cial firm will often feel compelled by mitted activity as necessary to prevent not maintain a distinction between a reputational demands and relationship high-risk proprietary trading activities trading account and an investment ac- preservation concerns to bail out cli- under paragraph (2). When GSE reform count, all accounts should be presumed ents in a failed fund that it managed or occurs, we expect these provisions to to be trading accounts and covered by sponsored, rather than risk litigation be adjusted accordingly. Moreover, as the restriction. or lost business. Knowledge of such is the case with all permitted activities Linking the prohibition on propri- concerns creates a moral hazard among under paragraph (1), regulators are ex- etary trading to trading accounts per- clients, attracting investment into pected to apply additional capital re- mits banking entities to hold debt se- managed or sponsored funds on the as- strictions under paragraph (3) as nec- curities and other financial instru- sumption that the sponsoring bank or essary to account for the risks of the ments in long-term investment port- systemically significant firm will res- trading activities. folios. Such investments should be cue them if markets turn south, as was Subparagraph (d)(1)(B) permits un- maintained with the appropriate cap- done by a number of firms during the derwriting and market-making-related

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On the other hand, pur- providing two-sided markets for speedy viding a two-sided market for clients chasing commodity futures to ‘‘hedge’’ acquisition or disposition of certain fi- buying and selling existing securities. inflation risks that may generally im- nancial instruments. Done properly, it The reality was that Goldman Sachs pact the banking entity may be noth- is not a speculative enterprise, and rev- was creating new securities for sale to ing more than proprietary trading enues for the firm should largely arise clients and building large speculative under another name. Distinguishing from the provision of credit provided, positions in high-risk instruments, in- between true hedges and covert propri- and not from the capital gain earned cluding credit default swaps. Such etary trades may be one of the more on the change in the price of instru- speculative activities are the essence challenging areas for regulators, and ments held in the firm’s accounts. Aca- of proprietary trading and cannot be will require clear identification by fi- demic literature sets out the distinc- properly considered within the cov- nancial firms of the specific assets and tions between making markets for cus- erage of the terms ‘‘market-making’’ risks being hedged, research and anal- tomers and holding speculative posi- or ‘‘market-making-related.’’ ysis of market best practices, and rea- tions in assets, but in general, the two The subparagraph also specifically sonable regulatory judgment calls. types of trading are distinguishable by limits such underwriting and market- Vigorous and robust regulatory over- the volume of trading, the size of the making-related activities to ‘‘reason- sight of this issue will be essential to positions, the length of time that posi- ably expected near term demands of the prevent ‘‘hedging’’ from being used tions remains open, and the volatility clients, customers, and counterpar- as a loophole in the ban on proprietary of profits and losses, among other fac- ties.’’ Essentially, the subparagraph trading. tors. Regulations implementing this creates two restrictions, one on the ex- Subparagraph (d)(1)(D) permits the permitted activity should focus on pected holding period and one on the acquisition of the securities and other these types of factors to assist regu- intent of the holding. These two re- affected financial instruments ‘‘on be- lators in distinguishing between finan- strictions greatly limit the types of half of customers.’’ This permitted ac- cial firms assisting their clients versus risks and returns for market-makers. tivity is intended to allow financial those engaged in proprietary trading. Generally, the revenues for market- firms to use firm funds to purchase as- Vigorous and robust regulatory over- making by the covered firms should be sets on behalf of their clients, rather sight of this issue will be essential to made from the fees charged for pro- than on behalf of themselves. This sub- the prevent ‘‘market-making’’ from viding a ready, two-sided market for fi- paragraph is intended, in particular, to provide reassurance that trading in being used as a loophole in the ban on nancial instruments, and not from the ‘‘street name’’ for customers or in proprietary trading. changes in prices acquired and sold by The administration’s draft language, trust for customers is permitted. the financial institution. The ‘‘near In general, subparagraph (d)(1)(E) the original section 619 contemplated term’’ requirement connects to the provides exceptions to the prohibition by the Senate Banking Committee, and provision in the definition of trading on investing in hedge funds or private amendment 4101 each included the account whereby the account is defined equity funds, if such investments ad- term ‘‘in facilitation of customer rela- as trading assets that are acquired vance a ‘‘public welfare’’ purpose. It tions’’ as a permitted activity. The ‘‘principally for the purpose of selling permits investments in small business term was removed in the final version in the near term.’’ The intent is to investment companies, which are a of the Dodd-Frank Act out of concern focus firms on genuinely making mar- form of regulated venture capital fund that this phrase was too subjective, kets for clients, and not taking specu- in which banks have a long history of ambiguous, and susceptible to abuse. lative positions with the firm’s capital. successful participation. The subpara- At the same time, we recognize that Put simply, a firm will not satisfy this graph also permits investments ‘‘of the the term was previously included to requirement by acquiring a position on type’’ permitted under the paragraph permit certain legitimate client-ori- the hope that the position will be able of the National Bank Act enabling ented services, such pre-market-mak- to be sold at some unknown future date banks to invest in a range of low-in- ing accumulation of small positions for a trading profit. come community development and that might not rise to the level of fully Subparagraph (d)(1)(C) permits a other projects. The subparagraph also ‘‘market-making’’ in a security or fi- banking entity to engage in ‘‘risk-miti- specifically mentions tax credits for nancial instrument, but are intended gating hedging activities in connection historical building rehabilitation ad- to nonetheless meet expected near- with and related to individual or aggre- ministered by the National Park Serv- term client liquidity needs. Accord- gated positions, contracts, or other ice, but is flexible enough to permit the ingly, while previous versions of the holdings of the banking entity that are regulators to include other similar low- legislation referenced ‘‘market-mak- designed to reduce the specific risks to risk investments with a public welfare ing’’, the final version references ‘‘mar- the banking entity in connection with purpose. ket-making-related’’ to provide the and related to such positions, con- Subparagraph (d)(1)(F) is meant to regulators with limited additional tracts, or other holdings.’’ This activ- accommodate the normal business of flexibility to incorporate those types of ity is permitted because its sole pur- insurance at regulated insurance com- transactions to meet client needs, pose is to lower risk. panies that are affiliated with banks. without unduly warping the common While this subparagraph is intended The Volcker Rule was never meant to understanding of market-making. to permit banking entities to utilize affect the ordinary business of insur- We note, however, that ‘‘market- their trading accounts to hedge, the ance: the collection and investment of making-related’’ is not a term whose phrase ‘‘in connection with and related premiums, which are then used to sat- definition is without limits. It does not to individual or aggregated positions isfy claims of the insured. These activi- implicitly cover every time a firm buys . . .’’ was added between amendment ties, while definitionally proprietary an existing financial instrument with 4101 and the final version in the con- trading, are heavily regulated by State the intent to later sell it, nor does it ference report in order to ensure that insurance regulators, and in most cases cover situations in which a firm cre- the hedge applied to specific, identifi- do not pose the same level of risk as ates or underwrites a new security able assets, whether it be on an indi- other proprietary trading. with the intent to market it to a cli- vidual or aggregate basis. Moreover, However, to prevent abuse, firms ent. Testimony by Goldman Sachs hedges must be to reduce ‘‘specific seeking to rely on this insurance-re- Chairman Lloyd Blankfein and other risks’’ to the banking entity arising lated exception must meet two essen- Goldman executives during a hearing from these positions. This formulation tial qualifications. First, only trading before the Permanent Subcommittee is meant to focus banking entities on for the general account of the insur- on Investigations seemed to suggest traditional hedges and prevent propri- ance firm would qualify. Second, the

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Similarly, clause hibiting a foreign bank from improp- company investment regulations will (viii) ensures that investors recognize erly offering its hedge fund and private not qualify for protection here. that the funds are subject to market equity fund services to U.S. persons Further, where State laws and regu- discipline by requiring that funds pro- when such offering could not be made lations do not exist or otherwise fail to vide prominent disclosure that any in the United States. appropriately connect the insurance losses of a hedge fund or private equity Subparagraph (J) permits the regu- company investments to the actual fund are borne by investors and not by lators to add additional exceptions as business of insurance or are found to the firm, and the firm must also com- necessary to ‘‘promote and protect the inadequately protect the firm, the sub- ply with any other restrictions to en- safety and soundness of the banking paragraph’s conditions will not be met. sure that investors do not rely on the entity and the financial stability of the Subparagraph (d)(1)(G) permits firms firm, including any of its affiliates or United States.’’ This general exception to organize and offer hedge funds or subsidiaries, for a bailout. power is intended to ensure that some private equity funds as an asset man- Fifth, the firm or its affiliates cannot unforeseen, low-risk activity is not in- agement service to clients. It is impor- make or maintain an investment inter- advertently swept in by the prohibition tant to remember that nothing in sec- est in the fund, except in compliance on proprietary trading. However, the tion 619 otherwise prohibits a bank with the limited fund seeding and subparagraph sets an extremely high from serving as an investment adviser alignment of interest provisions pro- bar: the activity must be necessary to to an independent hedge fund or pri- vided in paragraph (4) of subsection (d). promote and protect the safety and vate equity fund. Yet, to serve in that This paragraph allows a firm, for the soundness of the banking entity and capacity, a number of criteria must be limited purpose of maintaining an in- the financial stability of the United met. vestment management business, to States, and not simply pose a competi- First, the firm must be doing so pur- seed a new fund or make and maintain tive disadvantage or a threat to firms’ suant to its provision of bona fide a ‘‘de minimis’’ co-investment in a profitability. trust, fiduciary, or investment advi- hedge fund or private equity fund to Paragraph (2) of section (d) adds ex- sory services to customers. Given the align the interests of the fund man- plicit statutory limits to the permitted fiduciary obligations that come with agers and the clients, subject to several activities under paragraph (1). Specifi- such services, these requirements en- conditions. As a general rule, firms cally, it prevents an activity from sure that banking entities are properly taking advantage of this provision qualifying as a permitted activity if it engaged in responsible forms of asset should maintain only small seed funds, would ‘‘involve or result in a material management, which should tamp down likely to be $5 to $10 million or less. conflict of interest,’’ ‘‘result directly on the risks taken by the relevant Large funds or funds that are not effec- or indirectly in a material exposure fund. tively marketed to investors would be . . . to high-risk assets or high-risk Second, subparagraph (d)(1)(G) pro- evasions of the restrictions of this sec- trading strategies’’ or otherwise pose a vides strong protections against a firm tion. Similarly, co-investments de- threat to the safety and soundness of bailing out its funds. Clause (iv) pro- signed to align the firm with its clients the firm or the financial stability of hibits banking entities, as provided must not be excessive, and should not the United States. Regulators are di- under paragraph (1) and (2) of sub- allow for firms to evade the intent of rected to define the key terms in the section (f), from entering into lending the restrictions of this section. paragraph and implement the restric- or similar transactions with related These ‘‘de minimis’’ investments are tions as part of the rulemaking proc- funds, and clause (v) prohibits banking to be greatly disfavored, and subject to ess. Regulators should pay particular entities from ‘‘directly or indirectly, several significant restrictions. First, a attention to the hedge funds and pri- guarantee[ing], assum[ing], or other- firm may only have, in the aggregate, vate equity funds organized and offered wise insur[ing] the obligations or per- an immaterial amount of capital in under subparagraph (G) to ensure that formance of the hedge fund or private such funds, but in no circumstance such activities have sufficient distance equity fund.’’ To prevent banking enti- may such positions aggregate to more from other parts of the firm, especially ties from engaging in backdoor bail- than 3 percent of the firm’s Tier 1 cap- those with windows into the trading outs of their invested funds, clause (v) ital. Second, by one year after the date flow of other clients. Hedging activi- extends to the hedge funds and private of establishment for any fund, the firm ties should also be particularly scruti- equity funds in which such subpara- must have not more than a 3 percent nized to ensure that information about graph (G) hedge funds and private eq- ownership interest. Third, investments client trading is not improperly uti- uity funds invest. in hedge funds and private equity funds lized. Third, to prevent a banking entity shall be deducted on, at a minimum, a The limitation on proprietary trad- from having an incentive to bailout its one-to-one basis from capital. As the ing activities that ‘‘involve or result in funds and also to limit conflicts of in- leverage of a fund increases, the cap- a material conflict of interest’’ is a terest, clause (vii) of subparagraph (G) ital charges shall be increased to re- companion to the conflicts of interest restricts directors and employees of a flect the greater risk of loss. This is prohibition in section 621, but applies banking entity from being invested in specifically intended to discourage to all types of activities rather than hedge funds and private equity funds these high-risk investments, and just asset-backed securitizations. organized and offered by the banking should be used to limit these invest- With respect to the definition of entity, except for directors or employ- ments to the size only necessary to fa- high-risk assets and high-risk trading ees ‘‘directly engaged’’ in offering in- cilitate asset management businesses strategies, regulators should pay close vestment advisory or other services to for clients. attention to the characteristics of as- the hedge fund or private equity fund. Subparagraphs (H) and (I) recognize sets and trading strategies that have Fund managers can have ‘‘skin in the rules of international regulatory com- contributed to substantial financial game’’ for the hedge fund or private eq- ity by permitting foreign banks, regu- loss, bank failures, bankruptcies, or uity fund they run, but to prevent the lated and backed by foreign taxpayers, the collapse of financial firms or finan- bank from running its general em- in the course of operating outside of cial markets in the past, including but ployee compensation through the the United States to engage in activi- not limited to the crisis of 2008 and the hedge fund or private equity fund, ties permitted under relevant foreign financial crisis of 1998. In assessing other management and employees may law. However, these subparagraphs are high-risk assets and high-risk trading not. not intended to permit a U.S. banking strategies, particular attention should Fourth, by stating that a firm may entity to avoid the restrictions on pro- be paid to the transparency of the mar- not organize and offer a hedge fund or prietary trading simply by setting up kets, the availability of consistent private equity fund with the firm’s an offshore subsidiary or reincor- pricing information, the depth of the name on it, clause (vi) of subparagraph porating offshore, and regulators markets, and the risk characteristics

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00029 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.012 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5898 CONGRESSIONAL RECORD — SENATE July 15, 2010 of the assets and strategies themselves, Indeed, a large part of protecting that a banking entity should not be including any embedded leverage. Fur- firms from bailing out their affiliated prohibited, under proper restrictions, ther, these characteristics should be funds is by limiting the lending, asset from providing limited services to un- evaluated in times of extreme market purchases and sales, derivatives trad- affiliated funds, but in which its own stress, such as those experienced re- ing, and other relationships that a advised fund may invest. Accordingly, cently. With respect to trading strate- banking entity or nonbank financial paragraph (3) is intended to only cover gies, attention should be paid to the company supervised by the Board may third-party funds, and should not be role that certain types of trading strat- maintain with the hedge funds and pri- used as a means of evading the general egies play in times of relative market vate equity funds it advises. The rela- prohibition provided in paragraph (1). calm, as well as times of extreme mar- tionships that a banking entity main- Put simply, a firm may not create ket stress. While investment advisors tains with and services it furnishes to tiered structures and rely upon para- may freely deploy high-risk strategies its advised funds can provide reasons graph (3) to provide these types of serv- for their clients, attention should be why and the means through which a ices to funds for which it serves as in- paid to ensure that firms do not utilize firm will bail out an advised fund, be it vestment advisor. them for their own proprietary activi- through a direct loan, an asset acquisi- ties. Barring high risk strategies may tion, or through writing a derivative. Further, in recognition of the risks be particularly critical when policing Further, providing advisory services to that are created by allowing for these market-making-related and hedging a hedge fund or private equity fund cre- services to unaffiliated funds, several activities, as well as trading otherwise ates a conflict of interest and risk be- additional criteria must also be met permitted under subparagraph cause when a banking entity is itself for the banking entity to take advan- (d)(1)(A). In this context, however, it is determining the investment strategy of tage of this exception. Most notably, irrelevant whether or not a firm pro- a fund, it no longer can make a fully on top of the flat prohibitions on bail- vides market liquidity: high-risk assets independent credit evaluation of the outs, the statute requires the chief ex- and high-risk trading strategies are hedge fund or private equity fund bor- ecutive officer of firms taking advan- never permitted. rower. These bailout protections will tage of this paragraph to also certify Subsection (d), paragraph (3) directs significantly benefit independent hedge that these services are not used di- the regulators to set appropriate addi- funds and private equity funds, and rectly or indirectly to bail out a fund tional capital charges and quantitative also improve U.S. financial stability. advised by the firm. limits for permitted activities. These Accordingly, subsection (f), para- Subsection (f), paragraph (4) requires restrictions apply to both banking en- graph (1) sets forth the broad prohibi- the regulatory agencies to apply addi- tities and nonbank financial companies tion on a banking entity entering into supervised by the Board. It is left to any ‘‘covered transactions’’ as such tional capital charges and other re- regulators to determine if those re- term is defined in the Federal Reserve strictions to systemically significant strictions should apply equally to both, Act’s section 23A, as if such banking nonbank financial institutions to ac- or whether there may appropriately be entity were a member bank and the count for the risks and conflicts of in- a distinction between banking entities fund were an affiliate thereof. ‘‘Cov- terest that are addressed by the prohi- and non-bank financial companies su- ered transactions’’ under section 23A bitions for banking entities. Such cap- pervised by the Board. The paragraph includes loans, asset purchases, and, ital charges and other restrictions also mandates diversification require- following the Dodd-Frank bill adop- should be sufficiently rigorous to ac- ments where appropriate, for example, tion, derivatives between the member count for the significant amount of to ensure that banking entities do not bank and the affiliate. In general, sec- risks associated with these activities. deploy their entire permitted amount tion 23A sets limits on the extension of To give markets and firms an oppor- of de minimis investments into a small credit between such entities, but para- tunity to adjust, implementation of number of hedge funds or private eq- graph (1) of subsection (f) prohibits all section 620 will proceed over a period of uity funds, or that they dangerously such transactions. It also prohibits several years. First, pursuant to sub- over-concentrate in specific products transactions with funds that are con- section (b), paragraph (1), the Financial or types of financial products. trolled by the advised or sponsored Stability Oversight Council will con- Subsection (e) provides vigorous fund. In short, if a banking entity orga- duct a study to examine the most effec- anti-evasion authority, including nizes and offers a hedge fund or private tive means of implementing the rule. record-keeping requirements. This au- equity fund or serves as investment ad- Then, under paragraph (b)(2), the Fed- thority is designed to allow regulators visor, manager, or sponsor of a fund, eral banking agencies, the Securities to appropriately assess the trading of the fund must seek credit, including and Exchange Commission, and the firms, and aggressively enforce the text from asset purchases and derivatives, Commodity Futures Trading Commis- and intent of section 619. from an independent third party. sion shall each engage in rulemakings The restrictions on proprietary trad- Subsection (f), paragraph (2) applies for their regulated entities, with the ing and relationships with private section 23B of the Federal Reserve Act rulemaking coordinated for consist- funds seek to break the internal con- to a banking entity and its advised or ency through the Financial Stability nection between a bank’s balance sheet sponsored hedge fund or private equity Oversight Council. In coordinating the and taking risk in the markets, with a fund. This provides, inter alia, that rulemaking, the Council should strive view towards reestablishing market transactions between a banking entity to avoid a ‘‘lowest common denomi- discipline and refocusing the bank on and its fund be conducted at arms nator’’ framework, and instead apply its credit extension function and client length. The fact that section 23B also the best, most rigorous practice from services. In the recent financial crisis, includes the provision of covered trans- each regulatory agency. when funds advised by banks suffered actions under section 23A as part of its significant losses, those off-balance arms-length requirement should not be Pursuant to subsection (c), paragraph sheet funds came back onto the banks’ interpreted to undermine the strict (1), most provisions of section 619 be- balance sheets. At times, the banks prohibition on such transactions in come effective 12 months after the bailed out the funds because the inves- paragraph (1). issuance of final rules pursuant to sub- tors in the funds had other important Subsection (f), paragraph (3) permits section (b), but in no case later than 2 business with the banks. In some cases, the Board to allow a very limited ex- years after the enactment of the Dodd- the investors were also key personnel ception to paragraph (1) for the provi- Frank Act. Paragraph (c)(2) provides a at the banks. Regardless of the motiva- sion of certain limited services under 2-year period following effective date of tions, in far too many cases, the banks the rubric of ‘‘prime brokerage’’ be- the provision during which entities that bailed out their funds ultimately tween the banking entity and a third- must bring their activities into con- relied on taxpayers to bail them out. It party-advised fund in which the fund formity with the law, which may be ex- is precisely for this reason that the managed, sponsored, or advised by the tended for up to 3 more years. Special permitted activities under subpara- banking entity has taken an ownership illiquid funds may, if necessary, re- graph (d)(1)(G) are so narrowly defined. interest. Essentially, it was argued ceive one 5-year extension and may

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00030 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.014 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5899 also continue to honor certain contrac- The intent of section 621 is to pro- BYRON DORGAN, who opposed the repeal tual commitments during the transi- hibit underwriters, sponsors, and oth- of Glass-Steagall and has been speak- tion period. The purpose of this ex- ers who assemble asset-backed securi- ing about the risks from proprietary tended wind-down period is to mini- ties, from packaging and selling those trading for a number of years. Above mize market disruption while still securities and profiting from the secu- all, we pay tribute to the tremendous steadily moving firms away from the rities’ failures. This practice has been labors of Chairman CHRIS DODD and his risks of the restricted activities. likened to selling someone a car with entire team and staff on the Senate The definition of ‘‘illiquid funds’’ set no brakes and then taking out a life in- Banking Committee, as well as the sup- forth in subsection (h) paragraph (7) is surance policy on the purchaser. In the port of Chairman BARNEY FRANK and meant to cover, in general, very il- asset-backed securities context, the Representative PAUL KANJORSKI. We liquid private equity funds that have sponsors and underwriters of the asset- extend our deep gratitude to our staffs, deployed capital to illiquid assets such backed securities are the parties who including the entire team and staff at as portfolio companies and real estate select and understand the underlying the Permanent Subcommittee on In- with a projected investment holding assets, and who are best positioned to vestigations, for their outstanding period of several years. The Board, in design a security to succeed or fail. work. And last but not least, we high- consultation with the SEC, should They, like the mechanic servicing a light the visionary leadership of Paul therefore adopt rules to define the con- car, would know if the vehicle has been Volcker and his staff. Without the sup- tours of an illiquid fund as appropriate designed to fail. And so they must be port of all of them and many others, to capture the intent of the provision. prevented from securing handsome re- the Merkley-Levin language would not To facilitate certainty in the market wards for designing and selling mal- have been included in the Conference with respect to divestiture, the Board functioning vehicles that undermine Report. is to conduct a special expedited rule- the asset-backed securities markets. It We believe this provision will stand making regarding these conformance is for that reason that we prohibit the test of time. We hope that our reg- and wind-down periods. The Board is those entities from engaging in trans- ulators have learned with Congress also to set capital rules and any addi- actions that would involve or result in that tearing down regulatory walls tional restrictions to protect the bank- material conflicts of interest with the without erecting new ones undermines ing entities and the U.S. financial sys- purchasers of their products. our financial stability and threatens tem during this wind-down period. Section 621 is not intended to limit economic growth. We have legislated We noted above that the purpose of the ability of an underwriter to sup- to the best of our ability. It is now up section 620 is to review the long-term port the value of a security in the to our regulators to fully and faithfully investments and other activities of aftermarket by providing liquidity and implement these strong provisions. banks. The concerns reflected in this a ready two-sided market for it. Nor I yield the floor to Senator MERKLEY. Mr. MERKLEY. I thank my colleague section arise out of losses that have ap- does it restrict a firm from creating a peared in the long-term investment for his remarks and concur in all re- synthetic asset-backed security, which portfolios in traditional depository in- spects. inherently contains both long and stitutions. Mr. DODD. Mr. President, I said so Over time, various banking regu- short positions with respect to securi- yesterday, and I will say it again: I ties it previously created, so long as lators have displayed expansive views thank Senator MERKLEY. I guess there and conflicting judgments about per- the firm does not take the short posi- are four new Members of the Senate missible investments for banking enti- tion. But a firm that underwrites an serving on the Banking Committee. ties. Some of these activities, includ- asset-backed security would run afoul Senator MERKLEY, Senator WARNER, ing particular trading strategies and of the provision if it also takes the Senator TESTER, and Senator BENNET investment assets, pose significant short position in a synthetic asset- are all new Members of the Senate risks. While section 619 provides nu- backed security that references the from their respective States of Oregon, merous restrictions to proprietary same assets it created. In such an in- Virginia, Montana, and Colorado. To be trading and relationships to hedge stance, even a disclosure to the pur- thrown into what has been the largest funds and private equity funds, it does chaser of the underlying asset-backed undertaking of the Banking Com- not seek to significantly alter the tra- security that the underwriter has or mittee, certainly in my three decades ditional business of banking. might in the future bet against the se- here—and many have argued going Section 620 is an attempt to reevalu- curity will not cure the material con- back almost 100 years—was certainly ate banking assets and strategies and flict of interest. an awful lot to ask. see what types of restrictions are most We believe that the Securities and I have already pointed out the con- appropriate. The Federal banking agen- Exchange Commission has sufficient tribution Senator WARNER has made to cies should closely review the risks authority to define the contours of the this bill. But I must say as well that contained in the types of assets re- rule in such a way as to remove the Senator BENNET of Colorado has been tained in the investment portfolio of vast majority of conflicts of interest invaluable in his contributions. I just depository institutions, as well as risks from these transactions, while also mentioned Senator TESTER a moment in affiliates’ activities such as mer- protecting the healthy functioning of ago for his contribution on talking chant banking. The review should our capital markets. about rural America and the impor- dovetail with the determination of In conclusion, we would like to ac- tance of those issues. And Senator what constitutes ‘‘high-risk assets’’ knowledge all our supporters, co-spon- MERKLEY, as a member of the com- and ‘‘high risk trading strategies’’ sors, and advisers who assisted us mittee, on matters we included here under paragraph (d)(2). greatly in bringing this legislation to dealing particularly with the mortgage At this point, I yield to Senator fruition. From the time President reforms, the underwriting standards, LEVIN to discuss an issue that is of par- Obama announced his support for the the protections people have to go ticular interest to him involving sec- Volcker Rule, a diverse and collabo- through, and credit cards as well—we tion 621’s conflict of interest provi- rative effort has emerged, uniting com- passed the credit card bill—again, it sions. munity bankers to old school fin- was Senator JEFF MERKLEY of Oregon Mr. LEVIN. I thank my colleague for anciers to reformers. Senator MERKLEY who played a critical role in that whole the detailed explanation he has pro- and I further extend special thanks to debate not to mention, of course, work- vided of sections 619 and 620, and fully the original cosponsors of the PROP ing with CARL LEVIN, one of the more concur in it. I would like to add our Trading Act, Senators TED KAUFMAN, senior Members here, having served for joint explanation of section 621, which SHERROD BROWN, and , many years in the Senate. But the addresses the blatant conflicts of inter- who have been with us since the begin- Merkley-Levin, Levin-Merkley provi- est in the underwriting of asset-backed ning. sions in this bill have added substan- securities highlighted in a hearing with Senator JACK REED and his staff did tial contributions to this effort. So I Goldman Sachs before the Permanent yeoman’s work in advancing this thank him for his contribution. Subcommittee on Investigations, cause. We further tip our hat to our I see my colleague from North Da- which I chair. tireless and vocal colleague, Senator kota is here. I suggest the absence of a

VerDate Mar 15 2010 00:56 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00031 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.015 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5900 CONGRESSIONAL RECORD — SENATE July 15, 2010 quorum and ask unanimous consent CBO cannot factor in the costs to our had been planned. I think that is some- that the time be equally divided among nation of a failure to address the possi- thing everyone should be happy about. both sides. bility of future bailouts. We have lived And ending TARP saves the govern- The PRESIDING OFFICER. Without through that nightmare and it has cost ment money. That is not just my con- objection, it is so ordered. The clerk our country dearly. clusion. It is the conclusion of the Con- will call the roll. Now I would like to discuss the way gressional Budget Office, $11 billion in The assistant legislative clerk pro- in which we address the budget con- savings. ceeded to call the roll. sequences of the legislation. In par- It is true that the original TARP leg- Mr. DODD. I ask unanimous consent ticular, I would like to respond to some islation passed as an emergency, its that the order for the quorum call be comments that have been made about costs were declared an emergency when dispensed with. the provisions increasing the long-term it passed, so rescinding those funds or The PRESIDING OFFICER. Without minimum target for the FDIC and ending the program now is ending objection, it is so ordered. thereby strengthening the Deposit In- spending that is considered ‘‘emer- Mr. DODD. Mr. President, we listened surance Fund, a goal that no one can gency’’ spending. to Senator CONRAD, the chairman of credibly argue with in light of the re- But the savings are no less real be- the Budget Committee, address the cent crisis. cause of that. Interestingly, my Repub- budget point of order. I urge my col- In fact, this provision is supported by lican colleague who has raised the leagues to waive the point of order. FDIC Chairman Sheila Bair, and she point of order offered an amendment in We came up with an alternative off- has sent us a letter expressing her sup- conference that would have rescinded set in the conference committee, much port. I will submit that for the RECORD stimulus funding to pay for this bill. at the insistence—and I thanked him at the end of this statement. Why is that relevant? Because the for that—of Senator BROWN of Massa- Some of my colleagues on the other stimulus money was also designated as chusetts, looking for a better offset side of the aisle have claimed that the an emergency, so it would have re- than the ones which were originally in use of the FDIC in this way is unprece- ceived the same accounting treatment the conference report. I know my col- dented and questioned how this could here in the Senate as TARP. Both were league from Maine as well had reserva- count as budget savings or offsets and emergencies. tions about what we originally in- at the same time preserve the funds for Both ending TARP early and rescind- cluded. bank failures. ing stimulus funding would reduce the The offset here ends TARP, which I Let us clear up the misinformation. deficit, but the burden of cuts in stim- presume most people would welcome First, no FDIC funds are being spent ulus funding would fall disproportion- with open arms, saving us $11 billion by on, or transferred to, other programs. ately on families and small businesses terminating it early, as well as then Premiums paid by banks remain, as who have been victims of the economic complying with the request by the they have for over 75 years, in the fallout from the Wall Street crisis. chairperson of the Federal Deposit In- FDIC fund solely to protect insured de- Cutting such spending would be exactly surance Corporation, Sheila Bair, to posits. the wrong thing to do as we try to get provide for additional assessments to And counting FDIC premiums as the economy back on track and people meet the obligations of the FDIC and budget savings in legislation abso- back to work. the insurance fund. Both of those items lutely does have precedent. We have to The fact is that overall this bill does provide the necessary offsets to the look no further than relatively recent not do damage to our budgetary out- cost of this bill. actions of Republican Congresses to look. The long-term deficit point of order find them. It does make vital changes to make is caused by the orderly liquidation au- Budget reconciliation legislation en- our financial system stronger and more thority for systemically significant fi- acted in February 2006 and sponsored stable and should be passed as soon as nancial institutions. by my colleague from New Hampshire, possible. Let me note that this critically im- who was then the Chairman of the So I urge my colleagues to support a portant aspect of the legislation was Budget Committee, included FDIC re- motion to waive the long-term deficit developed in very close cooperation forms authored by my colleague from point of order. with Senator SHELBY in the Shelby- Alabama, who was then Chairman of FEDERAL DEPOSIT Dodd amendment. It also reflects the the Banking Committee. Those provi- INSURANCE CORPORATION, bipartisan cooperation of Senators sions resulted in higher FDIC pre- Washington, DC, June 29, 2010. Hon. CHRIS DODD, CORKER and WARNER. The Shelby-Dodd miums, which CBO said yielded almost Chairman, Committee on Banking, U.S. Senate, amendment passed this body over- $2 billion in budget savings over 10 Washington, DC. whelmingly with over 90 votes. years. Hon. , Even though the liquidation author- So, my colleagues from New Hamp- Ranking Minority Member, Committee on Bank- ity is the source of long-term budget shire and Alabama in fact relied on re- ing, U.S. Senate, Washington, DC. costs, it is still 100 percent paid for. forms to the Deposit Insurance Fund to Hon. BARNEY FRANK, The Shelby-Dodd amendment and the obtain savings that CBO favorably Chairman, Committee on Financial Services, Boxer amendment made sure that this scored. House of Representatives, Washington, DC. would be the case. Let me repeat, the And 10 years earlier, Congress at- Hon. SPENCER BACHUS, Ranking Minority Member, Committee on Fi- liquidation authority, which is the tached to an omnibus spending bill en- nancial Services, House of Representatives, dominant source of the budget cost in acted in September 1996 a provision Washington, DC. the bill, is 100 percent paid for over calling for a special premium on thrifts DEAR CHAIRMEN DODD AND FRANK AND time. to capitalize the FDIC’s thrift insur- RANKING MEMBERS SHELBY AND BACHUS: The only reason that the liquidation ance fund. Thank you for your interest in our views re- authority scores at all is because of The appropriators in that earlier Re- garding increasing the Deposit Insurance timing. The FDIC may initially have to publican Congress justified higher dis- Fund (DIF) ratio to 1.35. Federal deposit insurance promotes public borrow funds from the Treasury in cretionary spending based partly on confidence in our nation’s banking system order to wind down the failed company the budget savings scored by CBO for by providing a safe place for consumers’ and put it out of business. Because it the FDIC assessment. funds. Deposit insurance has provided much will take time to liquidate a large, I would also like to respond to some needed stability throughout this crisis. interconnected financial company, comments that have been made about Moreover, insured deposits provide banks there is a lag between when the funds the treatment of TARP in this legisla- with a stable and cost-effective source of are borrowed and when they are repaid tion. funds for lending in their communities. Im- by the sale of the failed companies’ as- We end TARP in the conference re- portantly, the DIF is funded by the insured banking industry. sets, its creditors and assessments on port. With the comprehensive financial A key measure of the strength of the insur- the industry if necessary. reform put in place under this bill, we ance fund is the reserve ratio, which is the One more important point on budget think it is the right time to bring amount in the DIF as a percentage of the in- scoring and the liquidation authority. TARP to a close, ending it earlier than dustry’s estimated insured deposits. Current

VerDate Mar 15 2010 05:37 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00032 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.055 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5901 law requires us to maintain a reserve ratio of Second, I would like to clarify the in- some rewards for designing and selling at least 1.15 percent. One of the lessons tent of subsection (f)’s provisions to malfunctioning vehicles that under- learned from the current crisis is that a min- prohibit banking entities from bailing mine the asset-backed securities mar- imum reserve ratio of 1.15 is insufficient to out funds they manage, sponsor, or ad- kets. It is for that reason that we pro- avoid the need for pro-cyclical assessments in times of stress. One of my first priorities vise, as well as funds in which those hibit those entities from engaging in when I assumed the Chairmanship of the funds invest. The ‘‘permitted services’’ transactions that would involve or re- FDIC in June of 2006 was to begin building provisions outlined in subsection (f) are sult in material conflicts of interest our reserves. Regrettably, there was insuffi- intended to permit banks to maintain with the purchasers of their products. cient time before the crisis hit. Indeed, we certain limited ‘‘prime brokerage’’ First, I would like to address certain started this crisis with a DIF reserve ratio of service relationships with unaffiliated areas which we exclude from coverage. 1.22 percent (as of December 31, 2007). Begin- funds in which a fund-of-funds that While a strong prohibition on material ning in mid–2008, as bank failures increased they manage invests, but are not in- conflicts of interest is central to sec- and the insurance fund incurred losses, the tended to permit fund-of-fund struc- Fund balance and reserve ratio dropped pre- tion 621, we recognize that under- cipitously. The reserve ratio became nega- tures to be used to weaken or under- writers are often asked to support tive in the third quarter of 2009 and hit a low mine the prohibition on bailouts. Given issuances of asset-backed securities in of negative 0.39 percent as of December 31, the risk that a banking entity may the aftermarket by providing liquidity 2009. To date, we have collected more than want to bail out a failing fund directly to the initial purchasers, which may $65 billion in assessments, and are projected or its investors, the ‘‘permitted serv- mean buying and selling the securities to collect another $80 billion by 2016 to re- ices’’ exception must be implemented for some time. That activity is con- store the fund. in a narrow, well-defined, and arms- sistent with the goal of supporting the Given this experience, we believe it is clear that as the economy strengthens and the length manner and regulators are not offering, is not likely to pose a mate- banking system heals, the reserve ratio empowered to create loopholes allow- rial conflict, and accordingly we are needs to be increased. In fact, our Board has ing high-risk activities like leveraged comfortable excluding it from the gen- acted through regulation to target the re- securities lending or repurchase agree- eral prohibition. Similarly, market serve ratio at 1.25 percent, and a further in- ments. While we implement a number conditions change over time and may crease to 1.35 percent is consistent with our of legal restrictions designed to ensure lead an underwriter to wish to sell the view that the Fund should build up in good that prime brokerage activities are not securities it holds. That is also not economic times and be allowed to fall in used to bail out a fund, we expect the likely to pose a conflict. But regulators poor economic times, while maintaining rel- atively steady premiums throughout the eco- regulators will nevertheless need to be must act diligently to ensure that an nomic cycle, thereby reducing the vigilant. underwriter is not making bets against procyclicality of the assessment system. Before I yield the floor to Senator the very financial products that it as- Please let me know if you have any ques- LEVIN to discuss several additional sembled and sold. tions or would like to discuss further. items, let me say a word of thanks to Second, I would like to address the Sincerely, my good friend, Chairman DODD, for role of disclosures in relations to con- SHEILA C. BAIR. taking the time to join me in clari- flicts of interest. In our view, disclo- I again urge my colleagues to vote to fying these provisions. I also honor him sures alone may not cure these types of waive the budget point of order, and, of for his extraordinary leadership on the conflicts in all cases. Indeed, while a course, I urge them as well to support entire financial reform package. As a meaningful disclosure may alleviate the legislation when that vote occurs. fellow member of the Banking Com- the appearance of a material conflict of INTENT BEHIND SECTIONS 691–621 mittee, it has been a privilege to work interest in some circumstances, in oth- Mr. MERKLEY. Mr. President, I rise with him on the entire bill, and not ers, such as if the disclosures cannot be to engage my colleagues, Senators just these critical provisions. I also made to the appropriate party or be- DODD and LEVIN, in a colloquy regard- would like to recognize Senator LEVIN, cause the disclosure is not sufficiently ing some key aspects of our legislative whose determined efforts with his Per- meaningful, disclosures are likely in- intent behind sections 619 through 621, manent Subcommittee on Investiga- sufficient. Our intent is to provide the the Merkley-Levin rule on proprietary tions helped highlight the causes of the regulators with the authority and trading and conflicts of interest as in- recent crisis, as well as the need for re- strong directive to stop the egregious cluded in the conference report. form. It has been a privilege working practices, and not to allow for regu- First, I would like to clarify several with him on this provision. lators to enable them to continue be- issues surrounding the ‘‘de minimis’’ Mr. LEVIN. I thank the Senator, and hind the fig leaf of vague, technically investment provisions in subsection I concur with his detailed explanations. worded, fine print disclosures. (d)(4). These provisions complement His tireless efforts in putting these These provisions shall be interpreted subsection (d)(1)(G), which permits commonsense restrictions into law will strictly, and regulators are directed to firms to offer hedge funds and private help protect American families from use their authority to act decisively to equity funds to clients. ‘‘De minimis’’ reckless risk-taking that endangers protect our critical financial infra- investments under paragraph (4) are in- our financial system and our economy. structure from the risks and conflicts tended to facilitate these offerings The conflicts of interest provision inherent in allowing banking entities principally by allowing a firm to start under section 621 arises directly from and other large financial firms to en- new funds and to maintain coinvest- the hearings and findings of our Per- gage in high risk proprietary trading ments in funds, which help the firm manent Subcommittee on Investiga- and investing in hedge funds and pri- align its interests with those of its cli- tions, which dramatically showed how vate equity funds. ents. During the initial start-up period, some firms were creating financial Mr. President, I would like to thank during which time firms may maintain products, selling those products to Chairman DODD for his extraordinary 100 percent ownership, the fund should their customers, and betting against dedication in shepherding this massive be relatively small, but sufficient to ef- those same products. This practice has financial regulatory reform package fectively implement the investment been likened to selling someone a car through the Senate and the conference strategy. After the start up period, a with no brakes and then taking out a committee. This has been a long proc- firm may keep an ongoing ‘‘alignment life insurance policy on the purchaser. ess, and he and his staff have been very of interest’’ coinvestment at 3 percent In the asset-backed securities context, able and supportive partners in this ef- of a fund. Our intent is not to allow for the sponsors and underwriters of the fort. large, revolving ‘‘seed’’ funds to evade asset-backed securities are the parties Mr. DODD. I thank the Senator, and the strong restrictions on proprietary who select and understand the under- I strongly concur with the intentions trading of this section, and regulators lying assets, and who are best posi- and interpretations set forth by the will need to be vigilant against such tioned to design a security to succeed principal authors of these provisions, evasion. The aggregate of all seed and or fail. They, like the mechanic serv- Senators MERKLEY and LEVIN, as re- coinvestments should be immaterial to icing a car, would know if the vehicle flecting the legislative intent of the the banking entity, and never exceed 3 has been designed to fail. And so they conference committee. I thank Sen- percent of a firm’s Tier 1 capital. must be prevented from securing hand- ators MERKLEY and LEVIN for their

VerDate Mar 15 2010 05:37 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00033 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.019 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5902 CONGRESSIONAL RECORD — SENATE July 15, 2010 leadership, which was so essential in pany that does not have FDIC insur- Ms. COLLINS. As the Senator knows, achieving the conference report provi- ance and that does not offer demand insurance companies are already heav- sions governing proprietary trading deposit accounts or other deposits that ily regulated by State regulators who and prohibiting conflicts of interest. may be withdrawn by check or similar impose their own, very different regu- ASSESSING INDIVIDUAL ENTITIES means for payment to third parties. latory and capital requirements. The Mr. KOHL. Mr. President, I thank the Ms. COLLINS. I thank my colleague fact that those capital requirements Chairman for his continued work to en- for his clarification. are not the same as those imposed by sure that appropriate resources are NONBANK FINANCIAL COMPANIES section 171 should not increase the available to protect the economy from Ms. COLLINS. Mr. President, as we likelihood that the council will des- a future failure of a systemically risky move to final passage of this historic ignate an insurer. Does the Senator financial institution and to help pay legislation, I would like to thank Sen- agree? back taxpayers for the recent failures ator DODD again for his leadership and Mr. DODD. Yes, I do not believe that we experienced. strong support for my amendment to the council should decide to designate With regard to assessments under the ensure that all insured depository in- an insurer simply based on whether the orderly liquidation authority of the stitutions and depository institution insurer would meet bank capital re- bill, the bill requires that a risk-based holding companies regardless of size, as quirements. matrix of factors be established by the well as nonbank financial companies PREEMPTION STANDARD FDIC, taking into account the rec- supervised by the Federal Reserve, Mr. CARPER. Mr. President, I am ommendations of the Financial Sta- meet statutory minimum capital very pleased to see that the conference bility Oversight Council, to be used in standards and thus have adequate cap- committee on the Dodd-Frank Wall connection with assessing any indi- ital throughout the economic cycle. Street Reform and Consumer Protec- vidual entity. One of the factors listed Those standards required under section tion Act retained my amendment re- in the bill’s risk matrix provision 171 serve as the starting point for the garding the preemption standard for would take into account the activities development of more stringent stand- State consumer financial laws with of financial entities and their affili- ards as required under section 165 of only minor modifications. I very much ates. Is it the intent of that language the bill. appreciate the effort of Chairman DODD that a consideration of such factors I did, however, have questions about in fighting to retain the amendment in should specifically include the impact the designation of certain nonbank fi- conference. of potential assessments on the ability nancial companies under section 113 for Mr. DODD. I thank the Senator. As of an institution that is a tax-exempt, Federal Reserve supervision and the the Senator knows, his amendment re- not-for-profit organization to carry out significance of such a designation in ceived strong bipartisan support on the their legally required charitable and light of the minimum capital standards Senate floor and passed by a vote of 80 educational activities? established by section 171. While I can to 18. It was therefore a Senate priority As the Senator knows, many Mem- envision circumstances where a com- to retain his provision in our negotia- bers of the Senate—like me—feel pany engaged in the business of insur- tions with the House of Representa- strongly that we must ensure that our ance could be designated under section tives. constituents and communities con- 113, I would not ordinarily expect in- Mr. CARPER. One change made by tinue to have access to these vital re- surance companies engaged in tradi- the conference committee was to re- sources, and any potential assessment tional insurance company activities to state the preemption standard in a on tax-exempt groups which are chari- be designated by the council based on slightly different way, but my reading table and/or educational by mission those activities alone. Rather, in con- of the language indicates that the con- could severely hamper these groups’ sidering a designation, I would expect ference report still maintains the ability to fulfill their obligations to the council to specifically take into ac- Barnett standard for determining when carry out their legally required activi- count, among other risk factors, how a State law is preempted. ties. the nature of insurance differs from Mr. DODD. The Senator is correct. Mr. DODD. Yes, that is correct. The that of other financial products, in- That is why the conference report spe- language is not intended to reduce such cluding how traditional insurance cifically cites the Barnett Bank of charitable and educational activities products differ from various off-bal- Marion County, N.A. v. Nelson, Florida that are legally required for tax-ex- ance-sheet and derivative contract ex- Insurance Commissioner, 517 U.S. empt, not-for-profit organizations that posures and how that different nature 25(1996) case. There should be no doubt are so important to communities is reflected in the structure of tradi- that the legislation codifies the pre- across the country. I thank the Sen- tional insurance companies. I would emption standard stated by the U.S. ator for his continued help on these ef- also expect the council to consider Supreme Court in that case. forts. whether the designation of an insur- Mr. CARPER. I again thank the Sen- SECTION 603 TRUST COMPANIES ance company is appropriate given the ator. This will provide certainty to ev- Ms. COLLINS. Mr. President, I ask existence of State-based guaranty eryone—those who offer consumers fi- the chairman of the Senate Banking funds to pay claims and protect policy- nancial products and to consumer Committee, my colleague from Con- holders. Am I correct in that under- themselves. necticut, Senator DODD, to clarify the standing? f types of trust companies that fall with- Mr. DODD. The Senator is correct. NONBANK FINANCIAL COMPANIES in the scope of section 603(a), a provi- The council must consider a number of sion that prohibits the Federal Deposit factors, including, for example, the ex- Mr. KERRY. Mr. President, the con- Insurance Corporation from approving tent of leverage, the extent and nature ference report to accompany H.R. 4173, an application for deposit insurance for of off-balance-sheet exposures, and the the Dodd-Frank Wall Street reform certain companies, including certain nature, scope, size, scale, concentra- bill, creates a mechanism through trust companies, until 3 years after the tion, interconnectedness, and mix of which the Financial Stability Over- date of enactment of this act. the company’s activities. Where a com- sight Council may determine that ma- Mr. DODD. I would be glad to clarify pany is engaged only in traditional in- terial financial distress at a U.S. the nature of trust companies subject surance activities, the council should nonbank financial company could pose to the moratorium under section 603(a). also take into account the matters you such a threat to the financial stability The moratorium applies to an institu- raised. of the United States that the company tion that is directly or indirectly Ms. COLLINS. Would the Senator should be supervised by the Board of owned or controlled by a commercial agree that the council should not base Governors of the Federal Reserve Sys- firm that functions solely in a trust or designations simply on the size of the tem and should be subject to height- fiduciary capacity and is exempt from financial companies? ened prudential standards. It is my un- the definition of a bank in the Bank Mr. DODD. Yes. The size of a finan- derstanding that in making such a de- Holding Company Act. It does not cial company should not by itself be termination, the Congress intends that apply to a nondepository trust com- determinative. the council should focus on risk factors

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00034 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.057 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5903 that contributed to the recent finan- amendment that Senator COLLINS of- Our intention in imposing the inde- cial crisis, such as the use of excessive fered on the Senate floor, and I truly pendent representative requirement leverage and major off-balance-sheet appreciate the constructive contribu- was to ensure that there was always exposure. The fact that a company is tion she has made to this legislative someone independent of the swap deal- large or is significantly involved in fi- process. My understanding also is that er or the security-based swap dealer re- nancial services does not mean that it the capital requirements under para- viewing and approving swap or secu- poses significant risks to the financial graph 7 are intended to apply only to rity-based swap transactions. However, stability of the United States. There insured depository institutions, deposi- we did not intend to require that the are large companies providing financial tory institution holding companies, special entity hire an investment man- services that are in fact traditionally and nonbank financial companies su- ager independent of the special entity. low-risk businesses, such as mutual pervised by the Board of Governors. I Is that your understanding, Senator funds and mutual fund advisers. We do thank my friends from Maine and New HARKIN? not envision nonbank financial compa- Hampshire for this clarification. Mr. HARKIN. Yes, that is correct. We nies that pose little risk to the sta- INSURANCE COMPANY DEFINITION certainly understand that many special bility of the financial system to be su- Mr. NELSON of Nebraska. Mr. Presi- entities have internal managers that pervised by the Federal Reserve. Does dent, first, I would like to commend may meet the independent representa- the chairman of the Banking Com- Chairman DODD for his hard work on tive requirement. For example, many mittee share my understanding of this the Wall Street reform bill and for public electric and gas systems have provision? maintaining an open and transparent employees whose job is to handle the Mr. DODD. The Senator from Massa- process while developing this legisla- day-to-day hedging operations of the chusetts is correct. Size and involve- tion. With regard to the orderly liq- system, and we intended to allow them ment in providing credit or liquidity uidation authority under title II of the to continue to rely on those in-house alone should not be determining fac- bill, an ‘‘insurance company’’ is defined managers to evaluate and approve swap tors. The Banking Committee intends in section 201 as any entity that is en- and security-based swap transactions, that only a limited number of high- gaged in the business of insurance, sub- provided that the manager remained risk, nonbank financial companies ject to regulation by a State insurance independent of the swap dealer or the would join large bank holding compa- regulator, and covered by a State law security-based swap dealer and met the nies in being regulated and supervised that is designed to specifically deal other conditions of the provision. Simi- by the Federal Reserve. with the rehabilitation, liquidation, or larly, the named fiduciary or in-house CAPITAL REQUIREMENTS insolvency of an insurance company. Is asset manager—INHAM—for a pension Ms. COLLINS. Mr. President, I un- it the intent of this definition that a plan may continue to approve swap and derstand that it is the intent of para- mutual insurance holding company or- security-based swap transactions. graph 7 of section 171(b) of this legisla- ganized and operating under State in- FOREIGN BANKS tion to require the Federal banking surance laws should be considered an Mrs. LINCOLN. Mr. President, I wish agencies, subject to the recommenda- insurance company for the purpose of to engage my colleague, Senator DODD, tions of the council, to develop capital this title? in a brief colloquy related to the sec- requirements applicable to insured de- Mr. DODD. Yes, that is correct. It is tion 716, the bank swap desk provision. pository institutions, depository insti- intended that a mutual insurance hold- In the rush to complete the con- tution holding companies, and nonbank ing company organized and operating ference, there was a significant over- financial companies supervised by the under State insurance laws should be sight made in finalizing section 716 as Board of Governors that are engaged in considered an insurance company for it relates to the treatment of unin- activities that are subject to height- the purpose of title II of this legisla- sured U.S. branches and agencies of ened standards under section 120. It is tion. I thank the Senator from Ne- foreign banks. Under the U.S. policy of well understood that minimum capital braska for this clarification. national treatment, which has been requirements can help to shield various INDEPENDENT REPRESENTATIVES part of U.S. law since the International public and private stakeholders from Mrs. LINCOLN. Mr. President, as Banking Act of 1978, uninsured U.S. risks posed by material distress that chairman of the Agriculture, Nutri- branches and agencies of foreign banks could arise at these entities from en- tion, and Forestry Committee, I be- are authorized to engage in the same gaging in these activities. It is also un- came acutely aware that our pension activities as insured depository institu- derstood and recognized that minimum plans, governmental investors, and tions. While these U.S. branches and capital requirements may not be an ap- charitable endowments were falling agencies of foreign banks do not have propriate tool to apply under all cir- victim to swap dealers marketing deposits insured by the FDIC, they are cumstances and that by prescribing swaps and security-based swaps that registered and regulated by a Federal section 171 capital requirements as the they knew or should have known to be banking regulator, they have access to correct tool with respect to companies inappropriate or unsuitable for their the Federal Reserve discount window, covered by paragraph 7, it should not clients. Jefferson County, AL, is prob- and other Federal Reserve credit facili- be inferred that capital requirements ably the most infamous example, but ties. should be required for any other com- there are many others in Pennsylvania It is my understanding that a number panies not covered by paragraph 7. and across the country. That is why I of these U.S. branches and agencies of Mrs. SHAHEEN. I also understand worked with Senator HARKIN and our foreign banks will be swap entities that the intent of this section is not to colleagues in the House to include pro- under section 716 and title VII of Dodd- create any inference that minimum tections for pension funds, govern- Frank. Due to the fact that the section capital requirements are the appro- mental entities, and charitable endow- 716 safe harbor only applies to ‘‘insured priate standard or safeguard for the ments in the Dodd-Frank Wall Street depository institutions’’ it means that council to recommend to be applied to Reform and Consumer Protection Act. U.S. branches and agencies of foreign any nonbank financial company that is Those protections—set forth in sec- banks will be forced to push out all not subject to supervision by the Fed- tion 731 and section 764 of the con- their swaps activities. This result was eral Reserve under title I of this legis- ference report—place certain duties not intended. U.S. branches and agen- lation, with respect to any activity and obligations on swap dealers and se- cies of foreign banks should be subject subject to section 120. Rather, the curity-based swap dealers when they to the same swap desk push out re- council should have full discretion not deal with special entities. One of those quirements as insured depository insti- to recommend the application of cap- obligations is that a swap dealer or the tutions under section 716. Under sec- ital requirements to any such nonbank security-based swap dealer entering tion 716, insured depository institu- financial company engaged in any such into a swap or security-based swap tions must push out all swaps and secu- activity. with a special entity must have a rea- rity-based swaps activities except for Mr. DODD. I concur with Senator sonable basis for believing that the spe- specifically enumerated activities, COLLINS and Senator SHAHEEN. Section cial entity has an independent rep- such as hedging and other similar risk 171 of this legislation came from an resentative evaluating the transaction. mitigating activities directly related

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00035 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.008 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5904 CONGRESSIONAL RECORD — SENATE July 15, 2010 to the insured depository institution’s types of companies when implementing management and employment struc- activities, acting as a swaps entity for new regulatory requirements. tures and arrangements employed by swaps or security-based swaps that are Mrs. LINCOLN. Mr. President, I ask family offices; and not exclude any per- permissible for investment, and acting unanimous consent to have printed in son who was not registered or required as a swaps entity for cleared credit de- the RECORD the letter that Chairman to be registered under the Advisers Act fault swaps. U.S. branches and agencies DODD and I wrote to Chairmen FRANK from the definition of the term ‘‘family of foreign banks should, and are willing and PETERSON to which I referred. office’’ solely because such person pro- to, meet the push out requirements of INVESTMENT ADVISER vides investment advice to natural per- section 716 as if they were insured de- Mrs. LINCOLN. Mr. President, I rise sons who, at the time of their applica- pository institutions. to discuss section 409 of the Dodd- ble investment, are officers, directors This oversight on our part is unfortu- Frank bill, which excludes family of- or employees of the family office who nate and clearly unintended. Does my fices from the definition of investment have previously invested with the fam- colleague agree with me about the need adviser under the Investment Advisers ily office and are accredited investors, to include uninsured U.S. branches and Act. In section 409, the SEC is directed any company owned exclusively by agencies of foreign banks in the safe to define the term family offices and to such officers, directors or employees or harbor of section 716? provide exemptions that recognize the their successors-in-interest and con- Mr. DODD. Mr. President, I agree range of organizational, management, trolled by the family office, or any completely with Senator LINCOLN’s and employment structures and ar- other natural persons who identify in- analysis and with the need to address rangement employed by family offices, vestment opportunities to the family this issue to ensure that uninsured U.S. and I thought it would be worthwhile office and invest in such transactions branches and agencies of foreign banks to provide guidance on this provision. on substantially the same terms as the are treated the same as insured deposi- For many decades, family offices family office invests, but do not invest tory institutions under the provisions have managed money for members of in other funds advised by the family of- of section 716, including the safe harbor individual families, and they do not fice, and whose assets to which the language. pose systemic risk or any other regu- family office provides investment ad- END USERS latory issues. The SEC has provided ex- vice represent, in the aggregate, not Mrs. LINCOLN. Mr. President, I will emptive relief to some family offices in more than 5 percent of the total assets ask unanimous consent to have printed the past, but many family offices have as to which the family office provides in the RECORD a letter that Chairman simply relied on the ‘‘under 15 clients’’ investment advice. DODD and I wrote to Chairmen FRANK exception to the Investment Advisers Mrs. LINCOLN. I appreciate the Sen- and PETERSON during House consider- Act, and when Congress eliminated this ator’s explanation and ask that the ation of this Conference Report regard- exception, it was not our intent to in- Senator work with me to make this ing the derivatives title. The letter em- clude family offices in the bill. point in a technical corrections bill. phasizes congressional intent regarding The bill provides specific direction Mr. DODD. I agree that this position commercial end users who enter into for the SEC in its rulemaking to recog- should be raised in a corrections bill swaps contracts. nize that most family offices often and I look forward to working with the As we point out, it is clear in this have officers, directors, and employees Senator towards this goal on this legislation that the regulators only who may not be family members, and point. who are employed by the family office have the authority to set capital and Mrs. LINCOLN. I thank the Senator itself or affiliated entities owned, di- margin requirements on swap dealers for his leadership and his assistance rectly or indirectly, by the family and major swap participants for and cooperation in ensuring the pas- members. Often, such persons co-invest uncleared swaps, not on end users who sage of this important bill. qualify for the exemption from manda- with family members, which enable VOLCKER RULE tory clearing. those persons to share in the profits of As the letter also makes clear, it is investments they oversee and better Mrs. BOXER. Mr. President, I wish to our intent that the any margin re- align the interests of those persons ask my good friend, the Senator from quired by the regulators will be risk- with those of the family members Connecticut and the chairman of the based, keeping with the standards we served by the family office. In addition, Banking Committee, to engage in a have put into the bill regarding cap- family offices may have a small num- brief discussion relating to the final ital. It is in the interest of the finan- ber of co-investors such as persons who Volcker rule and the role of venture cial system and end user counterpar- help identify investment opportunities, capital in creating jobs and growing ties that swap dealers and major swap provide professional advice, or manage companies. participants are sufficiently capital- portfolio companies. However, the I strongly support the Dodd-Frank ized. At the same time, Congress did value of investments by such other per- Wall Street Reform and Consumer Pro- not mandate that regulators set a spe- sons should not exceed a de minimis tection Act, including a strong and ef- cific margin level. Instead, we granted percentage of the total value of the as- fective Volcker rule, which is found in a broad authority to the regulators to sets managed by the family office. Ac- section 619 of the legislation. set margin. Again, margin and capital cordingly, section 409 directs the SEC I know the chairman recognizes, as standards must be risk-based and not not to exclude a family office from the we all do, the crucial and unique role be punitive. definition by reason of its providing in- that venture capital plays in spurring It is also important to note that few vestment advice to these persons. innovation, creating jobs and growing end users will be major swap partici- Mr. DODD. I thank the Senator. Pur- companies. I also know the authors of pants, as we have excluded ‘‘positions suant to negotiations during the con- this bill do not intend the Volcker rule held for hedging or mitigating com- ference committee, it was my desire to cut off sources of capital for Amer- mercial risk’’ from being considered as that the SEC write rules to exempt cer- ica’s technology startups, particularly a ‘‘substantial position’’ under that tain family offices already in operation in this difficult economy. Section 619 definition. I would ask Chairman DODD from the definition of investment ad- explicitly exempts small business in- whether he concurs with my view of viser, regardless of whether they had vestment companies from the rule, and the bill. previously received an SEC exemptive because these companies often provide Mr. DODD. I agree with the Chair- order. It was my intent that the rule venture capital investment, I believe man’s assessment. There is no author- would: exempt family offices, provided the intent of the rule is not to harm ity to set margin on end users, only that they operated in a manner con- venture capital investment. major swap participants and swap deal- sistent with the previous exemptive Is my understanding correct? ers. It is also the intent of this bill to policy of the Commission as reflected Mr. DODD. Mr. President, I thank my distinguish between commercial end in exemptive orders for family offices friend, the Senator from California, for users hedging their risk and larger, in effect on the date of enactment of her support and for all the work we riskier market participants. Regu- the Dodd-Frank Act; reflect a recogni- have done together on this important lators should distinguish between these tion of the range of organizational, issue. Her understanding is correct.

VerDate Mar 15 2010 05:37 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00036 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.060 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5905 The purpose of the Volcker rule is to Is it the Senator’s understanding ents products and these swaps con- eliminate excessive risk taking activi- that manufacturers and companies tracts are used for non-speculative ties by banks and their affiliates while that are using derivatives to hedge le- hedging? at the same time preserving safe, sound gitimate business risk and do not en- Mrs. LINCOLN. Yes, this legislation investment activities that serve the gage in speculative behavior will not recognizes that captive finance compa- public interest. It prohibits proprietary be subjected to the capital or margin nies support the jobs and investments trading and limits bank investment in requirements in the bill? of their parent company. It would en- hedge funds and private equity for that Mrs. LINCOLN. I thank the Senator sure that clearing and margin require- reason. But properly conducted venture for her efforts to protect manufactur- ments would not be applied to captive capital investment will not cause the ers. I share the Senator’s concerns, finance or affiliate company trans- harms at which the Volcker rule is di- which is why our language preserves actions that are used for legitimate, rected. In the event that properly con- the ability of manufacturers and busi- nonspeculative hedging of commercial ducted venture capital investment is nesses to use derivatives to hedge le- risk arising from supporting their par- excessively restricted by the provisions gitimate business risk. ent company’s operations. All swap of section 619, I would expect the ap- Working closely with the Senator, I trades, even those which are not propriate Federal regulators to exempt believe the legislation reflects our in- cleared, would still be reported to regu- it using their authority under section tent by providing a clear and narrow lators, a swap data repository, and sub- 619(J). end-user exemption from clearing and ject to the public reporting require- CAPTIVE FINANCE margin requirements for derivatives ments under the legislation. Ms. STABENOW. Mr. President, I held by companies that are not major This bill also ensures that these ex- would like to discuss the derivatives swap participants and do not engage in emptions are tailored and narrow to title of the Wall Street reform legisla- speculation but use these products ensure that financial institutions do tion with chairman of the Senate Agri- solely as a risk-management tool to not alter behavior to exploit these le- culture, Nutrition, and Forestry Com- hedge or mitigate commercial risks. gitimate exemptions. Ms. STABENOW. Again, I appreciate mittee, Senator LINCOLN. Based on the Senator’s hard work I would like to first commend the the Senator’s efforts to work with me on language that ensures manufactur- and interest in captive finance entities Senator and her staff’s hard work on of manufacturing companies, I would this critically important bill, which ers are not forced to unnecessarily di- vert working capital from core busi- like to discuss briefly the two captive brings accountability, transparency, finance provisions in the legislation and oversight to the opaque derivatives ness activities, such as investing in new equipment and creating more jobs. and how they work together. The first market. captive finance provision is found in For too long the over-the-counter de- As you know, large manufacturers of section 2(h)(7) of the CEA, the ‘‘treat- rivatives market has been unregulated, high-cost products often establish ment of affiliates’’ provision in the transferring risk between firms and wholly owned captive finance affiliates end-user clearing exemption and is en- creating a web of fragility in a system to support the sales of its products by titled ‘‘transition rule for affiliates.’’ where entities became too inter- providing financing to customers and This provision is available to captive connected to fail. dealers. It is clear that unregulated deriva- Captive finance affiliates of manufac- finance entities which are predomi- tive markets contributed to the finan- turing companies play an integral role nantly engaged in financing the pur- cial crisis that crippled middle-class in keeping the parent company’s plants chase of products made by its parent or families. Small businesses and our running and new products moving. This an affiliate. The provision permits the manufacturers couldn’t get the credit role is even more important during captive finance entity to use the clear- they needed to keep the lights on, and downturns and in times of limited mar- ing exemption for not less than two many had to close their doors perma- ket liquidity. As an example, Ford’s years after the date of enactment. The nently. People who had saved money captive finance affiliate, Ford Credit, exact transition period for this provi- and played by the rules lost $1.6 tril- continued to consistently support over sion will be subject to rulemaking. The lion from their retirement accounts. 3,000 of Ford’s dealers and Ford Credit’s second captive finance provision differs More than 6 million families lost their portfolio of more than 3 million retail in two important ways from the first homes to foreclosure. And before the customers during the recent financial provision. The second captive finance recession was over, more than 7 million crisis—at a time when banks had al- provision does not expire after 2 years. Americans had lost their jobs. most completely withdrawn from auto The second provision is a permanent The status quo is clearly not an op- lending. exclusion from the definition of ‘‘finan- tion. Many finance arms securitize their cial entity’’ for those captive finance The conference between the Senate loans through wholly owned affiliate entities who use derivatives to hedge and the House produced a strong bill entities, thereby raising the funds they commercial risks 90 percent or more of that will make sure these markets are need to keep lending. Derivatives are which arise from financing that facili- accountable and fair and that the con- integral to the securitization funding tates the purchase or lease of products, sumers are back in control. process and consequently facilitating 90 percent or more of which are manu- I particularly want to thank the Sen- the necessary financing for the pur- factured by the parent company or an- ator for her efforts to protect manufac- chase of the manufacturer’s products. other subsidiary of the parent com- turers that use derivatives to manage If captive finance affiliates of manu- pany. It is also limited to the captive risks associated with their operations. facturing companies are forced to post finance entity’s use of interest rate Whether it is hedging the risks related margin to a clearinghouse it will divert swaps and foreign exchange swaps. The to fluctuating oil prices or foreign cur- a significant amount of capital out of second captive finance provision is also rency revenues, the ability to provide the U.S. manufacturing sector and found in Section 2(h)(7) of the CEA at financial certainty to companies’ bal- could endanger the recovery of credit the end of the definition of ‘‘financial ance sheets is critical to their viability markets on which manufacturers and entity.’’ Together, these 2 provisions and global competitiveness. their captive finance affiliates depend. provide the captive finance entities of I am glad that the conference recog- Is it the Senator’s understanding manufacturing companies with signifi- nizes the distinction between entities that this legislation recognizes the cant relief which will assist in job cre- that are using the derivatives market unique role that captive finance com- ation and investment by our manufac- to engage in speculative trading and panies play in supporting manufactur- turing companies. our manufacturers and businesses that ers by exempting transactions entered Ms. STABENOW. I agree that the in- are not speculating. Instead, they use into by such companies and their affil- tegrity of these exemptions is critical this market responsibly to hedge le- iate entities from clearing and margin to the reforms enacted in this bill and gitimate business risk in order to re- so long as they are engaged in financ- to the safety of our financial system. duce volatility and protect their plans ing that facilitates the purchase or That is why I support the strong anti- to make investments and create jobs. lease of their commercial end user par- abuse provisions included in the bill.

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00037 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.024 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5906 CONGRESSIONAL RECORD — SENATE July 15, 2010 Would you please explain the safe- Treasury, and State insurance regu- entities are not prohibited from pur- guards included in this bill to prevent lators—to determine whether it is in chasing and disposing of securities and abuse? the public interest to treat stable value other instruments in connection with Mrs. LINCOLN. It is also critical to funds and wrap contracts like swaps. underwriting or market making activi- ensure that we only exempt those This provision is intended to apply to ties, provided that activity does not ex- transactions that are used to hedge by all stable value fund and wrap con- ceed the reasonably expected near term manufacturers, commercial entities tracts held by employee benefit plans— demands of clients, customers, or and a limited number of financial enti- defined contribution, defined benefit, counterparties. I want to clarify this ties. We were surgical in our approach health, or welfare—subject to any de- language would allow banks to main- to a clearing exemption, making it as gree of direction provided directly by tain an appropriate dealer inventory narrow as possible and excluding specu- participants, including benefit pay- and residual risk positions, which are lators. ment elections, or by persons who are essential parts of the market making In addition to a narrow end-user ex- legally required to act solely in the in- function. Without that flexibility, mar- emption, this bill empowers regulators terest of participants such as trustees. ket makers would not be able to pro- to take action against manipulation. If the SEC and CFTC determine that vide liquidity to markets. Also, the Commodity Futures Trading it is in the public interest to regulate Mr. DODD. The gentleman is correct Commission and the Securities Ex- stable value fund and wrap contracts as in his description of the language. change Commission will have a broad swaps, then they would have the power EVENT CONTRACTS authority to write and enforce rules to to do so. I think this achieves the pol- Mrs. FEINSTEIN. I thank Chairman prevent abuse and to go after anyone icy goals underlying the derivatives LINCOLN and Chairman DODD for main- that attempts to circumvent regula- title while still making sure that we taining section 745 in the conference tion. don’t cause unintended harm to peo- report accompanying the Dodd-Frank America’s consumers and businesses ple’s pension plans. Wall Street Reform and Consumer Pro- deserve strong derivatives reform that Mrs. LINCOLN. Mr. President, I tection Act, which gives authority to will ensure that the country’s financial share Chairman HARKIN’s concern the Commodity Futures Trading Com- oversight system promotes and fosters about possible unintended con- mission to prevent the trading of fu- the most honest, open and reliable fi- sequences the Dodd-Frank Wall Street tures and swaps contracts that are con- nancial markets in the world. Reform and Consumer Protection Act trary to the public interest. Ms. STABENOW. I thank the Chair- could have on pension and welfare Mrs. LINCOLN. Chairman DODD and I man for this opportunity to clarify plans which provide their participant maintained this provision in the con- some of the provisions in this bill. I ap- with stable value fund options. These ference report to assure that the Com- preciate the Senator’s help to ensure stable value fund options and their mission has the power to prevent the that this bill recognizes that manufac- contract wrappers could be viewed as creation of futures and swaps markets turers and commercial entities were being a swap or a security-based swap. that would allow citizens to profit from victims of this financial crisis, not the As Chairman HARKIN has stated, there devastating events and also prevent cause, and that it does not unfairly pe- is a significant amount of retirement gambling through futures markets. I nalize them for using these products as savings in stable value funds, $640 bil- thank the Senator from California for part of a risk-mitigation strategy. lion, which represents the retirement encouraging Chairman DODD and me to It is time we shine a light on deriva- funds of millions of hardworking Amer- include it. I agree that this provision tives trading and bring transparency icans. One of my major goals in this will strengthen the government’s abil- and fairness to this market, not just legislation was to protect Main Street. ity to protect the public interest from for the families and businesses that We should try to avoid doing any harm gaming contracts and other events con- were taken advantage of but also for to pension plan beneficiaries. When the tracts. the long-term health of our economy stable value fund issue was brought to Mrs. FEINSTEIN. It is very impor- and particularly our manufacturers. my attention, I knew it was something tant to restore CFTC’s authority to STABLE VALUE FUNDS we had to address. That is why I prevent trading that is contrary to the Mr. HARKIN. Mr. President, as chair- worked with Chairman HARKIN and public interest. As you know, the Com- man of the Health, Education, Labor, Senators LEAHY and CASEY to craft a modity Exchange Act required CFTC to and Pensions Committee, the pensions provision that would give the CFTC prevent trading in futures contracts community approached me about a and the SEC time to study the issue of that were ‘‘contrary to the public in- possible unintended consequence of the whether the stable value fund options terest’’ from 1974 to 2000. But the Com- derivatives title of the Dodd-Frank and/or the contract wrappers for these modity Futures Modernization Act of Wall Street Reform and Consumer Pro- stable value funds are ‘‘swaps’’ or some 2000 stripped the CFTC of this author- tection Act. They were concerned that other type of financial instrument such ity, at the urging of industry. Since the provisions regulating swaps might as an insurance contract. I think sub- 2000, derivatives traders have bet bil- also apply to stable value funds. jecting this issue to further study will lions of dollars on derivatives con- Stable value funds are a popular, con- provide a measure of stability to par- tracts that served no commercial pur- servative investment choice for many ticipants and beneficiaries in employee pose at all and often threaten the pub- employee benefit plans because they benefit plans—including those partici- lic interest. provide a guaranteed rate of return. As pants in defined benefit pension plans, I am glad the Senator is restoring I understand it, there are about $640 401(k) plans, annuity plans, supple- this authority to the CFTC. I hope it billion invested in stable value funds, mental retirement plans, 457 plans, was the Senator’s intent, as the author and retirees and those approaching re- 403(b) plans, and voluntary employee of this provision, to define ‘‘public in- tirement often favor those funds to beneficiary associations—while allow- terest’’ broadly so that the CFTC may minimize their exposure to market ing the CFTC and SEC to make an in- consider the extent to which a pro- fluctuations. When the derivatives formed decision about what the stable posed derivative contract would be title was put together, I do not think value fund options and their contract used predominantly by speculators or anyone had stable value funds or stable wrappers are and whether they should participants not having a commercial value wrap contracts—some of which be regulated as swaps or security-based or hedging interest. Will CFTC have could be viewed as swaps—specifically swaps. It is a commonsense solution, the power to determine that a contract in mind, and I do not think it is clear and I am proud we were able to address is a gaming contract if the predomi- to any of us what effect this legislation this important issue which could affect nant use of the contract is speculative would have on them. the retirement funds of millions of pen- as opposed to a hedging or economic Therefore, I worked with Chairman sion beneficiaries. use? LINCOLN, Senator LEAHY, and Senator VOLCKER RULE Mrs. LINCOLN. That is our intent. CASEY to develop a proposal to direct Mr. BAYH. I thank the Chairman. The Commission needs the power to, the SEC and CFTC to conduct a With respect to the Volcker Rule, the and should, prevent derivatives con- study—in consultation with DOL, conference report states that banking tracts that are contrary to the public

VerDate Mar 15 2010 05:21 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00038 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.062 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5907 interest because they exist predomi- The definition also encompasses ‘‘fi- termining its status as a major swap nantly to enable gambling through nancial entities’’ that are highly lever- participant. supposed ‘‘event contracts.’’ It would aged relative to the amount of capital SWAP DEALER PROVISIONS be quite easy to construct an ‘‘event it holds, are not already subject to cap- Ms. COLLINS. Mr. President, I rise contract’’ around sporting events such ital requirements set by a Federal today as a supporter of the Wall Street as the Super Bowl, the Kentucky banking regulator, and maintain a sub- Transparency and Accountability Act, Derby, and Masters Golf Tournament. stantial position in outstanding swaps. but also as one who has concerns over These types of contracts would not I understand when the CFTC and SEC how the derivatives title of the bill will serve any real commercial purpose. are making the determination as to be implemented. I applaud the chair- Rather, they would be used solely for whether a person dealing in swaps is a man of the Senate Banking Committee gambling. major swap participant or major secu- for his work on the underlying bill. At Mrs. FEINSTEIN. And does the Sen- rity-based swap participant, it is the the same time, I am concerned that ator agree that this provision will also intent of the conference committee some of the provisions in the deriva- empower the Commission to prevent that both the CFTC and the SEC focus tives title will harm U.S. businesses trading in contracts that may serve a on risk factors that contributed to the unnecessarily. limited commercial function but recent financial crisis, such as exces- I would like to engage the chairman threaten the public good by allowing sive leverage, under-collateralization of the Senate Banking Committee in a some to profit from events that threat- of swap positions, and a lack of infor- colloquy that addresses an important en our national security? mation about the aggregate size of po- issue. The Wall Street Transparency Mrs. LINCOLN. I do. National secu- sitions. Is this correct? and Accountability Act will regulate rity threats, such as a terrorist attack, Mrs. LINCOLN. Yes. My good friend ‘‘swap dealers’’ for the first time by war, or hijacking pose a real commer- from North Carolina is correct. We subjecting them to new clearing, cap- cial risk to many businesses in Amer- made some important changes during ital and margin requirements. ‘‘Swap ica, but a futures contract that allowed the conference with respect to the dealers’’ are banks and other financial people to hedge that risk would also in- ‘‘major swap participant’’ and ‘‘major institutions that hold themselves out volve betting on the likelihood of security-based swap participant’’ defi- to the derivatives market and are events that threaten our national secu- nitions. When determining whether a known as dealers or market makers in rity. That would be contrary to the person has a ‘‘substantial position,’’ swaps. The definition of a swap dealer public interest. the CFTC and the SEC should consider in the bill includes an entity that ‘‘reg- Mrs. FEINSTEIN. I thank the Sen- the person’s relative position in cleared ularly enters into swaps with counter- ator for including this provision. No versus the uncleared swaps and may parties as an ordinary course of busi- one should profit by speculating on the take into account the value and qual- ness for its own account.’’ It is possible likelihood of a terrorist attack. Firms ity of the collateral held against the definition could be read broadly facing financial risk posed by threats counterparty exposures. The com- and include end users that execute to our national security may take out mittee wanted to make it clear that swaps through an affiliate. I want to insurance, but they should not buy a the regulators should distinguish be- make clear that it is not Congress’ in- derivative. A futures market is for tween cleared and uncleared swap posi- tention to capture as swap dealers end hedging. It is not an insurance market. tions when defining what a ‘‘substan- users that primarily enter into swaps COLLATERALIZED INVESTMENTS tial position’’ would be. Similarly to manage their business risks, includ- Mrs. HAGAN. Mr. President, I would where a person has uncleared swaps, ing risks among affiliates. like to engage Senator LINCOLN, chair- the regulators should consider the I would ask the distinguished chair- man of the Agriculture, Nutrition and value and quality of such collateral man whether he agrees that end users Forestry Committee, in a colloquy. when defining ‘‘substantial position.’’ that execute swaps through an affiliate Title VII of the Dodd-Frank Wall Bilateral collateralization and proper should not be deemed to be ‘‘swap deal- Street Reform and Consumer Protec- segregation substantially reduces the ers’’ under the bill just because they tion Act, which Chairman LINCOLN was potential for adverse effects on the sta- hedge their risks through affiliates. the primary architect of, creates a new bility of the market. Entities that are Mr. DODD. I do agree and thank my regulatory framework for the over-the- not excessively leveraged and have colleague for raising another impor- counter derivatives market. It will re- taken the necessary steps to segregate tant point of clarification. I believe the quire a significant portion of deriva- and fully collateralize swap positions bill is clear that an end user does not tives trades to be cleared through a on a bilateral basis with their counter- become a swap dealer by virtue of centralized clearinghouse and traded parties should be viewed differently. using an affiliate to hedge its own com- on an exchange, and it will also in- In addition, it may be appropriate for mercial risk. Senator COLLINS has been crease reporting and capital and mar- the CFTC and the SEC to consider the a champion for end users and it is a gin requirements on significant players nature and current regulation of the pleasure working with her. in the market. The new regulatory entity when designating an entity a Mr. MCCAIN. Mr. President, we are framework will help improve trans- major swap participant or a major se- poised to pass what some have termed parency and disclosure within the de- curity-based swap participant. For in- a ‘‘sweeping overhaul’’ of our Nation’s rivatives market for the benefit of all stance, entities such as registered in- financial regulatory system. Unfortu- investors. vestment companies and employee ben- nately, this legislation does little, if Under the bill, the Commodity Fu- efit plans are already subject to exten- anything—to tackle the tough prob- tures Trading Commission, CFTC, and sive regulation relating to their usage lems facing the financial sector, nor the Securities and Exchange Commis- of swaps under other titles of the U.S. does it institute real, meaningful and sion, SEC, are instructed to further de- Code. They typically post collateral, comprehensive reform. This bill is sim- fine the terms ‘‘major swap partici- are not overly leveraged, and may not ply an abysmal failure and serves as pant’’ and ‘‘major security-based swap pose the same types of risks as unregu- yet another example of Congress’s in- participant.’’ The definitions of major lated major swap participants. ability to make the choices necessary swap participant and major security- Mrs. HAGAN. I thank the Senator. If to bring our country back into eco- based swap participant included in the I may, I have one additional question. nomic prosperity. bill require the CFTC and the SEC to When considering whether an entity What this bill does represent is a determine whether a person dealing in maintains a substantial position in guarantee of future bailouts. In a re- swaps maintains a ‘‘substantial posi- swaps, should the CFTC and the SEC cent Wall Street Journal op-ed titled tion’’ in swaps, as well as whether such look at the aggregate positions of ‘‘The Dodd-Frank Financial Fiasco,’’ outstanding swaps create ‘‘substantial funds managed by asset managers or at John Taylor—a professor of economics counterparty exposure’’ that could the individual fund level? at Stanford and a senior fellow at the have ‘‘serious adverse effects on the fi- Mrs. LINCOLN. As a general rule, the Hoover Institution—wrote: nancial stability of the United States CFTC and the SEC should look at each The sheer complexity of the 2,319-page banking system or financial markets.’’ entity on an individual basis when de- Dodd-Frank financial reform bill is certainly

VerDate Mar 15 2010 05:21 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00039 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.064 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5908 CONGRESSIONAL RECORD — SENATE July 15, 2010 a threat to future economic growth. But if tracts with institutions they deem government subsidies—on a level play- you sift through the many sections and sub- have ‘‘failed to make a good faith ef- ing field with their private sector com- sections, you find much more than com- fort to include minorities and women petitors. Unfortunately that amend- plexity to worry about. The main problem with the bill is that it is in their workforce.’’ ment was defeated by a near-party-line based on a misdiagnosis of the causes of the Diana Furchtgott-Roth, former chief vote. financial crisis, which is not surprising since economist at the U.S. Department of The majority, however, did offer an the bill was rolled out before the congres- Labor and senior fellow at the Hudson alternative proposal to my amend- sionally mandated Financial Crisis Inquiry Institute, spotlighted the controversial ment. Was it a good, well thought out, Commission finished its diagnosis. section in an article on Real Clear Mar- comprehensive plan to end the tax- The biggest misdiagnosis is the presump- kets on July 8th. She wrote: payer-backed free ride of Fannie and tion that the government did not have Freddie and require them to operate on enough power to avoid the crisis. But the This is a radical shift in employment legis- Federal Reserve had the power to avoid the lation. The law effectively changes the a level playing field with their private monetary excesses that accelerated the standard by which institutions are evaluated sector competitors? Nope. It was a housing boom that went bust in 2007. The from anti-discrimination regulations to study. The majority included language New York Fed had the power to stop quotas. In order to be in compliance with the in this bill to study the problem of Citigroup’s questionable lending and trading law these businesses will have to show that Fannie and Freddie for 6 months. Wow! decisions and, with hundreds of regulators on they have a certain percentage of women and Instead of dealing head-on with the two the premises of such large banks, should a certain percentage of minorities. enterprises that brought our entire have had the information to do so. The Secu- This provision was never considered economy to its knees—the majority rities and Exchange Commission (SEC) could or debated in the Senate. I do not have insisted on reasonable liquidity rules to wants to study them for 6 more prevent investment banks from relying so think it is unreasonable to expect that months. much on short-term borrowing through re- such a major change in government According to a recent article pub- purchase agreements to fund long-term in- policy—indeed a complete shift from lished by the Associated Press, these vestments. And the Treasury working with anti-discrimination regulations to a two entities have already cost tax- the Fed had the power to intervene with system of quotas for the financial in- payers over $145 billion in bailouts troubled financial firms, and in fact used dustry—be fully aired and debated by and—according to CBO—those losses this power in a highly discretionary way to both Chambers before it is enacted. could balloon to $400 billion. And if create an on-again off-again bailout policy that spooked the markets and led to the Finally, let me return to Mr. Tay- housing prices fall further, some ex- panic in the fall of 2008. lor’s piece from the Wall Street Jour- perts caution, the cost to the taxpayer But instead of trying to make implementa- nal. Mr. Taylor added: could hit as much as $1 trillion. And all tion of existing government regulations By far the most significant error of omis- the majority is willing to do is study more effective, the bill vastly increases the sion in the bill is the failure to reform them for 6 months. It is no wonder the power of government in ways that are unre- Fannie Mae and Freddie Mac, the govern- American people view us with such lated to the recent crisis and may even en- ment sponsored enterprises that encouraged contempt. courage future crises. the origination of risky mortgages in the The Federal Government has set a Mr. Taylor then goes on to highlight first place by purchasing them with the sup- dangerous precedent here. We sent the the many ‘‘false remedies’’ contained port of many in Congress. Some excuse this wrong message to the financial indus- in this legislation including the ‘‘or- omission by saying that it can be handled try: when you engage in bad, risky later. But the purpose of ‘‘comprehensive re- derly liquidation’’ authority given to business practices, and you get into the FDIC—which effectively institu- form’’ is to balance competing political in- terests and reach compromise; that will be trouble, the government will be there tionalizes the bailout process. Other much harder to do if the Frank-Dodd bill be- to save your hide. It amounts to noth- examples are the new Bureau of Con- comes law. ing more than a taxpayer-funded sub- sumer Financial Protection, the new I could not agree more. It is clear to sidy for risky behavior and this bill Office of Financial Research, and a new any rational observer that the housing does nothing to prevent it from hap- regulation for nonfinancial firms that market has been the catalyst of our pening all over again. use financial instruments to reduce current economic turmoil. And it is Again, I regret that I have to vote risks of interest-rate or exchange-rate impossible to ignore the significant against this bill. I assure my col- volatility. role played by Fannie Mae and Freddie leagues, and the American people, that In addition to the ‘‘false remedies,’’ if this were truly a bill that instituted the huge expansion of government, and Mac. The events of the past 2 years have made it clear that never again real, serious and effective reforms—I the outright power-grab by the Federal would be the first in line to cast a vote Government contained in this so-called can we allow the taxpayer to be respon- sible for poorly managed financial enti- in its favor. But it is not. It serves as reform measure—recent press reports evidence of a dereliction of our duty ties who gambled away billions of dol- note that this bill has also become the and a missed opportunity to provide lars. Fannie Mae and Freddie Mac are vehicle for imposing racial and gender the American people with the protec- synonymous with mismanagement and quotas on the financial industry. Sec- tions necessary to avert yet another fi- waste and have become the face of ‘‘too tion 342 of this bill establishes Offices nancial disaster. They deserve better big to fail.’’ of Minority and Women Inclusion in at from us. least 20 Federal financial services During the debate on this financial Mr. GRASSLEY. Mr. President, I agencies. These offices will be tasked ‘‘reform’’ bill, we heard much about have long worked for the continued vi- with implementing ‘‘standards and pro- how the U.S. Government will never ability of rural low-volume hospitals so cedures to ensure, to the maximum ex- again allow a financial institution to that Medicare beneficiaries living in tent possible, the fair inclusion and become ‘‘too big to fail.’’ We heard rural areas in Iowa and elsewhere in utilization of minorities, women, and countless calls for more regulation to the country will continue to have need- minority-owned and women-owned ensure that taxpayers are never again ed access to care. businesses in all business and activities placed at such tremendous risk. Sadly, Today, I want to discuss another con- of the agency at all levels, including in the conference report before us now cern, one regarding low-volume dialy- procurement, insurance, and all types completely ignores the elephant in the sis clinics in rural areas and the kidney of contracts.’’ room—because no other entity’s failure dialysis patients they serve. This ‘‘fair inclusion’’ policy will would be as disastrous to our economy Congress enacted a new end-stage apply to ‘‘financial institutions, invest- as Fannie Mae’s and Freddie Mac’s. renal dialysis, ESRD, bundled payment ment banking firms, mortgage banking As my colleagues know, during Sen- system in the Medicare Improvements firms, asset management firms, bro- ate consideration of this bill, I offered for Patients and Providers Act of 2008 kers, dealers, financial services enti- a good, common-sense amendment de- that takes effect next year. ties, underwriters, accountants, invest- signed to end the taxpayer-backed con- I support the establishment of a fully ment consultants and providers of legal servatorship of Fannie Mae and bundled payment system for renal di- services.’’ Freddie Mac by putting in place an or- alysis services. The provision goes on to assert that derly transition period and eventually It is intended to improve payments the government will terminate con- requiring them to operate—without for ESRD services and to ensure access

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00040 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.027 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5909 to critical renal dialysis services, in- MedPAC also found that rural dialy- There being no objection, the mate- cluding those in rural areas. sis providers have Medicare margins rial was ordered to be printed in the It will also improve the quality of that average -0.3 percent compared to RECORD, as follows: care for dialysis patients by requiring urban providers with positive margins WILL THE NEW ESRD BUNDLE CAUSE THE ESRD providers to meet certain stand- of 3.9 percent, and they expressed con- DEATH OF RURAL HOSPITAL-BASED DIALYSIS ards through a new quality incentive cern that the gap in rural and urban UNITS? program that is established for ESRD margins has widened. The new End Stage Renal Disease (ESRD) providers. They project that Medicare margins Bundled payment system scheduled to begin It establishes a permanent annual will fall from an aggregate 3.2 percent in January, 2011 is expected to create a fi- nancial loss for dialysis clinics across the update for ESRD providers. margin in 2008 to an aggregate 2.5 per- It also provides for payment adjust- United States. According to the CMS Office cent in 2010. of Public Affairs (2009) ‘‘MIPPA [Medicare ments in certain circumstances, such If corresponding declines are seen in Improvements for Patients and Providers as payments for low-volume facilities rural areas, negative margins for rural Act] specifically requires that the new sys- and for dialysis facilities and providers facilities will increase, and low-volume tem trim two percent of the estimated pay- in rural areas that need additional re- rural facilities will be hit even harder. ments that would have been made in 2011 sources. And this projection does not take under the previous payment system’’ (T3). Al- Last fall, the Centers for Medicare into account any of the additional re- though this is of concern to all dialysis clin- ics, it is particularly alarming to non-profit and Medicaid Services, CMS, issued a ductions that CMS has proposed as proposed rule to implement the new hospital based dialysis units which are al- part of the new bundled payment sys- ready operating at a loss. ESRD bundled payment system. That tem even though these reductions These small hospital-owned dialysis clinics rule will be finalized later this year. would have a significant adverse im- are simply trying to provide a service to an I am concerned that overall some of pact on small dialysis facilities. underserved rural area. Patients would have the proposed adjustments that reduce Should the proposed restrictions on no option but to let ESRD claim their lives payments for dialysis treatment may low-volume facilities be finalized, the because the resources are not available for be unduly low. them to drive the extended distances to continued viability of these small di- urban areas where dialysis services are more But today I want to focus on one alysis facilities will be questionable. issue in particular—the adjustment available. Pella Regional Health Center This will be especially true in rural (PRHC), a Critical Access Hospital (CAH) in that CMS has proposed for low-volume areas, and beneficiary access to these rural Iowa, offers outpatient dialysis serv- facilities. critical dialysis services will be se- ices. Robert Kroese, CEO of PRHC stated, The legislation that established this verely jeopardized. ‘‘We choose to keep this dialysis clinic open new bundled payment system specifi- Small rural dialysis clinics provide despite the financial liability to the hospital cally requires CMS to adopt a payment beneficiaries with end-stage-renal dis- for one reason only, people will have no adjustment of not less than 10 percent choice but to die without it. Our community ease access to critically-needed dialy- needs this service.’’ for low-volume facilities to ensure sis services in medically underserved their continued viability with other fa- Currently hospital-based dialysis units rep- areas. resent 13.6 percent of all dialysis facilities in cilities. In some rural areas, a single clinic the United States. Facilities classified as The Secretary was given the discre- may be the only facility that furnishes rural only make up 4.4 percent. The current tion to define low-volume facilities. CMS payment system defines a small facility Unfortunately, CMS has proposed a this life-sustaining care. Should the unduly restrictive treat- as <5000 treatments annually as well as other very restrictive definition and set of ment limit for low-volume facilities be control variables to include urban vs. rural criteria to qualify as a low-volume fa- and facility ownership. The proposed bundled finalized as proposed, small rural fa- cility so the payment adjustment payment system will decrease reimburse- cilities with slightly higher treatment would only apply to facilities that fur- ment further for these rural hospital-based volumes will lose these essential low- nish fewer than 3,000 treatments a units by decreasing the low-volume defini- volume payments. tion to <3000 treatments per year and elimi- year. nating rural facility payment adjustments According to CMS, ‘‘the low-volume Since rural dialysis facilities already face negative Medicare margins, many (Leavitt, 2008). Considering the lack of buy- adjustment should encourage small ing power these small facilities face com- ESRD facilities to continue to provide are likely to close, further limiting ac- cess to crucial dialysis services that pared to the large dialysis companies, the access to care to an ESRD patient pop- hope of continuing this service in these rural ulation where providing that care these kidney patients depend upon to areas is diminishing. would otherwise be problematic.’’ survive. At what point is the financial burden going CMS also notes that low-volume fa- New facilities would not be eligible to be too much for these small rural hos- cilities have substantially higher for low-volume payments until their pitals to carry? The result will be thousands fourth year of operation under the pro- of patients without the healthcare services treatment costs. needed to sustain their lives. Please consider Previously, CMS considered an ESRD posed rule, making it unlikely that other facilities would take the place of the effects on the unseen heroes in rural facility with less than 5,000 treatments America trying to provide the best care pos- a year to be small. those that had closed. sible to all Americans who need it. Help pro- But now CMS is proposing to limit The prospect of Medicare bene- tect the dialysis patients who live in the un- eligible ESRD facilities to those with ficiaries’ losing access to these life-sus- derserved areas of America by contacting less than 3,000 treatments a year and taining services is simply unaccept- your state representatives regarding the requiring this limit to be met for 3 able. preservation of Hospital-based rural dialysis years preceding the payment year, I, therefore, urge CMS to modify the units. along with certain ownership restric- proposed restrictions for low-volume Mr. FEINGOLD. Mr. President, I will tions. adjustments by raising the treatment oppose the conference version of the CMS has not proposed any geo- limit to the existing 5,000 treatment Dodd-Frank bill. While it includes graphic restriction that would limit definition for small rural dialysis fa- some positive provisions, it fails its the low-volume payment adjustment to cilities. most important mission, namely to en- dialysis facilities in rural areas. One of my constituents, Laura Beyer, sure that taxpayers, consumers, busi- Medicare reimbursement is already RN, BSN, is the manager of dialysis at nesses, and workers won’t be victims of problematic for small dialysis organi- Pella Regional Health Center, a crit- another financial crisis like the one zations because they operate on very ical access hospital in rural Iowa. She which a few years ago triggered the low Medicare margins. has written an editorial about this worst recession our Nation has experi- According to the March 2010 report of problem and the financial crises that enced since the Great Depression. the Medicare Payment Advisory Com- small outpatient dialysis facilities, The measure certainly contains mission, MedPAC, large dialysis orga- such as Pella Regional Health Center, many good things, but those positive nizations have Medicare margins of 4.0 are facing. Her editorial will be appear- provisions do not outweigh the bill’s percent compared to other dialysis fa- ing in Nephrology News in July. serious failings. Of the several signifi- cilities with Medicare margins of only I ask unanimous consent to have cant flaws in the bill, I will focus on 1.6 percent. printed in the RECORD this editorial. two—the failure to reinstate the well-

VerDate Mar 15 2010 05:21 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00041 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.071 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5910 CONGRESSIONAL RECORD — SENATE July 15, 2010 proven protections first established by ades began to unravel when, in the During the Senate’s consideration of the Glass-Steagall Act of 1933 that 1980s, Wall Street lobbyists spurred the measure, several amendments were were repealed a decade ago, and the regulators to undermine financial reg- offered that sought to confront that failure to firmly and finally address ulations, including the very firewall problem. Two of them, one offered by the essential problem posed by too-big- between Main Street banking and Wall the Senator from North Dakota, Mr. to-fail financial institutions. Street investing that Glass-Steagall DORGAN, and one offered by the Sen- Earlier this year I was pleased to co- had established, and that had worked ators from Ohio, Mr. BROWN, and Dela- sponsor a bill introduced by the Sen- so well. That firewall was completely ware, Mr. KAUFMAN, took the problem ator from Washington, Ms. CANTWELL, torn down when Wall Street lobbyists on directly. Only one of those amend- to restore the safeguards that were en- convinced Congress to pass the ments even got a vote, and that pro- acted as part of the famous Glass- Gramm-Leach-Bliley Act of 1999. posal, from Senators BROWN and KAUF- Steagall Act of 1933. And I was also We have seen the disastrous results MAN, was strongly opposed, and ulti- pleased to cosponsor her amendment to of that ill-considered policy. It’s a mately defeated, by those who were the Financial Regulatory Reform bill, major part of the reason the financial shepherding the bill through the Sen- which was based on that legislation. It regulatory reform bill was considered ate. went to the very core of what the un- by this body. As I noted, the problem of too big to derlying bill we are considering seeks I voted against the Gramm-Leach- fail is the reason we are considering fi- to address. Bliley Act, which eliminated the Glass- nancial regulatory reform legislation. Unlike some other proposals we con- Steagall protections. The financial and It was the threat of the failure of the sidered, that amendment had a track economic record of that bill has been Nation’s largest financial institutions record we can review, because the eco- disastrous. If the financial regulatory that spurred the Wall Street bailout. I nomic history of this country can be reform bill before us did nothing else, opposed that measure as well, in part divided into three eras—the time be- it should have fixed the problems cre- because it was not tied to fundamental fore Glass-Steagall, the Glass-Steagall ated by that ill-advised act. reforms of our financial system that era, and the most recent post-Glass- Just a few weeks ago, at one of the would prevent a future crisis and the Steagall era. listening sessions I hold in each of Wis- need for another bailout. There can be In the first era—the time before the consin’s 72 counties every year, a com- no doubt that we could have had a enactment of the Glass-Steagall Act of munity banker from northwestern Wis- much tougher reform package if the 1933—financial panics were frequent consin urged me to support restoring bailout had been tied to such a meas- and devastating. Even before the mar- the Glass-Steagall protections. He ure. ket crash in 1929, the panics of 1857, rightly pointed out how the lack of Nor should there be any doubt about 1873, 1893, 1901, and 1907 wrecked our those protections led directly to the the role Congress has played in aggra- economy, putting thousands of firms Great Depression. And he argued that vating the problem of too big to fail. out of business, and leaving family the bill we are currently debating Fifteen years ago, the six largest U.S. breadwinners across the country with- doesn’t go far enough in this respect. banks had assets equal to 17 percent of out jobs. That community banker was abso- our GDP. Today, after the enactment In the wake of the 1929 crash—the lutely right. of the Riegle-Neal Interstate Banking last great panic of that first era—4,000 The bill before us tries to make up commercial banks and 1,700 savings and Branching bill and the Gramm- for the lack of a Glass-Steagall firewall and loans failed in this country, trig- Leach-Bliley bill, the six largest U.S. by establishing some new limitations gering the Great Depression that elimi- banks have assets equal to more than on the activities of banks, and gives nated jobs for a quarter of the work- 60 percent of our GDP. greater power and responsibility to Years ago, a former Senator from force. It was that last financial crisis that regulators. All of that is well inten- Wisconsin, William Proxmire, noted spurred enactment of the Glass- tioned, but we all know just how cre- that as banking assets become more Steagall Act of 1933, which marks the ative financial firms can be at eluding concentrated, the banking system beginning of the second of our financial these kinds of limits and regulatory itself becomes less stable, as there is history’s three eras. oversight when so much profit is at greater potential for system wide fail- The Glass-Steagall Act of 1933 put a stake. No amount of oversight is an ef- ures. Sadly, Senator Proxmire was ab- stop to financial panics. It stabilized fective substitute for the legal firewall solutely right, as recent events have our banking system by implementing established by Glass-Steagall. proved. Even beyond the issue of sys- two key reforms. First, it established The era in our financial history in temic stability, the trend toward fur- an insurance system for deposits, reas- which the Glass-Steagall protections ther concentration of economic power suring bank customers that their de- were in force was notable for the lack and economic decisionmaking, espe- posits were safe and thus forestalling of instability and turmoil that had cially in the financial sector, simply is bank runs. And second, it erected a been a regular feature of our financial not healthy for the Nation’s economy. firewall between securities under- markets prior to Glass-Steagall, and Historically, banks have had a very writing and commercial banking. Fi- that helped bring our economy to the special role in our free market system: nancial firms had to choose which busi- brink after Glass-Steagall safeguards They are rationers of capital. While in ness to be in; they couldn’t do both. were repealed. Congress should have re- recent decades we have seen changes in That wall between Main Street com- stored those time-tested protections, the capital markets that provide the mercial banking and Wall Street in- and reestablished the stability that largest corporations with other options vestment financing was a crucial part brought our Nation half a century of to access needed capital, small busi- of establishing the deposit insurance remarkable economic growth. nesses still remain dependent on the safety net because it prevented banks We could have achieved that by traditional banking system for the cap- that accepted FDIC-insured deposits adopting the Cantwell amendment. ital that is essential to them. So when from making speculative investment But, as we know, the Cantwell amend- fewer and fewer banks are making the bets with that insured money. ment was not even permitted a vote, critical decisions about where capital The Glass-Steagall Act was an enor- such was the opposition to that com- is allocated, there is an increased risk mous success. It helped prevent any monsense reform by those who were that many worthy enterprises will not major financial crisis in this country guiding this legislation. So our finan- receive the capital needed to grow and for most of the 20th century, and that cial markets will continue to remain flourish. financial market stability helped fos- adrift in the brief but ruinous post- For years, a strength of the Amer- ter the economic growth we enjoyed for Glass-Steagall era. ican banking system was the strong decades. The other flaw I will highlight is the community and local nature of that And that brings us to the last of the measure’s failure to directly address system. Locally made decisions made three eras—the post-Glass-Steagall era. what in many ways is the reason we by locally owned financial institu- All that wonderful financial market are here today, namely the problem of tions—institutions whose economic stability that we had enjoyed for dec- too big to fail. prospects were tied to the financial

VerDate Mar 15 2010 05:21 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00042 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.019 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5911 health of the communities they the bill actually ‘‘enshrines the bailout The CFPB could have abolished that served—have long played a critical role architecture, and thus the ‘too-big-to- kind of financing, but keeping these in the economic development of our fail’ distortions in the economy.’’ And provisions in the bill will preserve a va- Nation and especially for our smaller those distortions are not limited to the riety of auto financing choices for con- communities and rural areas. But we kind of massive, systemic collapse of sumers, and we know that more have moved away from that system. the financial markets, which we just choices result in lower prices. And the Directly as a result of policy changes experienced. Too-big-to-fail distortions provisions of my amendment keep auto made by Congress and regulators, occur daily. They happen whenever a loans convenient and affordable while banking assets are controlled by fewer smaller community bank is competing retaining existing consumer protection and fewer institutions, and the dimin- with an enormous too-big-to-fail bank. laws and policies. ishment of that locally owned and con- Dean Baker calculated that the credit The end result is a balance between trolled capital has not benefited either advantage the very biggest banks have consumer protection and the avail- businesses or consumers. over smaller institutions because of ability of affordable and accessible Beyond the problems to our capital too-big-to-fail distortions is worth pos- credit for consumers to meet their markets created by this development, sibly $34 billion a year. Those who transportation needs. Except for sub- there is Senator Proxmire’s warning doubt such a distortion need only talk section (d), Section 1029 is the result of about the increased risk of system wide to a community banker for a few min- a lot of debate and discussion in both failure. Taxpayers across the country utes to understand just how real it is. houses of Congress dating back to last must now realize that Senator Prox- Some suggest we should pass this bill year. During the House Financial Serv- mire’s warning about the concentra- because, despite the failings I have just ices Committee’s markup of this legis- described, it contains some positive re- tion of banking assets proved to be all lation, Representative JOHN CAMPBELL too prescient when President Bush and forms and that we should enact those of California offered an amendment to Congress decided to bail out those improvements and then work to exclude auto dealers from the jurisdic- mammoth financial institutions rather achieve the critically needed reforms tion of the CFPB. The Campbell that remain. That analysis assumes than allowing them to fail. amendment passed on a bipartisan vote there will be some second great reform Some may argue that instead of im- of 47–21. A modified form of the Camp- effort which will build on the work posing clear limits on the size of these bell amendment was included during begun in this legislation, and that sim- financial behemoths, the bill before us floor consideration of H.R. 4173, which ply isn’t going to happen. This is the seeks to limit their risk of failing by passed by a vote of 223–202 on December bill. In the wake of the financial crisis tightening the rules that should govern 11, 2009. their behavior. And, they might add, and bailout, Congress essentially gets I offered an amendment during Sen- the measure also permits regulators to one shot to correct things and prevent ate consideration of H.R. 4173 to serve a future crisis and bailout. There will address these matters more directly as a companion to the Campbell be no financial regulatory reform, part than ever before. But we have seen how amendment. Although my amendment two. Nobody seriously thinks the Wall Street interests can maneuver did not receive a direct vote, on May White House is planning a second re- around inconvenient regulations. More- 24, the Senate voted to instruct its con- form package to go after too big to fail over, the track record of the regulators ferees to recede to the House on this and to reinstate Glass-Steagall protec- themselves has been troubling at best, matter, subject to the modifications of tions. Nor does anyone believe the Sen- and yet this bill relies on that same the Brownback amendment. This mo- ate Banking Committee or the House system to protect taxpayers and the tion passed on a bipartisan vote of 60– Banking Committee is drafting a fol- economy from another financial mar- 30. lowup bill to deal with those issues. The final conference committee ket meltdown. For that matter, I know of no advocacy Today, the 10 largest banks have agreement incorporates the groups that are seriously planning a more than $10 trillion in assets. That is Brownback-Campbell language with followup reform effort to go after too the equivalent of more than three- some modifications. I want to discuss big to fail or to reinstate the Glass- quarters of our Nation’s GDP. And no those provisions specifically and high- Steagall firewalls between commercial one believes that, if one or more of light some significant points. banking and Wall Street investment those financial institutions were to get First, section 1029(a) provides that firms. It is not happening, because this into trouble, they would be allowed to the CFPB ‘‘may not exercise any rule- is the moment and this is bill. To mini- making, supervisory, enforcement or simply fail. The risk to the financial mize the failings of this bill by sug- any other authority, including any au- markets and the economy is seen as gesting there will be another one com- thority to order assessments, over a too great. They are literally too big to ing down the pike is at best misleading motor vehicle dealer that is predomi- fail. And that is the problem. and at worst dishonest. As economist Dean Baker has noted, Mr. President, in this case, we have nately engaged in the sale and serv- too big to fail implies two things: to get it right—completely right, not icing of motor vehicle, the leasing and First, knowing the government will just make a good start. This bill fails servicing of motor vehicles, or both.’’ stand behind the debt-of-too-big to fail the key test of preventing another cri- This is a clear, unambiguous exclusion institutions, creditors will view those sis, and I will oppose it. from the authority of the CFPB for institutions as better credit risks and Mr. BROWNBACK. Mr. President, I motor vehicle dealers. lower the cost of credit to them; and rise to speak regarding the auto dealer Three exceptions to the exclusion for second, too-big-to-fail firms are able to exclusion in section 1029 of H.R. 4173, dealers are enumerated in section engage in riskier behavior than other the Restoring American Financial Sta- 1029(b). Subsection (b)(1) describes ac- firms because creditors know the gov- bility Act of 2010. tivity related to real estate trans- ernment will stand behind a too-big-to- I am pleased that my amendment ex- actions with consumers. Subsection fail firm if it gets in trouble, they will cluding auto dealers from the jurisdic- (b)(2) describes motor vehicle trans- keep the money flowing when they oth- tion of the Bureau of Consumer Finan- actions in which the dealer under- erwise might have closed it off. Baker cial Protection, CFPB, was included in writes, funds, and services motor vehi- is exactly right when he says that this the conference report to H.R. 4173. This cle retail installment sales contracts is a recipe for many more bailouts. proposal attracted bipartisan support and lease agreements without the in- Too big to fail has been a growing because the auto dealers should not volvement of an unaffiliated third problem for more than a decade. Yet have been regulated in this bill in the party finance or leasing source so- nothing in the Dodd-Frank bill re- first place. They are retailers. They called ‘‘buy-here-pay-here’’ trans- quires that those enormous financial should not be regulated as bankers. actions. Subsection (b)(3) describes the firms be whittled down to a size that They did not cause the Wall Street consumer financial products and serv- would permit them to fail without dis- meltdown. They didn’t bring down Leh- ices offered by motor vehicle dealers astrous consequences for financial mar- man Brothers or Bear Stearns. and limits the exclusion to those ac- kets or the economy. In fact, as Peter The purpose of my amendment was tivities or any related or ancillary Eavis noted in the Wall Street Journal, to protect third party auto financing. product or service. The combination of

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Many large Wall Street ity of the Federal Reserve Board, the anecdotes about finance practices that investment banks and insurance com- Federal Trade Commission and any were already illegal. In addition, Under panies hid their shaky finances from other Federal agency having authority Secretary Stanley’s letter related the stockholders and government regu- to regulate motor vehicle dealers. results of a survey of military members lators. Corporate executives saw their Section 1029(d) provides that the Fed- regarding auto financing. That survey, salaries rise to extreme heights, even eral Trade Commission, FTC, will have which was informal and unscientific, as their companies were failing and the authority to write rules to address unfortunately failed to specify the seeking government assistance. unfair or deceptive acts or practices by sources of the problems some service- Through it all, Federal regulatory motor vehicle dealers pursuant to the members encountered. It gave no indi- agencies failed to provide the nec- procedures set forth in the Administra- cation that auto dealers were respon- essary oversight to rein in these reck- tive Procedures Act instead of the sible for bad loans made to military less actions. If this crisis has taught us Magnuson-Moss Act. Motor vehicles members and made, and I think it is anything, it is that the look-the-other dealers are set to become the only busi- unfortunate that auto dealers were way, hands-off deregulatory policies nesses in America singled out for regu- blamed for problems they did not cause that were in vogue in recent times can lation in this manner. I want to em- on the basis of this survey. jeopardize not only private invest- phasize that this specific provision was In fact, I was surprised that Pen- ments but our entire economy. neither in the House or Senate bill and tagon officials cited this survey instead The conference report we are voting was not under consideration in either of relying on their comprehensive 2006 on today goes directly to the heart of chamber. It was added by House-Senate report on abusive lending practices. the Wall Street excesses that brought conferees. Section 1029(d) was included This study, entitled ‘‘Report on Preda- our economy to the brink. For far too without any evidence to justify its in- tory Lending Practices Directed at long Wall Street firms made risky bets clusion, or any debate for that matter. Members of the Armed Forces and in the dark and reaped enormous prof- I do not support this provision, as I be- Their Dependents’’ did not include its. Then, when their bets went sour, lieve it invites the FTC to again en- dealer-assisted financing among its list they turned to America’s taxpayers to gage in regulatory overreach. I am con- of predatory lending practices. In the bail them out. This bill is about chang- cerned that the removal of the well-es- end, in my view, the best information ing the culture of rampant Wall Street tablished ‘‘Magnuson-Moss’’ safeguards available indicates that servicemem- speculation and doing what needs to be gives the FTC free rein to conduct fish- bers will not be harmed by exempting done to get our economy back on ing expeditions into any area of auto- dealers from the jurisdiction of the track. We need more transparency and motive finance it perceives as ‘‘un- CFPB. I am glad that argument carried oversight of Wall Street. These im- fair.’’ the day. provements will increase transparency The present leadership of the FTC I am very concerned that the CFPB, in and oversight of the financial sector. has promised that if Magnuson-Moss which will not be overseen by the Of- These historic reforms will set clear were repealed, they would use their fice of Management and Budget and standards and real enforcement—in- new power prudently. I hope that this will not depend on Congress for its cluding jail time for executives—to fi- is the case, because we do not want to funding, will at some point in the fu- nally curb the fraud, manipulation, and repeat the kind of excessive FTC regu- ture engage in regulatory overreach riotous speculation that punctured lation that occurred in the 1970s. For that will hurt our economy. Excluding confidence in our markets and derailed that reason, Congress must monitor auto, boat and RV dealers from the our economy. the FTC very closely to ensure the vast CFPB jurisdiction will ensure that I commend Chairman BARNEY FRANK power Congress will now bestow on this these Main Street small businesses are and Chairman CHRIS DODD for their ex- agency is not once again abused. protected from such harmful regula- cellent leadership of the conference. As Section 1029(e) requires the Federal tion. For consumers, my amendment a conferee, I know full well the pres- Reserve Board and the Federal Trade guarantees that access to affordable sure that powerful Wall Street special Commission to coordinate with the Of- credit is preserved, and all consumer interests put on all Members to water fice of Service Member Affairs to en- protections laws are maintained. While down the bill, and I appreciate the dif- sure that any complaints raised by I am very concerned about the implica- ficulty the two chairmen have endured men and women in the armed services tions of H.R. 4173 overall, I am pleased corralling the votes needed for final are addressed effectively by the appro- that at least in this instance we have passage. Despite heavy and expensive priate enforcement agency. found a way to limit the threat of regu- lobbying from those who support the Section 1029(f) defines certain terms lations that hurt consumers and stran- status quo, the conference committee in the bill. My amendment expanded gle our economy. put together a strong and balanced bill the House language to also exclude Mr. LEAHY. Mr. President, I strong- that will clean up Wall Street abuses, similarly situated RV and boat dealers. ly support the Dodd-Frank Wall Street build confidence in our economy, and The concept of excluding auto dealers Reform and Consumer Protection Act continue our progress toward economic from the jurisdiction of the CFPB of 2010. recovery. gained bipartisan support, but there The American people often are cyn- This bill makes several significant was some debate about its effect on ical, with good reason, about the suc- improvements to our financial services members of the U.S. Armed Forces. Be- cess that powerful corporate interests regulations. Specifically, it will create cause we all share the utmost concern have in trumping the interests and a new systemic regulatory council to for our service men and women, I think rights of everyday Americans, on Wall watch for broad economic bubbles and it is appropriate to revisit that argu- Street, in Congress and even on our Su- red flags; end taxpayer bailouts of Wall ment briefly and to reiterate my preme Court. Backed by multimillions Street institutions by establishing a strong belief that this exclusion will of dollars that ordinary Americans new resolution authority to wind down not hurt members of the military. cannot match, the lobbying pressure failing megafirms outside of bank- On February 26, Under Secretary of that was sharply focused on trying to ruptcy; create a new Consumer Finan- Defense Clifford Stanley wrote a wide- shape this bill at every step, including cial Protection Bureau to oversee fi- ly distributed letter contending that the conference, was almost without nancial products on the market and excluding auto dealers from the CFPB parallel. Yet the bill that emerged rein in subprime lending; set new cap- would have a harmful effect on service- from conference truly reflects the Na- ital and leverage limits for financial members. On May 14, I sent a letter to tion’s interests in real Wall Street re- institutions; give the SEC and CFTC

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00044 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.072 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5913 new authorities and resources to pro- ing the grocer to ask for cash instead ness from the reckless and abusive tect investors; bring the massive de- of credit. practices of the financial sector, and it rivatives market under Federal regula- Another amendment I offered that is will provide a framework for economic tion for the first time; require hedge included in the final agreement is of growth without the peril of periodic fund and other private investment ad- particular importance to small States taxpayer bailouts of the financial sec- visers to register with the SEC; estab- such as Vermont. My amendment will tor. lish reasonable and fair swipe fees for guarantee that Vermont and other The Dodd-Frank Wall Street Reform debit and credit cards; and provide new small States each receive at least $5 and Consumer Protection Act of 2010 is resources for unemployed homeowners million of the $1 billion in new Neigh- a significant achievement. The legisla- who are having trouble making their borhood Stabilization Program funds tion before the Senate declares that big mortgage payments. in the bill. Originally created in 2008, banks cannot continue to take enor- As chairman of the Senate Judiciary this program is designed to stabilize mous risk, reaping billions in profits Committee, I am particularly pleased communities that have suffered from and rewarding their executives with that the conference report also in- foreclosures and abandonment. My hefty bonuses while counting on tax- cludes provisions I authored, working amendment overrode language pro- payers to bail them out when they get with Senator GRASSLEY, Senator SPEC- posed by the House that expressly pro- in trouble. Unregulated mortgage lend- TER, and Senator KAUFMAN, to ensure hibited a small-State-minimum from ers will no longer be able to make law enforcement and Federal agencies being used to allocate funds. loans they know will not be repaid; have the necessary tools to investigate The extractive industries trans- loans that cripple families and commu- and prosecute financial crimes and to parency disclosure provision that I nities. And, banks will no longer oper- protect whistleblowers who help un- sponsored is another major step for- ate in an unregulated, opaque, and dan- cover these crimes. I am pleased that ward for protecting U.S. taxpayers and gerous market for derivatives that the conference report preserves mean- shareholders and increasing the trans- helped lead us to the brink of financial ingful antitrust oversight in the finan- parency of major financial trans- catastrophe last year. cial industry. I also am heartened that actions. This provision is about good However, the events of the last dec- the conference agreement includes pro- governance and transparency so the ade and, particularly, the last several visions I put forward to introduce true American people and investors can years should caution all of us with re- transparency into the complex oper- know if they are investing in compa- spect to the efficacy of any single leg- ations of large financial institutions nies that are operating in dangerous or islative initiative. This bill must be and the Federal agencies that regulate unstable parts of the world, thereby thoughtfully and vigorously imple- them. It has seemed to me that pro- putting their investments at risk. This mented. Indeed, the regulators must be moting transparency should be a vital provision also will enable citizens of particularly vigilant to ensure that element of Wall Street reform. Trans- these resource-rich countries to know this legislative effort is not undone by parency is a cleansing agent for what their governments and govern- powerful interests who will be con- healthy markets. Open information mental officials are receiving from for- strained by its provisions. In the years helps investors make sound decisions. eign companies in exchange for mining ahead, regulators must have the re- When information is murky, market rights. This will begin to hold govern- sources and the will to enforce these decisions must be based on guesses or ments accountable for how those funds provisions to protect consumers and to rumors that corrode trust and that en- are used and help ensure that the sale protect the economy. The Congress courage fraud and deception. of their countries’ natural resources must be prepared to provide rigorous Another major step forward is the de- are used for the public good. oversight and move quickly to ensure rivatives section of the conference re- I am also pleased that the bill in- that regulatory supervision will keep port, crafted by the Agriculture Com- cludes a provision I cosponsored with pace with a dynamic global market- mittee on which I serve. I applaud our Senator to increase place. committee chair, Senator BLANCHE transparency on the bailout trans- More than a decade of excessive risk LINCOLN, who fought tirelessly for actions made by the Federal Reserve. taking and lax regulation culminated these reforms. These changes will fi- Under this bill, we will finally have an in financial collapse in the autumn of nally bring the $600 trillion derivatives audit of all of the emergency actions 2008. The ensuing economic chaos has market out of the dark and into the taken by the Federal Reserve since the left millions unemployed and under- light of day, ending the days of back- financial crisis began, to determine employed, precipitated a foreclosure room deals that put our entire econ- whether there were any conflicts of in- crisis that still haunts neighborhoods omy at risk. The narrow end-user ex- terest surrounding the Federal Re- throughout the country, and shattered emption in the bill will allow legiti- serve’s emergency activities. It is time the dreams of millions of American mate commercial interests, such as we know more about the closed-door families. electric cooperatives and heating oil decisions made by the Federal Reserve With this new legislation, we create dealers on Main Street, to continue throughout this financial crisis. for the first time a consumer watch- hedging their business risks, but it will Mr. President, the Senate has before dog—the Consumer Financial Protec- stop Wall Street traders from artifi- it today a conference report that will tion Bureau—that will solely focus on cially driving up prices of heating oil, rein in Wall Street abuses, end govern- protecting consumers from unscrupu- gasoline, diesel fuel, and other com- ment bailouts, and give everyday lous financial activities. The law gives modities through unchecked specula- Americans the consumer protection this agency independent rulemaking, tion. they deserve and expect. It will help re- examination, and enforcement respon- The conference report also includes a store faith in our markets, which are sibilities, and clear authority to pro- provision by Senator and part of the vital foundation of our eco- hibit unfair, deceptive, and abusive fi- Representative Peter Welch that I sup- nomic progress. Taking this broom to nancial activities against middle-class ported to protect our small businesses Wall Street abuses will help build con- families. And it consolidates the exist- from complicated predatory rules that fidence in our economy and continue ing responsibilities of many regulators big credit card companies could other- our progress toward economic recov- to ensure that there is a less frag- wise impose on Vermont grocers and ery. mented, more comprehensive, and a convenience stores. The Durbin-Welch Mr. REED. Mr. President, on June 29, fully accountable approach to pro- amendment will ensure that a small 2010, the House-Senate conference com- tecting consumers. business will be able to advertise a dis- mittee completed its deliberations on The new Bureau represents a funda- count for paying cash or for using one the most significant financial regu- mental shift in how we inform Ameri- card instead of another. I do not want latory legislation since the 1930s. And, cans about abuses by banks, credit card Vermonters to pay more for a gallon of now, this conference report is before companies, finance companies, payday milk just because the credit card com- the Senate for final enactment. It will lenders, and other financial institu- panies are demanding a high fee on fundamentally change how we protect tions. It will focus these companies on small transactions and are not allow- consumers, families, and small busi- doing their job of providing responsible

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This will send an important mes- I am also pleased that the Senate astating economic trends by, for the sage to Wall Street: operate at your voted 98 to 1 to approve the bipartisan first time, creating one single entity own risk since the taxpayers will no amendment I offered with Senator responsible for looking across the fi- longer be in the business of bailing you SCOTT BROWN to create an Office of nancial system to prevent and respond out. Service Member Affairs within the to problems. The Dodd-Frank Act also establishes Consumer Financial Protection Bu- This section of the conference report important new limits on banks engag- reau. This office will educate and em- also puts in place a new rigorous sys- ing in proprietary trading and in own- power members of the military and tem of capital and leverage standards ing and investing in hedge funds and their families, help monitor and re- that will discourage banks from get- private equity funds. These provisions spond to complaints, and help coordi- ting so large that they put our finan- are known as the Volcker rule or the nate consumer protection efforts cial system at risk again. The new Fi- Merkley-Levin amendment. These new among Federal and State agencies. nancial Stability Oversight Council rules will help ensure that banks are Although I would have preferred for will make recommendations to the not betting with consumer bank depos- the new Consumer Financial Protec- Federal Reserve to apply strict rules its on risky activities for the banks’ tion Bureau to have sole authority for capital, leverage, liquidity, and risk own profit. over consumer protection matters for management so that firms that grow Until the last few decades, commer- all banks and nonbank financial com- too big will face stricter rules that will cial banking and investment banking panies, the final bill represents a likely deter the bigger is better men- were largely conducted by separate in- strong regime for consumer protection, tality of too many banks. The council stitutions. However, in recent years, including rulewriting authority over will also make recommendations for banks have engaged in a multitude of all entities. It also provides the Bureau nonbank financial companies that have higher risk activities, such as short- with authority to examine and enforce grown so large or complex that their term trading for a bank’s own profit, regulations for banks and credit unions activities pose a threat to the financial and the sponsoring of hedge funds and with assets of over $10 billion; all mort- stability of the United Sates. No finan- private equity funds. The law changes gage-related businesses, such as lend- cial institution, bank or otherwise, will that and prohibits any bank, thrift, ers, servicers, and mortgage brokers; be able to take risks to multiply their holding company, or affiliate from en- payday lenders; student lenders; and gains without holding adequate cap- gaging in proprietary trading or spon- all large debt collectors and consumer ital. And, more importantly, such in- soring or investing in a hedge fund or reporting agencies. stitutions will be on notice that the private equity fund. It also prohibits One glaring exception is the carve- taxpayers will not bail them out. activities that involve material con- out for auto lenders. I opposed the The conference report includes a new flicts of interest between banks and Brownback amendment that created a Office of Financial Research, a pro- their clients, customers, and counter- special loophole for auto dealer-lend- posal that I developed to provide an en- parties. ers, and I also opposed the compromise tity capable of researching, modeling, The conference report also includes that is included in the conference re- and analyzing risks throughout the fi- two provisions in this area that I au- port. The original protections in the nancial system. For too long, those thored. One requires the chief execu- bill were not meant to vilify auto deal- charged with keeping the banking sys- tive officer at a banking entity to cer- ers. The vast majority of dealers in my tem stable have lacked the data and tify annually that it does not, directly State of Rhode Island and across the analytical power to keep up with com- or indirectly, guarantee, assume, or country are hard-working business plex financial activities. This office otherwise insure the obligations or per- owners who operate responsibly. Rath- ends that situation and takes a bold formance of the hedge fund or private er, this debate was about ensuring fair step forward to understand the factors fund. The other provision requires and consistent scrutiny of all lending that threaten to rip holes in our finan- banking entities to set aside more cap- institutions. We cannot ignore the cial system, provide early warnings, ital commensurate with the leverage of abuses that service members and oth- and allow regulators to act on that in- the hedge fund or private equity fund. ers have endured because of predatory formation. As we create this new of- Although the final provisions in- auto loans. We have learned from the fice, I will ensure that it retains its cluded in the bill represent a stronger debate that the abuse of service mem- independence and broad data collec- and more targeted approach to reduc- bers by some auto dealers is an epi- tion, budget, and hiring authority, so ing risk in our banking system, I be- demic. During the debate I received a we are sure to better identify and miti- lieve the change during the conference memo citing 15 recent examples of auto gate economic challenges in the future. to allow for a 3 percent de minimus ex- finance abuses just at Camp Lejeune The challenge presented by the task of clusion from the ban on sponsoring or alone. This problem will require close understanding the financial markets investing in hedge funds or private eq- scrutiny after the bill is implemented. and monitoring systemic risk will re- uity funds was unwise. The original I am also pleased that the legislation quire a sustained, integrated research Merkley-Levin proposal did not include includes provisions from the Durbin effort that brings together some of the such an exclusion. Congress and the amendment that will protect small top researchers and practitioners in regulators will need to monitor bank business from unreasonable credit card the country from a diverse range of rel- activities very closely in the coming company fees by requiring the Federal evant disciplines. The Office of Finan- years to ensure that this exclusion is Reserve to issue rules ensuring that cial Research must become a world not abused. fees charged to merchants by credit class institution that can go ‘‘toe to The bill also makes some changes to card companies for debit card trans- toe’’ with the top Wall Street banks. consolidate our country’s fragmented actions are both reasonable and propor- In addition, this law creates a safe and inefficient system for supervising tional to the cost of processing those way to liquidate large financial compa- banks and holding companies. It elimi- transactions. These provisions will nies, so that taxpayers will never again nates the Office of Thrift Supervision, allow small businesses to invest more have to prop up a failing firm to avoid a particularly lax supervisor, and redis- and pass on greater savings to their sending shockwaves through the finan- tributes responsibilities for bank over- customers rather than spend their cial system. Shareholders and unse- sight and supervision to bring greater earnings on unreasonable interchange cured creditors, not taxpayers, will consistency and more effective over- fees. bear losses, and culpable management sight to all firms. These changes are an The Dodd-Frank Act also creates a will be removed. Financial institutions important step forward, although addi- new Financial Stability Oversight will pay for their failures, not tax- tional consolidation and streamlining Council, comprised of existing regu- payers. Indeed, the existing rules on of our regulatory agencies could have

VerDate Mar 15 2010 05:37 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00046 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.036 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5915 further improved the effectiveness of marketplace fairer and more efficient gating taxpayer dollars during the fi- the system. by providing companies and investors nancial crisis, should also be subject to The Dodd-Frank bill also closes a sig- with complete information on the mar- the same public confirmation process. nificant gap in financial regulation by ket. Firms will also be required to put Wall Street should not have the ability requiring advisers to hedge funds and forward sufficient capital to engage in to choose who is in such a powerful po- private equity funds to register with these transactions, which should help sition. Although the final bill limits the Securities and Exchange Commis- rein in the excessive speculation we class A directors—who represent the sion. Based on legislation that I intro- saw in the past. stockholding member banks of the duced, we will for the first time bring I successfully offered several amend- Federal Reserve District—from partici- advisers to those funds within the um- ments during the conference to correct pating in the process, it still allows the brella of financial regulation. This will potential opportunities for regulatory other directors, who could be bankers allow regulators to obtain the basic in- arbitrage between the Securities and or represent other powerful interests, formation they need to prevent fraud Exchange Commission and the Com- to vote for the head of the New York and mitigate systemic risk, while at modity Futures Trading Commission. Reserve Bank. I believe that more still the same time providing investors with One of my improvements requires the needs to be done to make this position more information and greater trans- SEC and the CFTC to conduct joint truly accountable to the taxpayers. parency. rulemaking in certain key areas rather The Dodd-Frank Act also includes a Advisers to hedge funds and private than create potential gaps by con- number of strong investor protection equity funds—called ‘‘private funds’’ in ducting them separately. Other amend- provisions that represent a significant the legislation—will have to register ments clarify the definitions of mixed step forward in how we oversee our with either the SEC or a State, depend- swap, security-based swap agreements, capital markets and ensure that inves- ing on the size of the funds they man- and index—which are all important tors have the best information avail- age. Fund advisers with assets under terms that fall at the nexus of the two able for their decisionmaking. This management over $150 million must agencies’ oversight—to ensure that the title reflects strong proposals I have register with the SEC. Advisers to new swaps rules cannot be gamed and put forward as the chairman of the Se- other types of funds will continue to manipulated. curities, Insurance, and Investment have similar requirements, but the In a significant improvement to pub- Subcommittee, including robust ac- threshold for SEC registration will be lic transparency of swaps data, I suc- countability provisions for credit rat- $100 million. I also successfully in- cessfully included another amendment ing agencies, and provisions to cluded language in the conference re- that will ensure that regulators can re- strengthen the tools and authorities of port to ensure that State registration quire public reporting of trading and the Securities and Exchange Commis- is only available to eligible fund advis- pricing data for uncleared trans- sion. ers if the State has a registration and actions, not just aggregate data on The conference report includes examination program. transactions, just as they can for strong new rules I helped write to ad- From the beginning of this process I cleared transactions. dress problems we saw at credit rating fought against any carve-outs in this Also important are provisions to give agencies leading up to the financial title for private equity, venture cap- the Federal Reserve a role in setting crisis. It creates an Office of Credit ital, and family offices. While I suc- risk management standards for deriva- Ratings at the SEC to increase over- cessfully convinced the conferees to tives clearinghouses and other critical sight of nationally recognized statis- drop a carve-out for private equity ad- payment, clearing, and settlement tical rating organizations, and con- visers, the bill still contains problem- functions, which has been a priority of tains strong new rules regarding disclo- atic exemptions for venture capital mine given their importance to the fi- sure, conflicts of interest, and analyst firms and family offices. Through hear- nancial system and their potential vul- qualifications. Perhaps most signifi- ings and other means, I will continue nerability to both natural and man- cantly, it includes a strong new plead- to work to create a regulatory system made disruptions. ing standard I crafted that will make it in which none of the fraud and sys- The Dodd-Frank conference report easier for investors to take legal action temic risks that may lurk within pri- also makes important improvements to if a rating agency knowingly or reck- vate pools of capital remain out of view the Federal Reserve System to ensure lessly fails to review key information and reach of regulators. that as a financial regulator, it is ac- in developing a rating. On derivatives, the bill closes an- countable to the American public rath- I also worked with the chairman and other huge set of regulatory gaps by er than to Wall Street. Among other my colleagues in conference to incor- overturning a law that prevented regu- governance improvements, the bill in- porate more than a dozen improve- lators from overseeing the shadowy corporates my proposal to create a new ments to the securities laws that will over-the-counter derivatives market position of Vice Chairman for Super- protect investors by strengthening the and, as a result, bringing account- vision on the Federal Reserve Board of SEC’s ability to bring enforcement ac- ability and transparency to the mar- Governors, which should help ensure tions, addressing issues revealed by the ket. As we have learned from AIG and that supervision does not take a back Madoff fraud, and modernizing the Lehman Brothers, derivatives were at a seat to other priorities. The new Vice SEC’s ability to obtain critical infor- minimum the accelerant that com- Chairman will develop policy rec- mation. In particular, these provisions plicated and expanded the financial cri- ommendations for the board regarding would enhance the ability of the SEC sis. the supervision and regulation of de- to hire outside experts, strengthen A major problem with derivatives is pository institution holding companies oversight of fund custodians, mod- that they have not been regulated nor and other financial firms supervised by ernize the ability of the SEC to obtain well-understood by even those buying the board. He or she will also oversee information from the firms it oversees, and selling them. The legislation the supervision and regulation of such and clarify and enhance SEC penalties changes that and brings transparency firms. and other authorities. I am particu- and greater efficiency to the market- Although the Senate bill included my larly pleased that the conference re- place for swaps—derivatives in which proposal to require the head of the Fed- port contains extraterritoriality lan- two parties exchange certain benefits eral Reserve Bank of New York to be guage that clarifies that in actions based on the value of an underlying ref- Presidentially appointed and Senate brought by the SEC or the Department erence like an interest rate—by requir- confirmed, the provision was stripped of Justice, specified provisions in the ing the reporting of the terms of these out during conference. If the Governors securities laws apply if the conduct contracts to regulators and market of the Federal Reserve System in within the United States is significant, participants. It will move as many Washington are required to be con- or the external U.S. conduct has a fore- swaps as possible from being opaque, firmed by the Senate, then the Presi- seeable substantial effect within our bilateral transactions onto clearing- dent of the Federal Reserve Bank of country, whether or not the securities houses, exchanges, and other trading New York, who played a pivotal and are traded on a domestic exchange or platforms. This should help make the perhaps more powerful role in obli- the transactions occur in the United

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00047 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.037 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5916 CONGRESSIONAL RECORD — SENATE July 15, 2010 States. I also support the establish- among the highest rates of restate- those lenders who continue their preda- ment of a program to reward whistle- ments. Enacting this exemption in the tory ways will be held accountable by blowers when the SEC brings signifi- name of reducing paperwork, when ex- consumers for as high as 3 years of in- cant enforcement actions based upon tensive evidence indicates that the terest payments and damages plus at- original information provided by the costs of compliance are reasonable and torney’s fees. whistleblower, and I look forward to dropping, is unnecessary and unwise. I Additionally, the Consumer Finan- the SEC rules that will detail the think there will be a price in the future cial Protection Bureau will have the framework for this program. as fraud increases and investors suffer. authority to investigate and enforce Although I would have preferred the I am also disappointed that conferees rules against all mortgage lenders, proposal in the Senate bill by Senator included a provision that overturns a servicers, mortgage brokers, and fore- SCHUMER to provide the SEC with self- recent court case regarding equity in- closure scam operators so that hard- funding, I am pleased that the amend- dexed annuities. Equity indexed annu- working Americans have a strong fi- ment on SEC funding that I offered ities are financial products that com- nancial cop on the beat that has the in- with Senator SHELBY during conference bine aspects of insurance and securi- terests of consumers in mind. was included in the conference report. ties, but are sold primarily as invest- Finally, I am particularly pleased These provisions would keep the SEC ments. This language will preclude that the conference report includes budget within the annual appropria- State and Federal securities regulators several provisions, some of which come tions process, but change how the fund- from applying strong disclosure, suit- from legislation I first introduced last ing process would work for the Com- ability, and sales practice standards to Congress and revised this Congress, to provide much needed foreclosure relief mission. Our proposal includes budget these often risky and harmful prod- to those who have borne the brunt of bypass authority, under which the SEC ucts. I believe this is bad policy. would provide Congress with its assess- Clearly with the State securities reg- this crisis. First, it provides $1 billion for loans to help qualified unemployed ment of its budget needs at the same ulators on one side of this issue, and homeowners with reasonable prospects time it provides this information to the insurance regulators on the other— for reemployment to help cover mort- the Office of Management and Budget. this is not a matter which should have gage payments. Second, I worked with In addition, the President, as part of been resolved in a conference com- my colleagues to ensure that the addi- his annual budget request to the Con- mittee. The regulation of equity in- tional funding for HUD’s Neighborhood dexed annuities deserves more consid- gress, would be required to include the Stabilization Program would reach all SEC’s budget request in unaltered eration through hearings and the de- States, including Rhode Island. Third, I form. The language will also have the velopment of a legislative record that not only supported the inclusion of SEC deposit up to $50 million per year informs the Congress of what changes legal assistance for foreclosure-related of the registration fees into a new re- should happen in this area. issues, but I also fought to ensure that I am pleased that the conference re- serve fund, which can be used for Rhode Island, which has one of the port makes it clear that after con- longer range planning for technology highest rates of foreclosure and unem- ducting a study, the SEC has the au- and other agency tools. The SEC will ployment, would be in a better position have permanent authority to obligate thority to impose a fiduciary duty on to receive priority consideration for up to $100 million in any fiscal year out brokers who give investment advice, this assistance. Lastly, I worked to in- of the reserve fund. and that the advice must be in the best clude a national foreclosure database One important investor protection interest of their customers. It also in- to give regulators an important tool to that was also supported by Senators cludes language that gives share- monitor and anticipate issues stem- LEVIN, COBURN, and KAUFMAN but not holders a say on CEO pay with the ming from foreclosures and defaults in included in the final bill was language right to a nonbinding vote on salaries our housing markets and better pin- that would have corrected what we and and golden parachutes. This gives point assistance to struggling home- many others, including legal scholars, shareholders the ability to hold execu- owners. regard as the mistaken Supreme Court tives accountable, and to disapprove of Before I conclude I would like to take decision in Gustafson v. Alloyd. Before misguided incentive schemes. I am also a moment to thank Kara Stein of my the Supreme Court’s decision in this happy that after much dispute, the bill staff, who also serves as the staff direc- case, the rule was simple but clear: be makes it clear that the SEC has the tor of the Securities, Insurance, and In- careful not to mislead when selling se- authority to grant shareholders proxy vestment Subcommittee, which I chair, curities in both public and private of- access to nominate directors. These re- and Randy Fasnacht, a detailee to the ferings. After Gustafson, this simple quirements can help shift manage- subcommittee from the GAO. They did rule was needlessly complicated and ment’s focus from short-term profits to a remarkable job and worked tire- limited just to public offerings. long-term stability and productivity. lessly. I also want to recognize the con- Our amendment, which we will con- I am pleased that the conference re- tributions of James Ahn of my staff as tinue to work on a bipartisan basis to port includes several provisions to dis- well as the foundation that Didem add to another legislative vehicle in courage predatory lending and provide Nisanci, formerly of my staff, helped the future, would have put investors in much needed foreclosure relief. To re- lay for this process. I also want to ac- private offerings on the same level as duce risk, this legislation requires knowledge the contributions of many investors in public offerings, thereby those companies that sell products like others, including Chairman DODD and restoring congressional intent and a mortgage backed securities to hold his staff. standard that was in place for 60 years onto at least 5 percent of what they’re I urge my colleagues to support this before the Supreme Court decided Gus- selling so that these companies have critical legislation. But the Senate’s tafson. the incentive to sell only those prod- work does not end with the bill’s pas- One of the lessons learned from the ucts they would own themselves. In sage. It will have to monitor and over- Bush era financial collapse is that too other words, we make sure that there see the law’s implementation very often rules were ignored and informa- is some ‘‘skin in the game’’. closely. The Dodd-Frank Wall Street tion was hidden. That is why I am ex- The conference report also further Reform and Consumer Protection Act tremely disappointed that the con- levels the playing field by enacting will make significant improvements to ference report includes an exemption some commonsense proposals to pro- consumer protection that will benefit for companies with less than $75 mil- tect borrowers. Lenders will now have families and communities in my own lion in market capitalization from the to ensure that a borrower has the abil- State of Rhode Island and across the requirements of Sarbanes-Oxley sec- ity to repay a mortgage, and they can country. It will help create more trans- tion 404(b). This change will exempt no longer steer borrowers into a more parent, fair, and efficient capital mar- more than 5,000 public companies from expensive mortgage product when the kets in our country, which will help audits, despite the fact that small com- borrower qualifies for a more afford- create jobs and support American busi- panies have often been shown to be able one. The bill outlaws pre-payment nesses. And it will provide a more se- more prone to both accounting fraud penalties that trapped so many bor- cure and stable economic footing for and to accounting errors, including rowers into unaffordable loans, and the decades ahead.

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00048 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.039 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5917 Mr. AKAKA Mr. President, while I late equity-indexed annuities as securities strong standards afforded by our nation’s se- strongly support the Dodd-Frank con- (Rule 151A). The rule was later challenged, curities laws. ference report, I am concerned and dis- and the Court of Appeals for the District of To ensure that investors receive these pro- tections, the Securities and Exchange Com- appointed that the legislation includes Columbia Circuit upheld the legal founda- tion for the SEC’s action. mission (‘‘SEC’’) adopted Rule 151A, which a particular provision that would ex- Because seniors are a target audience for would subject indexed annuities to regula- empt indexed annuity products from these products, AARP submitted comments tion as securities. The United States Court securities regulation. I ask unanimous to the SEC supporting the rule, stating it of Appeals for the District of Columbia Cir- consent that the accompanying letters was important that Rule 151A supplement, cuit upheld the legal foundation for Rule 151 in opposition to this provision from not supplant, state insurance law. In fact, A. Although remanding with respect to cer- AARP, the North American Securities the rule applies specifically to annuities reg- tain procedural requirements, the court Administrators Association, the Con- ulated under state insurance law. AARP also upheld the rule on substantive legal grounds, finding it was reasonable for the SEC to con- sumer Federation of America, and the submitted a joint amicus brief, along with the North American Securities Administra- clude that indexed annuities should be sub- Financial Planning Association be tors Association and MetLife, supporting ject to federal securities regulation. printed in the RECORD immediately fol- Rule 151A. Attempts to disparage the SEC’s rule as a lowing my remarks. The Harkin amendment would overturn federal attack on state regulation are un- The PRESIDING OFFICER. Without the SEC rule, which is designed to provide founded. Critics who level that charge ignore objection, it is so ordered. disclosure, suitability, and sales practice the fact that the rule will NOT interfere (See exhibit 1.) protections afforded by state and federal se- with the authority of state insurance com- Mr. AKAKA. Indexed annuities com- curities laws. The amendment would pre- missioners to continue regulating indexed bine aspects of insurance and securities empt any further ability of the SEC to regu- annuities and the companies that issue late in this area. This not only deprives in- them. In fact, in order to be covered by the and are sold primarily as investment rule, a contract must be subject to regula- products. Consumers across the coun- vestors of needed protections against wide- spread abusive sales practices associated tion as an annuity under state insurance try, including some in Hawaii, have with these complex financial products, it law. been harmed by the deceptive manner also sets a dangerous precedent. If this Nor will the rule impose unreasonable bur- in which these products are being sold. amendment is adopted, the industry will be dens on industry. It will simply require com- For example, a seller in Hawaii pushed encouraged to develop hybrid products in the pliance with essentially the same regulatory equity indexed annuities to collect un- future specifically designed to evade a regu- standards that for 75 years have applied to all companies that issue securities. More- reasonably high commissions at the ex- latory regime designed to protect consumers. Regulating indexed annuities as securities over, the rule is strictly prospective, apply- pense of senior citizens. Those inves- ing only to indexed annuities issued after the tors were harmed by these financial is long overdue and vitally important for our nation’s investors saving for a secure retire- effective date, and it does not take effect for products. Exempting indexed annuities ment. two years, affording the industry ample time from securities regulation would estab- The SEC’s rule on indexed annuities ac- to prepare for compliance. In short, the rule lish a dangerous precedent that pro- complishes this goal in a thoughtful and rea- will provide much needed protections for in- motes the development of financial sonable fashion, and it should be allowed to vestors without unfairly burdening industry. take effect. AARP therefore opposes the Har- Indexed annuities are hybrid products that products not subject to regulation and supposedly offer investors the combined ad- investor protection standards. kin amendment. Sincerely, vantages of guaranteed minimum returns Opponents might argue that federal along with profits from stock market gains. regulation is unnecessary or distracts DAVID SLOANE, Senior Vice President, Although indexed annuities may be legiti- from state regulation. However, Fed- Government Relations and Advocacy. mate vehicles for some people, they have eral regulation is necessary to help many features, including high costs, signifi- cant risks, and long surrender periods, that protect investors by providing consist- NORTH AMERICAN SECURITIES make these products unsuitable for many in- ency and uniformity because securities ADMINISTRATORS ASSOCIATION, INC., laws can vary across states. Others are Washington, DC, June 14, 2010. vestors. Investors have a difficult time un- derstanding these hazards because indexed Hon. BARNEY FRANK, concerned that Federal regulation will annuities are hopelessly complex. limit access to indexed annuities. I Chairman, Committee on Financial Services, Washington, DC. Compounding the problem are the generous counter that these products should commissions that agents can earn from the only be sold when they are subject to Hon. SPENCER BACHUS, Chairman, Committee on Financial Services, sale of these products. The problems associated with the mar- the strong disclosure, suitability, and Washington, DC. keting of indexed annuities are a matter of sales practice standards provided with- Hon. CHRISTOPHER DODD, record in countless news articles, govern- in the context of our Nation’s securi- Chairman, Committee on Banking, Housing and ment warnings, regulatory enforcement ac- Urban Development, Washington, DC. ties laws. tions, and lawsuits filed by innumerable in- Hon. RICHARD SHELBY, I welcome further debate on and ex- vestors seeking damages for the unsuitable Ranking Member, Committee on Banking, Hous- amination of this matter, including and fraudulent sale of indexed annuities. In- ing and Urban Development, Washington, hearings to learn more about the con- deed, these products have become so infa- DC. sequences of this provision. mous that they were featured in a prime OPPOSE ATTEMPT TO NULLIFY SEC AARP, time Dateline NBC report entitled ‘‘Tricks of RULEMAKING ON EQUITY INDEXED ANNUITIES Washington, DC, May 19, 2010. the Trade.’’ Hon. CHRISTOPHER DODD, DEAR CHAIRMEN AND RANKING MEMBERS: On Without question, the single most effective U.S. Senate, Committee on Banking, Housing behalf of state securities regulators, I am way to address abuses in the sale of indexed and Urban Affairs, Dirksen Senate Office writing to oppose an attempt to deprive in- annuities is to regulate them as securities. Building, Washington, DC. vestors in indexed annuities of the strong This is legally appropriate because indexed DEAR SENATOR DODD: AARP writes to protections afforded by our nation’s securi- annuities shift a significant degree of invest- strongly oppose Harkin Amendment #3920, ties laws. A provision to nullify SEC Rule 151 ment risk to purchasers, and therefore pose which would deprive investors in equity-in- A was not included in either the House or the the very dangers that the federal securities dexed annuities of needed protections pro- Senate bill. I would argue that it is not ger- laws were intended to address. Licensing vided by state and federal securities laws. mane to the conference, and the provision standards under the securities laws will help These hybrid products combine elements of should not be accepted by the conferees. Fur- ensure that agents have the requisite knowl- insurance and securities, but they are sold thermore, efforts such as this one that will edge and character to sell these complex in- primarily as investments, not insurance, es- ultimately deprive investors of important vestment products. Under the securities pecially to people who are investing for their protections should not be allowed to succeed. laws, those agents will also be subject to own retirement. Growth in equity-indexed Indexed annuities are securities, and they strong supervision requirements. Mandatory annuity value is tied to one of several securi- are heavily marketed as such. All too often, registration of indexed annuities as securi- ties indexes (e.g. the S&P 500 or the Dow deceptive sales practices have been used to ties will vastly increase the amount of infor- Jones Industrial Average), and comparing promote these complicated investment prod- mation available to investors concerning the and choosing suitable products can be dif- ucts. As a result, investors—and senior citi- terms, risks, and costs of these offerings. ficult for investors. These products also zens in particular—can fall prey to sales Perhaps most important, the strong investor come with high fees and have long surrender pitches designed to make these investments protection standards that have been a part of periods, which may make them unsuitable as seem safe and straightforward when in fact securities regulation for decades will deter investments for most seniors. they may be neither. Accordingly, it is vi- abuses in the sale of indexed annuities and In the fall of 2008, the Securities and Ex- tally important that indexed annuities be provide more effective remedies for those change Commission adopted a rule to regu- regulated as securities and subjected to the who are victimized.

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00049 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.075 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5918 CONGRESSIONAL RECORD — SENATE July 15, 2010 The goal of financial reform is to strength- tions and limitations that it is unlikely ever clude that indexed annuities should be sub- en investor confidence in our markets and to be exercised. Before the SEC could even ject to federal securities regulation. regulating indexed annuities as securities adopt a rule it would have to complete the Attempts to disparage the SEC’s rule as a under federal law is vitally important to study required above and then, as part of the federal attack on state regulation are un- meeting this objective. The SEC’s Rule 151A rulemaking, show that no other approach founded. Critics who level that charge ignore on indexed annuities is a step in the right di- could address the findings of the study. the fact that the rule will NOT interfere rection and it should be allowed to take ef- These draconian conditions would make any with the authority of state insurance com- fect. Any attempt to reverse this important rule promulgated by the Commission subject missioners to continue regulating indexed regulatory initiative should not be adopted. to a legal challenge the agency would be un- annuities and the companies that issue Sincerely, likely to win. them. In fact, in order to be covered by the DENISE VOIGT CRAWFORD, The provisions requiring the SEC to har- rule, a contract must be subject to regula- Texas Securities Commissioner, monize enforcement of the standard, so that tion as an annuity under state insurance NASAA President. it is applied equally to brokers and advisers, law. have also been deleted. Nor will the rule impose unreasonable bur- NORTH AMERICAN SECURITIES Equity Indexed Annuities. The Senate con- dens on industry. It will simply require com- ADMINISTRATORS ASSOCIATION, INC., ferees also approved an amendment to pre- pliance with essentially the same regulatory Washington, DC, June 23, 2010. empt securities regulation of equity-indexed standards that for 75 years have applied to annuities and future hybrid products that all companies that issue securities. More- PROTECT INVESTORS: REJECT SENATE over, the rule is strictly prospective, apply- PROPOSALS INCLUDED IN TITLE IX have both securities and insurance features. State securities regulators have actively ing only to indexed annuities issued after the DEAR CONFEREE: State securities regu- pursued enforcement cases involving sales effective date, and it does not take effect for lators are profoundly disappointed that the practice abuses of agents selling equity in- two years, affording the industry ample time Senate conferees approved a Title IX dexed annuities. These state enforcement ac- to prepare for compliance. In short, the rule counteroffer that includes two provisions tions are in danger of being preempted by will provide much needed protections for in- that seriously weaken investor protections the Harkin amendment and investors, espe- vestors without unfairly burdening industry. in a bill purportedly written to strengthen cially seniors, would be left without the pro- Indexed annuities are hybrid products that them. I urge you to reject the Senate fidu- tection of vigorous securities enforcement supposedly offer investors the combined ad- ciary duty study/rulemaking language and activity. vantages of guaranteed minimum returns the amendment to exempt certain hybrid an- The problems associated with the mar- along with profits from stock market gains. nuity products from securities regulation. keting of indexed annuities are a matter of Although indexed annuities may be legiti- Fiduciary Duty. Instead of the strongest record in countless news articles, govern- mate vehicles for some people, they have possible fiduciary duty for every financial ment warnings, regulatory enforcement ac- many features, including high costs, signifi- intermediary providing investment advice, tions, and lawsuits filed by innumerable in- cant risks, and long surrender periods, that the ‘‘compromise’’ study in the Senate offer vestors seeking damages for the unsuitable make these products unsuitable for many in- has been modified to lessen the chances that and fraudulent sale of indexed annuities. It vestors. Investors have a difficult time un- investors will ever realize the benefits of a was these problems that led the SEC to derstanding these hazards because indexed fiduciary duty, the single most important in- adopt Rule 151A after a fair and open rule- annuities are hopelessly complex. vestor protection in the reform package. For making process. Compounding the problem are the generous the following reasons, NASAA must strongly The best way to ensure adequate investor commissions that agents can earn from the oppose it. protections in the sale of equity indexed an- sale of these products. The study is nothing more than a delay nuities is to allow the SEC to exercise its ap- The problems associated with the mar- tactic and should be rejected outright. propriate authority over these products. keting of indexed annuities are a matter of It is wasteful of the SEC’s resources in State securities regulators urge you to reject record in countless news articles, govern- that it requires the agency to review and this amendment as it has no place in a bill ment warnings, regulatory enforcement ac- study issues that have already been repeat- intended to strengthen investor protections. tions, and lawsuits filed by innumerable in- edly studied. In closing, we are extremely dissatisfied vestors seeking damages for the unsuitable If the study remains in place, it should be that the provisions in the Investor Protec- and fraudulent sale of indexed annuities. In- significantly streamlined so as to avoid tion title continue to be weakened. We urge deed, these products have become so infa- needless repetition of prior studies. Further, you to reverse this trend, reject the Senate mous that they were featured in a prime if there must be a study, it should be re- counteroffer and insist on strong protections time Dateline NBC report entitled ‘‘Tricks of quired to be conducted on a fully-cooperative for our nation’s investors. the Trade.’’ basis by both governmental regulators, the Without question, the single most effective Sincerely, SEC and the states, in order to maximize re- way to address abuses in the sale of indexed DENISE VOIGT CRAWFORD, sources and insure its completion within the annuities is to regulate them as securities. NASAA President, one-year time frame. This is legally appropriate because indexed Texas Securities Commissioner. To make matters worse, the rulemaking annuities shift a significant degree of invest- language proposed by the Senate fails to ment risk to purchasers, and therefore pose NASAA & CFA, achieve the original goal of both the Senate the very dangers that the federal securities May 14, 2010. Banking Committee and the House Financial laws were intended to address. Licensing Services Committee to impose the Invest- OPPOSITION TO HARKIN/JOHANNS/LEAHY standards under the securities laws will help ment Advisers Act fiduciary duty on broker- AMENDMENT NO. 3920 ensure that agents have the requisite knowl- dealers when providing personalized invest- DEAR SENATOR: We are writing to oppose edge and character to sell these complex in- ment advice to retail customers about secu- the Harkin/Johanns/Leahy amendment, vestment products. Under the securities rities. Our specific opposition to the Senate which deprives investors in indexed annu- laws, those agents will also be subject to rulemaking language includes the following: ities of the strong protections afforded by strong supervision requirements. Mandatory The two year rulemaking provision would our nation’s securities laws. Indexed annu- registration of indexed annuities as securi- mean that it could be three years before the ities are securities, and they are heavily ties will vastly increase the amount of infor- SEC even undertakes an attempt to imple- marketed as such. All too often, deceptive mation available to investors concerning the ment a rule to address the study findings. sales practices have been used to promote terms, risks, and costs of these offerings. Further, and as more fully discussed below, these complicated investment products. As a Perhaps most important, the strong anti- the conditions imposed by this amendment result, investors—and senior citizens in par- fraud provisions and suitability standards on any such rulemaking process are so ardu- ticular—can fall prey to unsuitable sales. Ac- that have been a part of securities regulation ous that it is highly doubtful that a rule of cordingly, it is vitally important that in- for decades will deter abuses in the sale of any kind would be promulgated. dexed annuities be regulated as securities indexed annuities and provide more effective The new rulemaking language would not and subjected to the strong disclosure, suit- remedies for those who are victimized. result in a fiduciary duty for broker-dealers ability, and sales practice standards afforded Regulating indexed annuities as securities providing investment advice. The House lan- by our nation’s securities laws. under federal law is long overdue and vitally guage authorizing the SEC to adopt rules im- To ensure that investors receive these pro- important for our nation’s investors. The posing the full Investment Advisers Act fidu- tections, the Securities and Exchange Com- SEC’s Rule 151A on indexed annuities accom- ciary duty on brokers when they give person- mission (‘‘SEC’’) adopted Rule 151A, which plishes this goal in a thoughtful and reason- alized advice about securities to retail inves- would subject indexed annuities to regula- able fashion, and it should be allowed to take tors has been removed. It has been replaced tion as securities. The United States Court effect. The Harkin/Johanns/Leahy amend- by language authorizing the SEC to adopt of Appeals for the District of Columbia Cir- ment would reverse this important regu- rules requiring brokers to act in their cus- cuit upheld the legal foundation for Rule latory initiative and should not be adopted. tomers’ ‘‘best interests’’ which is far short of 151A. Although remanding with respect to Respectfully submitted, the fiduciary duty. certain procedural requirements, the court DENISE VOIGT CRAWFORD, That weakened authority provided to the upheld the rule on substantive legal grounds, President, NASAA. SEC is subject to such burdensome condi- finding it was reasonable for the SEC to con- BARBARA ROPER,

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00050 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.041 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5919 Director of Investor process by preventing the equity-indexed an- and if the purchaser is bearing a certain in- Protection, CFA. nuities provision from being added to the vestment risk, applying standard investor conference report. protections is common sense. Any issues par- CONSUMER FEDERATION OF AMERICA, Respectfully submitted, ticular to indexed annuities can be addressed FUND DEMOCRACY, BARBARA ROPER, through the normal rulemaking and com- June 12, 2010. Director of Investor ment process. Hon. CHRISTOPHER DODD, Protection, Con- Consumer confidence and consumer protec- Chairman, Committee on Banking, Housing and sumer Federation of tion are two of the most important consider- Urban Development, U.S. Senate, Wash- America. ations as you deliberate over important ington, DC. MERCER BULLARD, changes to our financial regulatory system. I Hon. BARNEY FRANK, Executive Director, urge you to resist any attempts to handcuff Chairman, Financial Services Committee, House Fund Democracy. the SEC before it has even had an oppor- of Representatives, Washington, DC. tunity to bring its consumer protection re- Hon. RICHARD SHELBY, FINANCIAL PLANNING ASSOCIATION, sources to bear in this area. Ranking Member, Committee on Banking, Hous- Washington, DC, June 15, 2010. Thank you for your consideration. If you ing and Urban Development, U.S. Senate, Hon. BARNEY FRANK, Chairman, have any questions, or if FPA can provide Washington, DC. Hon. SPENCER BACHUS, additional information, please contact me. Hon. SPENCER BACHUS, Ranking Member, Committee on Financial Serv- Very truly yours, Ranking Member, Financial Services Committee, ices, House of Representatives, Washington, DANIEL J. BARRY, House of Representatives, Washington, DC. DC. Director of Government Relations. PROTECT INVESTORS AND THE LEGISLATIVE Hon. CHRISTOPHER J. DODD, Chairman, Mrs. LINCOLN. Mr. President, as I PROCESS: REJECT EQUITY-INDEXED ANNU- Hon. RICHARD C. SHELBY, have previously discussed, section 737 ITIES PREEMPTION AMENDMENT Ranking Member, Committee on Banking, Hous- of H.R. 4173 will grant broad authority ing and Urgan Affairs, U.S. Senate, Wash- DEAR CHAIRMAN DODD, RANKING MEMBER to the Commodity Futures Trading ington, DC. SHELBY, CHAIRMAN FRANK, AND RANKING DEAR CHAIRMAN FRANK, CHAIRMAN DODD, Commission to once and for all set ag- MEMBER BACHUS: We understand that mem- RANKING MEMBER BACHUS, AND RANKING gregate position limits across all mar- bers of the insurance industry continue to MEMBER SHELBY: I am writing to oppose ef- kets on non-commercial market par- press for inclusion in the conference report forts to strip the Securities and Exchange ticipants. During consideration of this of anti-consumer legislation to exempt eq- Commission (SEC) of authority to oversee uity-indexed annuities from securities regu- bill we all learned many valuable les- sales practices in connection with indexed sons about how the commodities mar- lation. We are writing to urge you to resist annuities that are marketed as investment any such efforts. products. At a time when Congress is seeking kets operate and the impact that high- Equity-indexed annuities are hybrid prod- ways to improve consumer protections in the ly leveraged, and heretofore unregu- ucts that combine elements of both insur- financial services sector, the Financial Plan- lated swaps, have on the price dis- ance and securities, but they are sold pri- ning Association (FPA) believes it would be covery function in the futures markets. marily as investments. Indeed, as docu- completely inappropriate to preempt the I believe the adoption of aggregate po- mented in a seven-part Dateline NBC hidden SEC from exercising its existing authority to camera expose, they are among the most sition limits, along with greater trans- protect consumers from well-documented parency, will help bring some normalcy abusively sold products on the market today. abuses. Responding to a rising level of complaints, Indexed annuities have a minimum guaran- back to our markets and reduce some the Securities and Exchange Commission teed return, but the actual return will vary of the volatility we have witnessed voted in late 2008 to adopt rules regulating based on the performance of a securities over the last few years. equity-indexed annuities as securities, a index, such as the S&P 500. FPA members I also recognize that in setting these move that was immediately challenged in are very familiar with indexed annuities, limits, regulators must balance the court by the insurance industry. In deciding with many financial planners specializing in needs of market participants, while at the case, a U.S. Court of Appeals sided with retirement planning and more than half of the same time ensuring that our mar- the agency on the basic issue of whether eq- our membership licensed to sell insurance kets remain liquid so as to afford end- uity-indexed annuities should be regulated and annuity products. They may recommend as securities while remanding the rule with annuities, including indexed annuities, as an users and producers of commodities the respect to procedural issues. important component of a client’s overall fi- ability to hedge their commercial risk. Having failed to prevail in court, the insur- nancial plan. As with other financial prod- Along these lines I do believe that ance industry has turned to Congress to pre- ucts, however, proper oversight is needed to there is a legitimate role to be played empt legitimate securities regulation of this help protect consumers from the few who by market participants that are willing product. We urge you to resist these efforts would take advantage of them. FPA urges to enter into futures positions opposite for the following reasons: you to reject any efforts to strip the SEC of a commercial end-user or producer. Equity-indexed annuities are complex authority to protect purchasers of indexed Through this process the markets gain products whose returns fluctuate with per- annuities in the same way they protect those formance of the securities markets. Absent who purchase variable annuities. additional liquidity and accurate price regulation under securities laws, they can be In 2008, the SEC promulgated rules that discovery can be found for end-users sold by salespeople with no more under- would have brought indexed annuities under and producers of commodities. standing of the markets than the customer. the same sales practice standards as variable However, I still hold some reserva- Although the National Association of In- annuities and other securities if they are tions about these financial market par- surance Commissioners has developed a marketed as investment products. Applying ticipants and the negative impact of model suitability rule for annuity sales, it a two part test in accordance with Supreme excessive speculation or long only posi- has not been adopted in all states. Regula- Court precedent, the SEC sought to exercise tions on the commodities markets. tion under securities laws would provide na- oversight based on the allocation of invest- tional uniformity, would bring to bear the ment risk between the insurance company While I have concerns about the role added regulatory resources of the SEC, state and the customer, and on how the annuity is these participants play in the markets, securities regulators, and FINRA, and would marketed. Notably, the SEC left regulation I do believe that important distinc- provide additional investor protections in of the product itself to state insurance regu- tions in setting position limits on the form of improved disclosures and limits lators and sought to merely oversee sales these participants are warranted. In on excessive compensation. practices when the insurer chooses to mar- implementing section 737, I would en- Exempting equity-indexed annuities from ket indexed annuities as an investment prod- courage the CFTC to give due consider- securities regulation would set a dangerous uct. ation to trading activity that is precedent and encourage the development of FPA supported the SEC rule, as a meas- additional hybrid products designed specifi- ured and appropriate move to address a very unleveraged or fully collateralized, cally to evade a more rigorous form of regu- real problem (See comment letter at solely exchange-traded, fully trans- lation. www.fpanet.org/GovernmentRelations/). Op- parent, clearinghouse guaranteed, and This highly controversial measure—which ponents challenged the rule in court arguing poses no systemic risk to the clearing is opposed by consumer advocates as well as that the SEC lacked authority, but the rule system. This type of trading activity is state and federal securities regulators—was was vacated on other, technical grounds. distinguishable from highly leveraged not included in either the House or the Sen- Now they are seeking to preempt the SEC swaps trading, which not only poses ate bill and is not germane to the underlying from overseeing the sales practices of these systemic risk absent the proper safe- legislation. To include it in the conference products, as it has effectively done so for report would be a gross violation of the in- variable annuities. guards that an exchange traded, tegrity of the legislative process. We urge But the calculus is simple: if a product is cleared system provides, but also may you to protect investors and the legislative marketed and sold as an investment product, distort price discovery. Further, I

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Under systems; and (5) the use of a potential ex- different and systematically deter- the Shad Johnson accord, the CFTC has ju- emption of foreign exchange swaps and for- mined investment objectives. risdiction over commodity-based instru- eign exchange forwards to evade otherwise I wish to also point out that section ments as well as futures and options on applicable regulatory requirements. In mak- 719 of the conference report calls for a broad-based security indices (and now ing a written determination to exempt such study of position limits to be under- swaps), while the SEC has jurisdiction over swaps from regulation, the Secretary must taken by the CFTC. In conducting that security-based instruments—both single make certain findings. The Secretary’s writ- study, it is my expectation that the name and narrow-based security indices— ten determination is not effective until it is CFTC will address the soundness of and now security-based swaps. The Shad filed with the appropriate Congressional prudential investing by pension funds, Johnson jurisdictional lines were reaffirmed Committees and provides the following infor- index funds and other institutional in- in 2000 with the passage of the Commodity mation: (1) an explanation regarding why Futures Modernization Act, CFMA, as it re- foreign exchange swaps and foreign exchange vestors in unleveraged indices of com- lated to security futures products. Maintain- forwards are qualitatively different from modities that may also serve to pro- ing existing jurisdictional lines between the other classes of swaps in a way that would vide agricultural and other commodity two agencies was an important goal of the make the foreign exchange swaps and foreign contracts with the necessary liquidity Administration, as reflected in their draft exchange forwards ill-suited for regulation to assist in price discovery and hedging legislation. This priority was reflected in the as swaps; and (2) an identification of the ob- for the commercial users of such con- bills passed out of the Senate and House ag- jective differences of foreign exchange swaps tracts. ricultural committees and through our re- and foreign exchange forwards with respect Mr. President, as the Chairman of spective chambers and now reflected in the to standard swaps that warrant an exempted the Senate Committee on Agriculture, conference report. status. These provisions and this process re- As noted above, the conference report lated to exempting foreign exchange swaps Nutrition and Forestry, I am proud to maintains the Shad Johnson jurisdictional and foreign exchange forwards from swaps say that the bill coming out of our accord. We made it clear that the CFTC has regulation will be, and should be, difficult committee was the base text for the de- jurisdiction under Section 2(a)(1) of the Com- for the Secretary of the Treasury to meet. rivatives title in the Senate passed modity Exchange Act, ‘‘CEA’’, over both in- The foreign exchange swaps and foreign ex- bill. The Senate passed bill’s deriva- terest rate swaps and foreign exchange swaps change forward market is approximately $65 tives title was the base text used by and forwards. The definition of ‘‘swap’’ under trillion and the second largest part of the the conference committee. The con- the CEA specifically lists interest rate swaps swaps market. It is important that the for- as being a swap. This is CEA Section eign exchange swaps market be transparent ference committee made changes to 1a(47)(A)(iii)(I). This is appropriate as the as well as subject to comprehensive and vig- the derivatives title, adopting several CFTC has a long history of overseeing inter- orous market oversight so there are no ques- provisions from the House passed bill. est rate futures. The futures exchanges have tions about possible manipulation of cur- The additional materials that I am listed and traded interest rate contracts for rencies or exchange rates. submitting today are primarily focused nearly 40 years. The CME has listed for trad- I would also note that we have made it on the derivatives title of the con- ing quarterly settled interest rate swap fu- clear that even if foreign exchange swaps and ference report. They are intended to ture contracts. In the last 24 months, some forwards are exempted by the Secretary of provide clarifying legislative history designated contract markets have listed fu- the Treasury from the mandatory trading tures contracts which mirror interest rate and clearing requirements which are applica- regarding certain provisions of the de- swaps in design, function, maturity date and ble to standardized swaps, that all foreign rivatives title and how they are sup- all other material aspects. In addition, some exchange swaps and forwards transactions posed to work together. of the CFTC registered clearing houses have must be reported to a swap data repository I ask unanimous consent that this listed and started to clear both these inter- under the CFTC’s jurisdiction. In addition, material be printed in the RECORD. est rate swap futures contracts as well as in- we have made it clear that to the extent for- There being no objection, the mate- terest rate swap contracts. This is on top of eign exchange swaps and forwards are listed rial was ordered to be printed in the the nearly $200 trillion in interest rate swap for trading on a designated contract market RECORD, as follows: contracts which have been cleared at or cleared through a registered derivatives The major components of the derivatives LCH.Clearnet in London. clearing organization that such swap con- title include: 100 percent reporting of swaps Also, under this legislation, foreign ex- tracts are subject to the CFTC’s jurisdiction and security-based swaps, mandatory trading change swaps and forwards come under the under the CEA and that the CFTC retains its and clearing of standardized swaps and secu- CFTC’s jurisdiction under Section 2(a)(1) of jurisdiction over retail foreign exchange rity-based swaps, and real-time price report- the CEA. We listed in the definition of transactions. We have made some progress in this legis- ing for all swap transactions—those subject ‘‘swap’’ certain types of common swaps, in- lation with respect to clarifying CFTC juris- to mandatory trading and clearing as well as cluding ‘‘foreign exchange swaps’’ so it diction and preserving SEC enforcement ju- those subject to the end user clearing exemp- would be clear that they are regulated under tion and customized swaps. Swap dealers, se- the CEA. See CEA Section risdiction over instruments which are ‘‘secu- curity-based swap dealers, major swap par- 1a(47)(A)(iii)(VIII). In addition, the terms rity-based swap agreements.’’ Security-based ticipants and major security-based swap par- ‘‘foreign exchange forward’’ and ‘‘foreign ex- swap agreements are actually ‘‘swaps’’ and ticipants will all be required to register with change swap’’ are defined in the CEA itself. subject to both the CFTC and the SEC’s ju- either the Commodity Futures Trading Com- See CEA Section 1a(24) and (25). One should risdiction. One will notice that we have in- mission, CFTC, or the Securities and Ex- note that foreign exchange forwards are serted the definition of ‘‘security-based swap change Commission, SEC, and meet addi- treated as swaps under the CEA. agreements’’ in both the Commodity Ex- tional requirements including capital, mar- The CEA as amended permits the Sec- change Act and the Securities and Exchange gin, reporting, examination, and business retary of the Treasury to make a written de- Act—section 1a(47)(A)(v) of the CEA (7 U.S.C. conduct requirements. All swaps that are termination to exempt either or both foreign 1a(47)(A)(v)) and section 3(a)(78) of the SEA ‘‘traded’’ must be traded on either a des- exchange swaps and or foreign exchange for- of 1934 (15 U.S.C. 78c(a)(78)). The term ‘‘secu- ignated contract market or a swap execution wards from the mandatory trading and clear- rity-based swap agreement’’ is a hold-over facility. All security-based swaps must be ing requirements of the CEA, which applies term from the CFMA of 2000. In the CFMA, traded on either a national securities ex- to swaps generally. Under new Section 1b of Congress chose to exclude ‘‘swap agree- change or a security-based swap execution the CEA, the Secretary must consider cer- ments’’ from regulation by the CFTC and facility. It is a sea change for the $600 tril- tain factors in determining whether to ex- ‘‘security-based swap agreements’’ from reg- lion swaps market. Swaps and security-based empt either foreign exchange swaps or for- ulation by the SEC. While the CFMA exclu- swaps which are not subject to mandatory eign exchange forwards from being treated sions were broad, the SEC retained limited exchange trading or clearing will be required like all other swaps. These factors include: authority—anti fraud and anti manipulation to submit transaction data to swap data re- (1) whether the required trading and clearing enforcement authority—with respect to se- positories or security-based swap data re- of foreign exchange swaps and foreign ex- curity-based swap agreements. The Agri- positories. These new ‘‘data repositories’’ change forwards would create systemic risk, culture Committee and Congress chose to will be required to register with the CFTC lower transparency, or threaten the financial preserve that existing enforcement jurisdic- and SEC and be subject to statutory duties stability of the United States; (2) whether tion of the SEC related to those swaps which and core principals which will assist the foreign exchange swaps and foreign exchange qualify as security-based swap agreements. CFTC and SEC in their oversight and market forwards are already subject to a regulatory The swaps which will qualify as security- regulation responsibilities. scheme that is materially comparable to based swap agreements is quite limited. It There are several important definitional that established by this Act for other classes would appear that non narrow-based security and jurisdictional provisions in title VII. For of swaps; (3) the extent to which bank regu- index swaps and credit default swaps may be

VerDate Mar 15 2010 05:21 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00052 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.076 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5921 the only swaps considered to be security- lators would also be required to be traded on the regulators. The conference report also based swap agreements. The rationale for a designated contract market, a national se- includes an anti-evasion provision which pro- providing the SEC with enforcement author- curities exchange, or new swap execution fa- vides the CFTC and SEC with authority to ity with respect to security-based swap cilities or security-based swap execution fa- review and take action against entities agreements in the CFMA was premised on cilities. To avoid any conflict of interests, which abuse the end user clearing exemp- the fact that the CFTC didn’t have as exten- the regulators—the CFTC and the SEC—will tion. sive an anti-fraud or anti-manipulation au- make a determination as to what swaps In addition to the mandatory clearing and thority as the SEC. This lack of CFTC au- must be cleared following certain statutory trading of swaps discussed above, the con- thority was remedied in the title VII so that factors. It is expected that the standardized, ference report retains and expands the Sen- the CFTC now has the same authority as the plain vanilla, high volume swaps contracts— ate Agriculture Committee’s real time swap SEC. It is good policy to have a second set of which according to the Treasury Department transaction and price reporting require- enforcement eyes in this area. The SEC can are about 90 percent of the $600 trillion swaps ments. The Agriculture Committee focused and should be able to back up the CFTC on market—will be subject to mandatory clear- on swap market transparency while it was enforcement issues without interceding in ing. Derivatives clearing organizations and constructing the derivatives title. As stated the main market and product regulation. In clearing agencies are required to submit all earlier, the conference report requires 100% the new legislation, we repeal the specific swaps and security-based swaps for review of all swaps transactions to be reported. It exclusions related to swap agreements and and mandatory clearing determination by was universally agreed that regulators security-based swap agreements in both the regulators. It will also be unlawful for any should have access to all swaps data in real CEA and the Securities Exchange Act of 1934, entity to enter into a swap without submit- time. On the other hand, there was some out- ‘‘SEA’’. One should note that the definition ting it for clearing if that swap has been de- standing questions regarding the capacity, of ‘‘security-based swap agreement’’ in the termined to be required to clear. It is our un- utility and benefits from public reporting of SEA specifically excludes any ‘‘security- derstanding that approximately 1,200 swaps swaps transaction and pricing data. I would based swap’’, which means that SBSAs are and security-based swaps contracts are cur- like to respond to those questions. Market really swaps. This point is made clear in the rently listed by CFTC-registered clearing participants—including exchanges, contract definition of ‘‘swap’’ under the CEA. Under houses and SEC-registered clearing agencies markets, brokers, clearing houses and clear- Section 1a(47)(A)(v) it states that ‘‘any secu- for clearing. Under the conference report, ing agencies—were consulted and affirmed rity-based swap agreement which meets the these 1,200 swaps and security-based swaps that the existing communications and data definition of ‘‘swap agreement’’ as defined in already listed for clearing are deemed ‘‘sub- infrastructure for the swaps markets could Section 206A of the Gramm-Leach-Bliley Act mitted’’ to the regulators for review upon accommodate real time swap transaction and price reporting. Speaking to the benefits of which a material term is based on the the date of enactment. It is my expectation of such a reporting requirement, the com- price, yield, value or volatility of any secu- that the regulators, who are already familiar mittee could not ignore the experience of the rity, or any group or index of securities, or with these 1,200 swap and security-based U.S. Securities and Futures markets. These any interest therein.’’ Regulators should swap contracts, will work within the 90 day markets have had public disclosure of real note that Congress chose to refer to secu- time frame they are provided to identify time transaction and pricing data for dec- rity-based swap agreements as swaps at sev- which of the current 1,200 swap and security- ades. We concluded that real time swap eral points in the CEA. Further, the CFTC based swap agreements should be subject to transaction and price reporting will narrow and the SEC, after consultation with the mandatory clearing requirements. The regu- swap bid/ask spreads, make for a more effi- Federal Reserve, are to undertake a joint lators may also identify and review swaps and security-based swaps which are not sub- cient swaps market and benefit consumers/ rulemaking related to security-based swap counterparties overall. For these reasons, agreements. The regulators should follow mitted for clearinghouse or clearing agency listing and determine that they are or should the Senate Agriculture Committee required Congressional intent in this area and pre- ‘‘real time’’ price reporting for: (1) All swap serve the SEC’s anti-fraud and anti-manipu- be subject to mandatory clearing require- ment. This provision is considered to be an transactions which are subject to mandatory lation enforcement authority for that lim- clearing requirement; (2) All swaps under the ited group of swaps which are considered to important provision by senior members of the Senate Agriculture Committee, as it re- end user clearing exemption which are not be security-based swap agreements. cleared but reported to a swap data reposi- We have introduced a new term in this leg- moves the ability for the clearinghouse or tory subject; and, (3) all swaps which aren’t islation, which is ‘‘mixed swap’’. The term is clearing agency to block a mandatory clear- subject to the mandatory clearing require- found in both the CEA and the SEA—CEA ing determination. ment but which are cleared at a clearing Section 1a(47)(D) and SEA Section The conference report also contains an end house or clearing agency—under permissive, 3(a)(68)(D). The term is subject to a joint user clearing exemption. Under the con- as opposed to mandatory, clearing. The con- rulemaking between the CFTC and the SEC. ference report, end users have the option, The term ‘‘mixed swap’’ refers to those but not the obligation, to clear or not clear ference report adopted this Senate approach swaps which have attributes of both secu- their swaps and security-based swaps that with one notable addition authored by Sen- rity-based swaps and regular swaps. A have been determined to be required to clear, ator Reed. The Reed amendment, which the ‘‘mixed swap’’ is somewhat similar to a ‘‘hy- as long as those swaps are being used to conference adopted, extended real time swap brid product’’ under the CEA which has at- hedge or mitigate commercial risk. This op- transaction and pricing data reporting to tributes of both securities and futures. CEA tion is solely the end users’ right. If the end ‘‘non-standardized’’ swaps which are re- Section 2(f). Hybrid products must be pre- user opts to clear a swap, the end user also ported to swap data repositories and secu- dominantly securities to be excluded from has the right to choose the clearing house rity-based swap data repositories. Regulators regulation as contracts of sale of a com- where the swap will be cleared. Further, the are to ensure that the public reporting of modity for future delivery under the CEA. end user has the right, but not the obliga- swap transactions and pricing data does not While there is no ‘‘predominance’’ or ‘‘pri- tion, to force clearing of any swap or secu- disclose the names or identities of the par- marily’’ test in the definition of ‘‘mixed rity-based swap which is listed for clearing ties to the transactions. swap’’ the regulators should ensure that by a clearing house or clearing agency but I would like to specifically note the treat- when deciding the jurisdictional allocation which is not subject to mandatory clearing ment of ‘‘block trades’’ or ‘‘large notional’’ of such mixed swaps in the joint rulemaking requirement. Again the end user has the swap transactions. Block trades, which are process, that mixed swaps should be allo- right to choose the clearing house or clear- transactions involving a very large number cated to either the CFTC or the SEC based ing agency where the swap or security-based of shares or dollar amount of a particular se- on clear and unambiguous criteria like a pri- swap will be cleared. The option to clear is curity or commodity and which transactions marily test. A de minimis amount of secu- meant to empower end users and address the could move the market price for the security rity-based swap attributes should not bring a disparity in market power between the end or contract, are very common in the securi- swap into the SEC’s jurisdiction just as a de users and the swap dealers. Under the con- ties and futures markets. Block trades, minimis amount of swap attributes should ference report, certain specified financial en- which are normally arranged privately, off not bring a security-based swap into the tities are prohibited from using the end user exchange, are subject to certain minimum CFTC’s jurisdiction. While there will be clearing exemption. While most large finan- size requirements and time delayed report- some difficult decisions to be made on indi- cial entities are not eligible to use the end ing. Under the conference report, the regu- vidual swap contracts, it will be fairly clear user clearing exemption for standardized lators are given authority to establish what most of the time whether a particular swap swaps entered into with third parties, it constitutes a ‘‘block trade’’ or ‘‘large no- is more security-based swap or swap. We ex- would appropriate for regulators to exempt tional’’ swap transaction for particular con- pect the regulators to be reasonable in their from mandatory clearing and trading inter tracts and commodities as well as an appro- joint rulemaking and interpretations. affiliate swap transactions which are be- priate time delay in reporting such trans- The mandatory clearing and trading of cer- tween for wholly-owned affiliates of a finan- action to the public. The committee expects tain swaps and security-based swaps, along cial entity. We would further note that small the regulators to distinguish between dif- with real-time price reporting, is at the financial entities, such as banks, credit ferent types of swaps based on the com- heart of swaps market reform. Under the unions and farm credit institutions below $10 modity involved, size of the market, term of conference report, swaps and security-based billion in assets—and possibly larger enti- the contract and liquidity in that contract swaps determined to be subject to the man- ties—will be permitted to utilize the end and related contracts, i.e; for instance the datory clearing requirement by the regu- user clearing exemption with approval from size/dollar amount of what constitutes a

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00053 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.053 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5922 CONGRESSIONAL RECORD — SENATE July 15, 2010 block trade in 10-year interest rate swap, 2- concern was addressed by adding language ing swaps to the financial instruments over year dollar/euro swap, 5-year CDS, 3-year clarifying that if the financial entity had a which the CFTC has jurisdiction. We note gold swap, or a 1-year unleaded gasoline capital requirement set by a federal banking that in addition to swaps, we added other fi- swap are all going to be different. While we regulator that it wouldn’t be included in the nancial instruments such as security futures expect the regulators to distinguish between definition under that prong. This particular products, leverage contracts, retail foreign particular contracts and markets, the guid- prong of the major swap participant provi- exchange contracts and retail commodity ing principal in setting appropriate block- sion was intended to catch entities like the transactions which the CFTC has jurisdic- trade levels should be that the vast majority hedge fund LTCM and AIG’s financial prod- tion over and which would require registra- of swap transactions should be exposed to ucts subsidiary, not community banks. We tion where appropriate. the public market through exchange trading. also clarified in Section 716 that banks which With respect to commodity trading advi- With respect to delays in public reporting of are major swap participants are not subject sors, CTAs, commodity pool operators, CPOs, block trades, we expect the regulators to to the federal assistance bans. These changes and commodity pools, we wanted to provide keep the reporting delays as short as pos- and clarifications should ensure that com- clarity regarding the activities and jurisdic- sible. munity banks, when acting as banks, are not tion over these entities. Under Section 749 I firmly believe that taking the Senate bill caught by the swap dealer or major swap we have provided additional clarity regard- language improved the final conference re- participant definitions. ing what it means to be ‘‘primarily engaged’’ port by strengthening the regulators en- Section 716 and the ban on federal assist- in the business of being a commodity trading forcement authority dramatically. The Sen- ance to swap entities is an incredibly impor- advisor and being a commodity pool. To the ate Agriculture Committee looked at exist- tant provision. It was agreed by the adminis- extent an entity is ‘‘primarily engaged’’ in ing enforcement authority and tried to give tration, and accepted by the conference, that advising on swaps, such as interest rate the CFTC the authority which it needs to po- under the revised Section 716, insured deposi- swaps, foreign exchange swaps or broad- lice both the futures and swaps markets. As tory institutions would be forced to ‘‘push based security index swaps, then it would be I mentioned above, we provided the CFTC out’’ the riskiest swap activities into a sepa- required to register as a commodity trading with anti-fraud and anti-manipulation au- rate affiliate. The swap dealer activities advisor with the CFTC. On the other hand, to thority equal to that of the SEC with respect which would have to be pushed out included: the extent an entity is primarily engaged in to non narrow-based security index futures swaps on equities, energy, agriculture, metal advising on security-based swaps it would be and swaps so as to equalize the SEC and other than silver and gold, non investment required register as an investment adviser CFTC enforcement authority in this area. grade debt, uncleared credit default swaps with the SEC or the states. We would note The CFTC requested, and received, enforce- and other swaps that are not bank permis- that under existing law the CEA and the In- ment authority with respect to insider trad- sible investments. We were assured by the vestment Advisers Act have mirror provi- ing, restitution authority, and disruptive administration that all of the types of swaps sions which exempts from dual registration trading practices. In addition, we added in enumerated above are not bank permissible and regulation SEC registered IAs and CFTC anti-manipulation authority from my good and will be subject to the push out. Further, registered CTAs as long as they only provide friend Senator Cantwell. Senator Cantwell it is our understanding that no regulatory very limited advice related to futures and se- and I were concerned with swaps partici- action, interpretation or guidance will be curities, respectively. This policy is contin- pants knowingly and intentionally avoiding issued or taken which might turn such swaps ued and expanded to the extent it now covers the mandatory clearing requirement. We into bank permissible investments or activi- advice related to swaps and security-based were able to reach an agreement with the ties. swaps. other committees of jurisdiction by pro- It should also be noted that a mini-Volcker With respect to commodity pools, the SEC viding additional enforcement authority rule was incorporated into Section 716 during has long recognized that commodity pools that I believe will address the root problem. the conference. Banks, their affiliates and are not investment companies which are sub- Further, I would be remiss in not mentioning their bank holding companies would be pro- ject to registration or regulation under the that we provided specific enforcement au- hibited from engaging in proprietary trading Investment Company Act of 1940. Alpha thority under Section 9 for the CFTC to in derivatives. This provision would prohibit Delta Fund No Action Letter (pub avail. May bring actions against persons who purposely banks and bank holding companies, or any 4, 1976); Peavey Commodity Futures Fund I, evade the mandatory clearing requirement. affiliate, from proprietary trading in swaps II and III No action letter (pub avail. June 2, This provision is supposed to work together as well as other derivatives. This was an im- 1983)); Managed Futures Association No Ac- with the anti-evasion provision in the clear- portant expansion and linking of the Lincoln tion Letter (Pub Avail. July 15, 1996). To be ing section. Another important provision is Rule in Section 716 with the Volcker Rule in an ‘‘investment company’’ under Section 3(a) one related to fraud and an episode earlier Section 619 of Dodd-Frank. of the Investment Company Act an entity this year involving Greece and the use of Section 716’s effective date is 2 years from has to be primarily engaged in the business cross currency swaps. We gave new authority the effective date of the title, with the possi- of investing, reinvesting, or trading securi- to the CFTC to go after persons who enter bility of a 1 year extension by the appro- ties. In the matter of the Tonopah Mining into a swap knowing that its counterparty priate Federal banking agency. It should be Company of Nevada, 26 S.E.C. 426 (July 22, intends to use the swap for purposes of de- noted that the appropriate federal banking 1947) and SEC v. National Presto Industries, frauding a third party. This authority, which agencies should be looking at the affected Inc., 486 F.3d 305 (7th Cir. 2007). Commodity is meant to expand the CFTC’s existing aid- banks and evaluating the appropriate length pools are primarily engaged in the business ing and abetting authority, should permit of time which a bank should receive in con- of investing, reinvesting or trading in com- the CFTC to bring actions against swap deal- nection with its ‘‘push out.’’ Under the re- modity interests, not securities. For this ers and others who assist their counterpar- vised Section 716, banks do not have a reason, commodity pools are not investment ties in perpetrating frauds on third parties. ‘‘right’’ to 24 month phase-in for the push companies and are not utilizing an exemp- All in all, the CFTC’s enforcement authority out of the impermissible swap activities. The tion under the Investment Company Act. A was expanded to meet known problems and appropriate federal banking agencies should recent and well know example of commodity fill existing holes. It should give them the be evaluating the particular banks and their pools which the SEC has recognized as not tools which are necessary to police this mar- circumstances under the statutory factors to being investment companies, and not being ket. determine the appropriate time frame for required to register under the Investment A significant issue which was fixed during the push out. Company Act, comes in the commodity conference was clarifying that in most situa- The Senate Agriculture Committee bill re- based exchange traded funds (ETF) world. tions community banks aren’t swap dealers vised and updated several of the CEA defini- While recent ETFs based on gold, silver, oil, or major swap participants. The definition of tions related to intermediaries such as floor natural gas and other commodities have reg- swap dealer was adjusted in a couple of re- trader, floor broker, introducing broker, fu- istered their securities under the 1933 and spects so that a community bank which is tures commission merchant, commodity 1934 Acts and listed them on national securi- hedging its interest rate risk on its loan trading advisor, and commodity pool oper- ties exchanges for trading, these funds, portfolio would not be viewed as a Swap ator as well as adding a statutory definition which are commodity pools which are oper- Dealer. In addition, we made it clear that a of the term commodity pool. We note that ated by CFTC registered commodity pool op- bank that originates a loan with a customer the definition of futures commission mer- erators, are not registered as investment and offers a swap in connection with that chant is amended to include persons that are companies under the Investment Company loan shouldn’t be viewed as a swap dealer. It registered as FCMs. This makes clear that Act of 1940. See the Investment Company In- was never the intention of the Senate Agri- such persons must comply with the regu- stitute 2010 Fact Book, Chapter 3. We have culture Committee to catch community latory standards, including the capital and clarified that commodity interests include banks in either situation. We worked very customer funds protections that apply to not only contracts of sale of a commodity for hard to make sure that this understanding FCMs. The Senate Agriculture Committee future delivery and options on such con- came through in revised statutory language wanted to ensure that all the intermediary tracts but would also include swaps, security which was worked out during conference. and other definitions were current and re- futures products, leverage contracts, retail There were some concerns expressed about flected the activities and financial instru- foreign exchange contracts, retail com- banks being caught up as being highly lever- ments which CFTC registered and regulated modity transactions, physical commodities aged financial entities under prong (iii) of entities would be advising on, trading or and any funds held in a margin account for the major swap participant definition. This holding, especially in light of Congress add- trading such instruments. I am pleased that

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00054 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.055 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5923 the Conference Report includes these new that such transactions and accounts are sub- cuted on either a designated contract mar- provisions which were in the bill passed out ject to ‘‘comparable requirements to the ex- ket or a swap execution facility. Section of the Senate Agriculture Committee. tent practicable for similar products.’’ The 2(h)(8)(B) provides an exception to the Trade I would also note the importance of Sec- term ‘‘comparable’’ in this provision does Execution Requirement if the swap is subject tion 769 and Section 770. These sections not mean ‘‘identical.’’ Rather, the term is in- to the commercial end-user exception to the amend the Investment Company Act of 1940 tended to recognize the legal and operational clearing requirement in CEA Section 2(h)(7), and the Investment Advisers Act of 1940 so differences of the regulatory regimes gov- or if no contract market or swap execution that certain terms in the CEA are now incor- erning futures and securities accounts. facility ‘‘makes the swap available to porated into both of the 1940 Acts, which are Title VII establishes a new process for the trade.’’ This provision was included in the administered by the SEC. We believed it was CFTC and SEC to resolve the status of novel bill as reported by the Senate Agriculture appropriate to incorporate these important derivative products. In the past, these types Committee and then in the bill that was definitions from the CEA into the two 1940 of novel and innovative products have gotten passed by the Senate. Acts as it relates to advice on futures and caught up in protracted jurisdictional dis- In interpreting the phrase ‘‘makes the swaps, such as interest rate swaps and for- putes between the agencies, resulting in swap available to trade,’’ it is intended that eign exchange swaps and forwards, as well as delays in bringing products to market and the CFTC should take a practical rather what constitutes being a commodity pool placing U.S. firms and exchanges at a com- than a formal or legalistic approach. Thus, and being primarily engaged in the business petitive disadvantage to their overseas coun- in determining whether a swap execution fa- of investing in commodity interests as dis- terparts. cility ‘‘makes the swap available to trade,’’ tinguished from being an investment com- In their Joint Harmonization Report from the CFTC should evaluate not just whether pany which is primarily engaged in the busi- October 2009, the two agencies recommended the swap execution facility permits the swap ness of investing, reinvesting, holding, trad- legislation to provide legal certainty with to be traded on the facility, or identifies the ing securities. I am pleased that the Con- respect to novel derivative product listings, swap as a candidate for trading on the facil- ference Report includes these new updated either by a legal determination about the na- ity, but also whether, as a practical matter, definitions as it should help clarify jurisdic- ture of a product or through the use of the it is in fact possible to trade the swap on the tional and registration requirements. agencies’ respective exemptive authorities. facility. The CFTC could consider, for exam- Another extremely important issue which Title VII includes provisions in Sections 717 ple, whether there is a minimum amount of originated in the Senate Agriculture Com- and 718 to implement these recommenda- liquidity such that the swap can actually be mittee was imposing a fiduciary duty on tions. traded on the facility. The mere ‘‘listing’’ of swap dealers when dealing with special enti- It does so by establishing a process that re- the swap by a swap execution facility, in and ties, such as municipalities, pension funds, quires public accountability by ensuring of itself, without a minimum amount of li- endowments, and retirement plans. The that jurisdictional disputes are resolved at quidity to make trading possible, should not problems in this area, especially with re- the Commission rather than staff level, and be sufficient to trigger the Trade Execution spect to municipalities and Jefferson Coun- within a firm timeframe. Specifically, either Requirement. ty, Alabama in particular are very well agency can request that the other one: 1) Both Section 723 and Section 729 establish known. I would like to note that Senators make a legal determination whether a par- requirements pertaining to the reporting of Harkin and Casey have been quite active in ticular product is a security under SEC juris- pre-enactment and post-enactment swaps to this area and worked closely with me on this diction or a futures contract or commodity swap data repositories or the CFTC. They do issue. While Senators Harkin, Casey and I option under CFTC jurisdiction; or 2) grant so in new Sections 2(h)(5) and 4r(a) of the did not get everything which we were look- an exemption with respect to the product. Commodity Exchange Act, respectively, ing for, we ended up with a very good prod- An agency receiving such a request from the which provide generally that swaps must be uct. First, there is a clear fiduciary duty other agency is to act on it within 120 days. reported pursuant to such rules or regula- which swap dealers and major swap partici- Title VII also provides for an expedited judi- tions as the CFTC prescribes. These provi- pants must meet when acting as advisors to cial review process for a legal determination sions should be interpreted as complemen- special entities. This is a dramatic improve- where the agency making the request dis- tary to one another and to assure consist- ment over the House passed bill and should agrees with the other’s determination. ency between them. This is particularly true help protect both tax payers and plan bene- Title VII also includes amendments to ex- with respect to issues such as the effective ficiaries. Further, we have expanded the isting law to ensure that if either agency dates of these reporting requirements, the business conduct standards which swap deal- grants an exemption, the product will be applicability of these provisions to cleared ers and major swap participants must follow subject to the other’s jurisdiction, so there and/or uncleared swaps, and their applica- even when they are not acting as advisors to will be no regulatory gaps. For example, the bility—or non-applicability—to swaps whose special entities. I’d make a very important Commodity Exchange Act is amended to terms have expired at the date of enactment. point, nothing in this provision prohibits a clarify that CFTC has jurisdiction over op- Section 724 creates a segregation and bank- swap dealer from entering into transactions tions on securities and security indexes that ruptcy regime for cleared swaps that is in- with special entities. Indeed, we believe it are exempted by the SEC. And Section 741 tended to parallel the regime that currently will be quite common that swap dealers will grants the CFTC insider trading enforcement exists for futures. Section 724 requires any both provide advice and offer to enter into or authority over futures, options on futures, person holding customer positions in cleared enter into a swap with a special entity. How- and swaps, on a group or index of securities. swaps at a derivatives clearing organization ever, unlike the status quo, in this case, the We strongly urge the agencies to work to- to be registered as an FCM with the CFTC. swap dealer would be subject to both the act- gether under these new provisions to allevi- Section 724 does not require, and there is no ing as advisor and business conduct require- ate the ills that they themselves have identi- intention to require, swap dealers, major ments under subsections (h)(4) and (h)(5). fied. The agencies should make liberal use of swap participants, or end users to register as These provisions will place tighter require- their exemptive authorities to avoid spend- FCMs with the CFTC to the extent that such ments on swap entities that we believe will ing taxpayer resources on legal fights over entities hold collateral or margin which has help to prevent many of the abuses we have whether these novel derivative products are been put up by a counterparty of theirs in seen over the last few years. Importantly, securities or futures, and to permit these im- connection with a swap transaction. In the CFTC and the SEC have the authority to portant new products to trade in either or amending both the Commodity Exchange add to the statutory business conduct stand- both a CFTC- or SEC-regulated environment. Act (CEA) and the Bankruptcy Code to clar- ards which swap dealers and major swap par- Section 721 includes a broad and expansive ify that cleared swaps are ‘‘commodity con- ticipants must follow. We expect the regu- definition of the term ‘‘swap’’ that is subject tracts,’’ Section 724 makes explicit what had lators to utilize this authority. Among other to the new regulatory regime established in been left implicit under the Commodity Fu- areas, regulators should consider whether to Title VII. It also provides the CFTC with the tures Modernization Act of 2000. Specifically, impose business conduct standards that authority to further define the term ‘‘swap’’ we have clarified that: 1) title 11, Chapter 7, would require swap dealers to further dis- (and various other new terms in Title VII) in Subchapter IV of the United States Bank- close fees and compensation, ensure that order to include transactions and entities ruptcy Code applies to cleared swaps to the swap dealers maintain the confidentiality of that have been structured to evade these im- same extent that it applies to futures; and 2) hedging and portfolio information provided portant new legal requirements. The CFTC the CFTC has the same authority under Sec- by special entities, and prohibit swap dealers must not allow market participants to tion 20 of the CEA to interpret such provi- from using information received from a spe- ‘‘game the system’’ by labeling or struc- sions of the Bankruptcy Code with respect to cial entity to engage in trades that would turing transactions that are swaps as an- cleared swaps as it has with respect to fu- take advantage of the special entity’s posi- other type of instrument and then claim the tures contracts. tions or strategies. These are very important instrument to be outside the scope of the Section 731 prohibits a swap dealer or issues and should be addressed. legislation that Congress has enacted. major swap participant from permitting any Section 713 clarifies the authority and Section 723 creates a ‘‘Trade Execution Re- associated person who is subject to a statu- means for the CFTC and SEC to facilitate quirement’’ in new section 2(h)(8) of the tory disqualification under the Commodity portfolio margining of futures positions and Commodity Exchange Act (CEA). Section Exchange Act (CEA) to effect or be involved securities positions together, subject to ac- 2(h)(8)(A) requires that swaps that are sub- in effecting swaps on its behalf, if it knew or count-specific programs. The agencies are re- ject to the mandatory clearing requirement reasonably should have known of the statu- quired to consult with each other to ensure under new CEA Section 2(h)(1) must be exe- tory disqualification. In order to implement

VerDate Mar 15 2010 03:51 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00055 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.057 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5924 CONGRESSIONAL RECORD — SENATE July 15, 2010 this statutory disqualification provision, the CFTC from applying any of the position be covered by the ‘‘Zelener fraud fix’’ en- CFTC may require such associated persons limit provisions in Section 737 in the same acted in the Farm Bill; further, cash or spot to register with the CFTC under such terms, manner with respect to DCM or SEF traded contracts, forward contracts, securities, and and subject to such exceptions, as the CFTC swaps as is explicitly provided for in CEA certain banking products are excluded from deems appropriate. Section 4a(a)(1). this provision in Section 742, just as they The term ‘‘associated person of a swap Finally, Section 737 amends CEA Section were excluded in the Farm Bill. dealer or major swap participant’’ is defined 4a(a)(4) to authorize the CFTC to establish Second, Section 742 addresses the risk of in Section 721 as a person who, among other position limits on swaps that perform a sig- regulatory arbitrage with respect to retail things, is involved in the ‘‘solicitation’’ or nificant price discovery function with re- foreign currency transactions. Under the ‘‘acceptance’’ of swaps. These terms would spect to regulated markets, including price CEA, several types of regulated entities can also include the negotiation of swaps. linkage situations where a swap relies on the provide retail foreign currency trading plat- Section 731 includes a new Section 4s(g) of daily or final settlement price of a contract forms—among them, broker-dealers, banks, the CEA to impose requirements regarding traded on a regulated market based upon the futures commission merchants, and the cat- the maintenance of daily trading records on same underlying commodity. Section 737 egory of ‘‘retail foreign exchange dealers’’ swap dealers and major swap participants. also amends CEA Section 4a(a)(5) to provide that was recognized by Congress in the Farm To reflect advances in technology, CEA Sec- that the CFTC shall establish position limits Bill in 2008. Section 742 requires that the tion 4s(g) expressly requires that these reg- on swaps that are ‘‘economically equivalent’’ agencies regulating these entities have com- istrants maintain ‘‘recorded communica- to futures or options traded on designated parable regulations in place before their reg- tions, including electronic mail, instant contract markets. It is intended that this ulated entities are allowed to offer retail for- messages, and recordings of telephone calls.’’ ‘‘economically equivalent’’ provision reaches eign currency trading. This will ensure that Under current law, Section 4g of the CEA swaps that link to a settlement price of a all domestic retail foreign currency trading governs the maintenance of daily trading contract on a designated contract market, is subject to similar protections. records by certain existing classes of CFTC without the CFTC having to first make a de- Finally, Section 742 also addresses a situa- registrants, and is worded more generally termination that the swaps perform a sig- tion where domestic retail foreign currency and without expressly mentioning the re- nificant price discovery function. firms were apparently moving their activi- corded communications enumerated in CEA Section 741, among other things, clarifies ties offshore in order to avoid regulations re- Section 4s(g). The enactment of this provi- that the CFTC’s enforcement authority ex- quired by the National Futures Association. sion should not be interpreted to mean or tends to accounts and pooled investment ve- It removes foreign financial institutions as imply that the specifically-identified types hicles that are offered for the purpose of an acceptable counterparty for off-exchange of recorded communications that must be trading, or that trade, off-exchange con- retail foreign currency transactions under maintained by swap dealers and major swap tracts in foreign currency involving retail section 2(c) of the CEA. Foreign financial in- participants under CEA Section 4s(g) would customers. Thus, the CFTC may bring an en- stitutions seeking to offer them to retail be beyond the authority of the CFTC to re- forcement action for fraud in the offer and customers within the United States will now quire of other registrants by rule under Sec- sale of such managed or pooled foreign cur- have to offer such contracts through one of tion 4g. rency investments or accounts. These provi- the other legal mechanisms available under Sections 733 and 735 establish a regime of sions overrule an adverse decision in the the CEA for accessing U.S. retail customers. core principles to govern the operations of CFTC enforcement case of CFTC v. White Section 745 provides that in connection swap execution facilities and designated con- Pine Trust Corporation, 574 F.3d 1219 (9th with the listing of a swap for clearing by a tract markets, respectively. Certain of these Cir. 2009), which erected an inappropriate derivatives clearing organization, the CFTC swap execution facility and designated con- limitation on the broad mandate that Con- shall determine, both the initial eligibility tract market core principles are identically gress has given the CFTC to protect this and the continuing qualification of the DCO worded. Given that swap execution facilities country’s retail customers from fraud. to clear the swap under criteria determined will trade swaps exclusively, whereas des- Section 742 includes several important pro- by the CFTC, including the financial integ- ignated contract markets will be able to visions to enhance the protections afforded rity of the DCO. Thus, the CFTC has the trade swaps or futures contracts, we expect to customers in retail commodity trans- flexibility to impose terns or conditions that that the CFTC may interpret identically- actions, and I would like to highlight three it determines to be appropriate with regard worded core principles differently where of them. First, Section 742 clarifies the pro- to swaps that a DCO plans to accept for they apply to different types of instruments hibition on off-exchange retail futures con- clearing. No DCO may clear a swap absent a or for different types of trading facilities or tracts that has been at the heart of the Com- determination by the CFTC that the DCO platforms. modity Exchange Act (CEA) throughout its has proper risk management processes in Section 737 amends Section 4a(a)(1) of the history. In recent years, there have been in- place and that the DCO’s clearing operation Commodity Exchange Act (CEA) to author- stances of fraudsters using what are known is in accordance with the Commodity Ex- ize the CFTC to establish position limits for as ‘‘rolling spot contracts’’ with retail cus- change Act and the CFTC’s regulations ‘‘swaps that perform or affect a significant tomers in order to evade the CFTC’s jurisdic- thereunder. price discovery function with respect to reg- tion over futures contracts. These contracts Section 753 adds a new anti-manipulation istered entities.’’ Subsequent descriptions of function just like futures, but the court of provision to the Commodity Exchange Act the significant price discovery function con- appeals in the Zelener case (CFTC v. Zelener, (CEA) addressing fraud-based manipulation, cept in Section 737, though, refer to an im- 373 F.3d 861 (7th Cir. 2004)), based on the including manipulation by false reporting. pact on ‘‘regulated markets’’ or ‘‘regulated wording of the contract documents, held Importantly, this new enforcement author- entities.’’ The term ‘‘registered entity’’ is them to be spot contracts outside of CFTC ity being provided to the CFTC supplements, specifically defined in the CEA, and clearly jurisdiction. The CFTC Reauthorization Act and does not supplant, its existing anti-ma- includes designated contract markets and of 2008, which was enacted as part of that nipulation authority for other types of ma- swap execution facilities. By contrast, the year’s Farm Bill, clarified that such trans- nipulative conduct. Nor does it negate or un- terms ‘‘regulated markets’’ and ‘‘regulated actions in foreign currency are subject to dermine any of the case law that has devel- entities’’ are not defined or used anywhere CFTC anti-fraud authority. It left open the oped construing the CEA’s existing anti-ma- else in the CEA. This different terminology possibility, however, that such Zelener-type nipulation provisions. is not intended to suggest a substantive dif- contracts could still escape CFTC jurisdic- The good faith mistake provision in Sec- ference, and it is expected that the CFTC tion if used for other commodities such as tion 753 is an affirmative defense. The burden may interpret the terms ‘‘regulated mar- energy and metals. of proof is on the person asserting the good kets’’ and ‘‘regulated entities’’ to mean ‘‘reg- Section 742 corrects this by extending the faith mistake defense to show that he or she istered entities’’ as defined in the statute for Farm Bill’s ‘‘Zelener fraud fix’’ to retail off- did not know or act in reckless disregard of purposes of position limits under Section 737. exchange transactions in all commodities. the fact that the report was false, mis- Section 737 also amends CEA Section Further, a transaction with a retail cus- leading, or inaccurate. 4a(a)(1) to authorize the CFTC to establish tomer that meets the leverage and other re- Section 753 also re-formats CEA Section position limits for ‘‘swaps traded on or sub- quirements set forth in Section 742 is subject 6(c), which is where the new anti-manipula- ject to the rules of a designated contract not only to the anti-fraud provisions of CEA tion authority is placed, to make it easier market or a swap execution facility, or Section 4b (which is the case for foreign cur- for courts and the public to use and under- swaps not traded on or subject to the rules of rency), but also to the on-exchange trading stand. Changes made to existing text as part a designated contract market or a swap exe- requirement of CEA Section 4(a), ‘‘as if’’ the of this re-formatting were made to stream- cution facility that performs a significant transaction was a futures contract. As a re- line or eliminate redundancies, not to effect price discovery function with respect to a sult, such transactions are unlawful, and substantive changes to these provisions. registered entity.’’ Later, Section 737 sets may not be intermediated by any person, un- Title VIII of the legislation provides en- out additional provisions authorizing CFTC less they are conducted on or subject to the hanced authorities and procedures for those position limits to reach swaps, but without rules of a designated contract market sub- clearing organizations and activities of fi- utilizing this same wording regarding swaps ject to the full array of regulatory require- nancial institutions that have been des- traded on or off designated contract markets ments applicable to on-exchange futures ignated as systemically important by a or swap execution facilities. The absence of under the CEA. Retail off-exchange trans- super-majority of the new Financial Sta- this wording is not intended to preclude the actions in foreign currency will continue to bility Oversight Council. Title VIII preserves

VerDate Mar 15 2010 04:07 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00056 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.059 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5925 the authority of the CFTC and SEC as pri- tries. For example, a key component of sure that any adjustments to the fee mary regulators of clearinghouses and clear- the Senate-passed version of my shall be limited to reasonably nec- ing activities within their jurisdiction. Title amendment was a provision that would essary costs and shall take into ac- VIII further expands the CFTC’s and SEC’s prohibit payment card networks from count fraud-related reimbursements authorities in prescribing risk management standards and other regulations to govern blocking merchants from offering a that the issuer receives from con- designated clearing entities, and financial discount for customers who use a com- sumers, merchants, or networks. The institutions engaged in designated activities. peting card network. This provision standards shall also require issuers Similarly, Title VIII preserves and expands was unfortunately left out of the final that want an adjustment to their inter- the CFTC’s and SEC’s examination and en- conference report, but the need for this change fees to take effective steps to forcement authorities with respect to des- provision remains undiminished. It is reduce the occurrence of and costs ignated entities within their respective ju- blatantly anticompetitive for one com- from fraud in electronic debit trans- risdictions. Title VIII sets forth specific standards and pany to prohibit its customers from of- actions, including through the develop- procedures that permit the Council, upon a fering a discounted price for a competi- ment of cost-effective fraud prevention supermajority vote of the Council, and upon tor’s product, and I will continue to technology. a determination that additional risk man- pursue steps to end this practice. It should be noted that any fraud pre- agement standards are necessary to prevent Additionally, in no way should my vention adjustment to the fee amount significant risks to the stability of the finan- amendment be construed as pre- would occur after the base calculation cial system, to require the CFTC or SEC to empting or superseding scrutiny of the of the reasonable and proportional impose additional risk management stand- credit card and debit card industries interchange fee amount takes place, ards regarding designated financial market utilities or financial institutions engaged in under the antitrust laws. Section 6 of and fraud prevention costs would not designated activities. the Dodd-Frank act conference report be considered as part of the incre- Thus, the authorities granted in Title VIII contains an antitrust savings clause mental issuer costs upon which the are intended to be both additive and com- which provides that nothing in the act reasonable and proportional fee plementary to the authorities granted to the shall be construed to modify, impair, amount is based. Further, any fraud CFTC and SEC in Title VII and to those or supersede the operation of any of prevention cost adjustment would be agencies’ already existing legal authorities. the antitrust laws. I want to make The authority provided in Title VIII to the made on an issuer-specific basis, as CFTC and SEC with respect to designated clear that nothing in my amendment is each issuer must individually dem- clearing entities and financial institutions intended to modify, impair, or super- onstrate that it complies with the engaged in designated activities would not sede the operation of any of the anti- standards established by the Board, and is not intended to displace the CFTC’s trust laws, nor should my amendment and as the adjustment would be limited and SEC’s regulatory regime that would be construed as having that effect. Vig- to what is reasonably necessary to apply to these institutions or activities. orous antitrust scrutiny over the cred- make allowance for fraud prevention Whereas Title VIII is specifically addressed it and debit card industries will con- to payment, settlement, and clearing activi- costs incurred by that particular ties, Title I is addressed to consolidated enti- tinue to be needed after enactment of issuer. The fraud prevention adjust- ty supervision of complex financial institu- the Dodd-Frank act, particularly in ment provision in paragraph (a)(5) is tions. Accordingly, to prevent coverage light of the highly concentrated nature intended to apply to all electronic under two separate regulatory schemes, of those industries. debit transactions, whether authoriza- clearing agencies and derivatives clearing With respect to the new subsection tion is based on signature, PIN or other organizations are generally excepted from 920(a) of the Electronic Fund Transfer means. Title I. Also excepted from Title I are na- Act that would be created by my Paragraph (6) of subsection (a) ex- tional exchanges, designated contract mar- amendment, there are a few issues that empts debit card issuers with assets of kets, swap execution facilities and other enumerated entities. should be clarified. The core provisions less than $10 billion from interchange Title X of the legislation, which estab- of subsection (a) are its grant of regu- fee regulation. This paragraph makes lishes a new Bureau of Consumer Financial latory authority to the Federal Re- clear that for purposes of this exemp- Protection, maintains the supervisory, en- serve Board over debit interchange tion, the term ‘‘issuer’’ is limited to forcement, rulemaking and other authorities transaction fees, and its requirement the person holding the asset account of the CFTC over the persons it regulates. that an interchange transaction fee which is debited, and thus does not The legislation expressly prohibits the new amount charged or received with re- count the assets of any agents of the Bureau from exercising any powers with re- spect to an electronic debit transaction spect to any persons regulated by the CFTC, issuer. However, the affiliates of an to the extent that the actions of those per- be reasonable and proportional to the issuer are counted for purposes of the sons are subject to the jurisdiction of the cost incurred by the issuer with respect $10 billion exemption threshold, so if CFTC. It is not intended that Title X would to the transaction. Paragraph (a)(4) an issuer together with its affiliates lead to overlapping supervision of such per- makes clear that the cost to be consid- has assets of greater than $10 billion, sons by the Bureau. In this respect, the legis- ered by the Board in conducting its then the issuer does not fall within the lation is fully consistent with the Treasury reasonable and proportional analysis is exemption. Department’s White Paper on Financial Reg- the incremental cost incurred by the It should be noted that the intent of ulatory Reform, which proposed the creation issuer for its role in the authorization, my amendment is not to diminish com- of an agency ‘‘dedicated to protecting con- sumers in the financial products and services clearance, or settlement of a particular petition in the debit issuance market. I markets, except for investment products and electronic debit transaction, as op- will be watching closely to ensure that services already regulated by the SEC or posed to other costs incurred by an the giant payment card networks Visa CFTC.’’ (See Treasury White Paper at 55–56 issuer which are not specific to the au- and MasterCard do not collude with (June 17, 2009) (emphasis added)). thorization, clearance, or settlement of one another or with large financial in- Mr. DURBIN. Mr. President, I rise to a particular electronic debit trans- stitutions to take steps to purposefully speak about my interchange fee action. disadvantage small issuers in response amendment that was incorporated into Paragraph (5) of subsection (a) pro- to enactment of this amendment. the Dodd-Frank Wall Street Reform vides that the Federal Reserve Board Paragraph (7) of subsection (a) ex- and Consumer Protection Act. There may allow for an adjustment of an empts from interchange fee regulation are some important aspects of the interchange transaction fee amount re- electronic debit transactions involving amendment that I want to clarify for ceived by a particular issuer if the ad- debit cards or prepaid cards that are the record. justment is reasonably necessary to provided to persons as part of a federal, First, it is important to note that make allowance for the fraud preven- state or local government-adminis- while this amendment will bring much- tion costs incurred by the issuer seek- tered payment program in which the needed reform to the credit card and ing the adjustment in relation to its person uses the card to debit assets debit card industries, in no way should electronic debit transactions, provided provided under the program. The Fed- enactment of this amendment be con- that the issuer has demonstrated com- eral Reserve Board will issue regula- strued as preempting other crucial pliance with fraud-related standards tions to implement this provision, but steps that must be taken to bring com- established by the Board. The stand- it is important to note that this ex- petition and fairness to those indus- ards established by the Board will en- emption is only intended to apply to

VerDate Mar 15 2010 04:07 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00057 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.062 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5926 CONGRESSIONAL RECORD — SENATE July 15, 2010 cards which can be used to transfer or payment—cash, checks, debit cards or the amendment are entities such as debit assets that are provided pursuant credit cards—provided that discounts Visa, MasterCard, Discover, and Amer- to the government-administered pro- for debit cards and credit cards do not ican Express that directly, or through gram. The exemption is not intended to differentiate on the basis of the issuer licensed members, processors or apply to multi-purpose cards that min- or the card network, and provided that agents, provide the proprietary serv- gle the assets provided pursuant to the the discount is offered in a way that ices, infrastructure and software that government-administered program complies with applicable Federal and route information to conduct credit with other assets, nor is it intended to State laws. This paragraph is in no way and debit card transaction authoriza- apply to cards that can be used to debit intended to preclude the use by mer- tion, clearance and settlement. The assets placed into an account by enti- chants of any other types of discounts. amendment does not intend, for exam- ties that are not participants in the It just makes clear that Federal law ple, to define ATM operators or acquir- government-administered program. prohibits payment card networks from ing banks as payment card networks The amendment would also create inhibiting the offering of discounts unless those entities also operate card subsection 920(b) of the Electronic which are for a form of payment—for networks as do Visa, MasterCard, Dis- Fund Transfer Act, which provides sev- example, a 1-percent discount for pay- cover and American Express. eral restrictions on payment card net- ment by debit card. This paragraph Overall, my amendment contains works. Paragraphs (1), (2) and (3) of also provides that a network may not much needed reforms that will help in- 920(b) are intended only to serve as re- penalize a person for the way that the crease fairness, transparency and com- strictions on payment card networks person offers or discloses a discount to petition in the debit card and credit to prohibit them from engaging in cer- customers, which will end the current card industries. More work remains to tain anticompetitive practices. These practice whereby payment card net- be done along these lines, but this provisions are not intended to preclude works have regularly sought to penal- amendment represents an important those who accept cards from engaging ize merchants for providing cash, check first step, and I thank my colleagues or debit discounts that are fully in in any discounting or other practices, who have supported this effort. nor should they be construed to pre- compliance with applicable Federal Mr. KOHL. Mr. President, I rise to clude contractual arrangements that and State laws. speak on the Wall Street Reform and Paragraph (b)(3) provides that a pay- deal with matters not covered by these Consumer Protection Act which the provisions. Further, nothing in these ment card network shall not inhibit the ability of any person to set a min- Senate will pass today. After 2 years of provisions should be construed to mean work, the reckless practices of Wall that merchants can only provide a dis- imum dollar value for acceptance of credit cards, provided that the min- Street firms that resulted in terrible count that is exactly specified in the imum does not differentiate between losses for people in Wisconsin and amendment. The provisions also should issuers or card networks, and provided across the nation will finally be ended. not be read to confer any congressional that the minimum does not exceed $10. These events showed us that main- blessing or approval of any other par- This paragraph authorizes the Board to taining the current regulatory system ticular contractual restrictions that increase this dollar amount by regula- is not an acceptable option. Wall payment card networks may place on tion. The paragraph also provides that Street needs accountability and trans- those who accept cards as payment. All card networks shall not inhibit the parency to avoid future financial melt- these provisions say is that Federal ability of a Federal agency or an insti- downs. Congress has the duty to ensure law now blocks payment card networks tution of higher education to set a that this kind of failure never happens from engaging in certain specific enu- maximum dollar value for acceptance again. The Wall Street Reform and merated anti-competitive practices, of credit cards, provided that the max- Consumer Protection Act takes vital and the provisions describe precisely imum does not differentiate between steps to end ‘‘too big to fail,’’ bring un- the boundaries over which payment issuers or card networks. As with the regulated shadow markets into the card networks cannot cross with re- discounts, this provision is not in- light, and make our financial system spect to these specific practices. tended to preclude merchants, agencies work better for everyone. Paragraph (b)(1) directs the Federal or higher education institutions from This bill has been thoroughly delib- Reserve Board to prescribe regulations setting other types of minimums or erated in both the House and the Sen- providing that issuers and card net- maximums by card or amount. It sim- ate. The Banking Committee held more works shall not restrict the number of ply makes clear that payment card than 80 hearings since 2008 on the fi- networks on which an electronic debit networks must at least allow for the nancial crisis, addressing its causes, transaction may be processed to just minimums and maximums described in grave impacts and potential remedies. one network, or to multiple networks the provision. These hearings explored all of the ele- that are all affiliated with each other. Paragraph (b)(4) contains a rule of ments of this legislation in detail, and It further directs the Board to issue construction providing that nothing in also looked at the specific regulatory regulations providing that issuers and this subsection shall be construed to failures that contributed to the crisis. card networks shall not restrict a per- authorize any person to discriminate The information gathered at these son who accepts debit cards from di- between debit cards within a card net- hearings laid down the foundation for recting the routing of electronic debit work or to discriminate between credit the current bill. The bill was carefully transactions for processing over any cards within a card network on the debated and deliberated while on the network that may process the trans- basis of the issuer that issued the card. Senate floor for 3 weeks—almost as actions. This paragraph is intended to The intent of this rule of construction long as the debate on health care re- enable each and every electronic debit is to make clear that nothing in this form. transaction—no matter whether that subsection should be cited by any per- After the bill passed in the House and transaction is authorized by a signa- son as justification for the violation of the Senate it was then negotiated by ture, PIN, or otherwise—to be run over contractual agreements not to engage the Conference Committee. I was at least two unaffiliated networks, and in the forms of discrimination cited in pleased with the Conference Commit- the Board’s regulations should ensure this paragraph. This provision does tee’s ability to address Members’ con- that networks or issuers do not try to not, however, prohibit such discrimina- cerns in both Chambers. The con- evade the intent of this amendment by tion as a matter of federal law, nor ference lasted 2 weeks and was tele- having cards that may run on only two does it make any statement regarding vised and open to the public for view- unaffiliated networks where one of the legality of such discrimination. In ing. This all brought welcome trans- those networks is limited and cannot addition, this provision makes no parency to the legislative process. be used for many types of transactions. statement as to whether a payment Throughout the consideration of fi- Paragraph (b)(2) provides that a pay- card network’s contractual rule pre- nancial reform, I met with people, ment card network shall not inhibit venting such discrimination would be banks and businesses in Wisconsin to the ability of any person to provide a legal under the antitrust laws. better understand their needs so that discount or in-kind incentive for pay- Finally, it should be noted that the our businesses and families can be pro- ment by the use of a particular form of payment card networks as defined in tected from future recklessness. I have

VerDate Mar 15 2010 04:07 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00058 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.028 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5927 worked hard to make sure that this bill cally maintains the ability of the anti- or a direct or indirect subsidiary of an protects Main Street and its businesses trust agencies to perform a thorough insurance company, I believe that the by focusing on Wall Street—the source competition review of the transactions FDIC should exercise such authority of this crisis. between these firms. cautiously to avoid weakening the in- I am proud to say that we now have This robust merger review authority surance company and thereby under- a bill that will change our regulatory ensures that the Federal antitrust mining policyholder protection. In- system in a way that will prevent and agencies can continue to play their key deed, any lien taken on the assets of a mitigate future crises. The bill will en- role in protecting competition and en- covered subsidiary that is an insurance sure that a Federal bailout will never suring consumers have choices for fi- company or a direct or indirect sub- again be an option for irresponsible nancial services and products at com- sidiary of an insurance company must businesses. The bill creates a council of petitive rates and prices. Competition avoid weakening or undermining pol- regulators to monitor the economy for is the cornerstone of our Nation’s econ- icyholder protection. As a result, the systemic threats. It will institute new omy, and the antitrust laws ensure FDIC should normally not take a lien regulations on hedge funds and over- strong competitive markets that make on the assets of such a covered sub- the-counter derivatives and create a our economy strong and protect con- sidiary except where the FDIC sells the Bureau of Consumer Financial Protec- sumers. This bill will ensure that the covered subsidiary to a third party, tion that will oversee mortgage, credit antitrust laws retain their critical role provides financing in connection with cards and other credit products. in the financial services industry. the sale, and takes a lien on the assets Consumers will now have a single en- This bill is another step in a long of the covered subsidiary to secure the tity to report their concerns about process of financial overhaul. The Wall third party’s repayment obligation to abusive financial practices, allowing Street Reform and Consumer Protec- the FDIC. I understand that the FDIC regulators to address these issues in a tion Act provides regulators with flexi- intends to promulgate regulations con- timelier manner—before more con- bility to implement a number of new sistent with this view. sumers are harmed. The bill improves rules. They will have to make decisions Mr. President, I would also like to access to credit, increases protections on issues ranging from determining clarify the intent behind another of the provisions in the conference report to and expands financial education pro- fair charges on debit card swipe fees to accompany the financial reform bill, grams enabling consumers to make deciding when a risky firm should be H.R. 4173, the Dodd-Frank Wall Street smart financial decisions and reducing taken over. We need to make sure that Reform and Consumer Protection Act widespread predatory practices our regulators have the tools and re- In addition to providing consumers of 2010. Section 1075 of the bill amends sources they need to get the job done the Electronic Fund Transfer Act to with adequate protections against right. As a member of the Banking create a new section 920 regarding fraud and predatory practices, I also Committee, I am going to keep a interchange fees. This is a very com- believe that consumers need affordable watchful eye on the regulators to make plicated subject involving many dif- alternatives to predatory lending prod- sure they are given adequate resources ferent stakeholders, including payment ucts like pay day loans. Senator DAN- and oversight to do the job that they networks, issuing banks, acquiring IEL AKAKA shares this belief which is have been charged with. banks, merchants, and, of course, con- why we worked together to draft title Clearly we would not have this bill sumers. Section 1075 therefore is also XII of this bill. without the hard work and effort of complicated, and I would like to make Title XII will help to improve the Senator CHRIS DODD. It has been an a clarification with regard to that sec- lives of the millions of low- and mod- honor to work with him and I hope he tion. erate-income households in America is as proud of this great accomplish- Since interchange revenues are a that do not have access to mainstream ment as I am. major source of paying for the adminis- financial institutions by providing Finally I would like to take a mo- trative costs of prepaid cards used in grants to community development fi- ment to recognize the staff that connection with health care and em- nancial institutions so that they can worked so hard on this bill. I would ployee benefits programs such as FSAs, give small dollar loans at affordable like to acknowledge the staff of the HSAs, HRAs, and qualified transpor- terms to people who are currently lim- Banking Committee for all of their ex- tation accounts—programs which are ited to riskier choices like payday ceptional work: including Levon widely used by both public and private loans. This grant making program will Bagramian, Julie Chon, Brian sector employers and which are more dramatically help to increase the num- Filipowich, Amy Friend, Catherine Ga- expensive to operate given substan- ber of small dollar loan options to con- licia, Lynsey Graham Rea, Matthew tiation and other regulatory require- sumers that need quick access to Green, Marc Jarsulic, Mark Jickling, ments—we do not wish to interfere money so that they can pay for emer- Deborah Katz, Jonathan Miller, Misha with those arrangements in a way that gency medical costs, car repairs and Mintz-Roth, Dean Shahinian, Ed Sil- could lead to higher fees being imposed other items they need to maintain verman, and Charles Yi. by administrators to make up for lost their lives. This legislation is modeled I also express my appreciation for all revenue. That could directly raise in part after the FDIC’s Small Dollar of the work done by the Legislative As- health care costs, which would hurt Loan Pilot Program. sistants of the Banking Committee consumers and which, of course, is not As chairman of the Judiciary Sub- Members including Laura Swanson, at all what we wish to do. Hence, we in- committee on Antitrust, I am pleased Kara Stein, Jonah Crane, Linda Jeng, tend that prepaid cards associated with to see that this bill will preserve the Ellen Chube, Michael Passante, Lee these types of programs would be ex- ability of the Federal antitrust agen- Drutman, Graham Steele, Alison empted within the language of section cies to protect competition and Amer- O’Donnell, Hilary Swab, Harry Stein, 920(a)(7)(A)(ii)(II) as well as from the ican consumers in the financial serv- Karolina Arias, Nathan Steinwald, prohibition on use of exclusive net- ices industries. The legislation in- Andy Green, Brian Appel, and Matt works under section 920(b)(1)(A). cludes a broad antitrust savings clause Pippin. Mr. President, I want to clarify a that makes clear that nothing in the Mr. DODD. Mr. President, I would provision of the conference report of act will modify, impair or supersede like to clarify the intent behind one of the Dodd-Frank Wall Street Reform the operation of any of the antitrust the provisions in the conference report and Consumer Protection Act, H.R. laws. It also includes more specific to accompany the financial reform bill, 4173. Section 1012 sets forth the execu- antitrust savings clauses in key provi- H.R. 4173, the Dodd-Frank Wall Street tive and administrative powers of the sions, further ensuring the continued Reform and Consumer Protection Act Consumer Financial Protection Bu- ability of the antitrust agencies to of 2010. Section 204(d) contemplates reau, CFPB, and section 1012(c)(1)—Co- fully enforce the relevant laws in these that the FDIC, as receiver, may take a ordination with the Board of Gov- critical sectors in our economy.In addi- lien on assets of a covered financial ernors—provides that ‘‘Notwith- tion to strengthening the oversight of company or a covered subsidiary. With standing any other provision of law ap- mergers and acquisitions involving fi- respect to assets of a covered sub- plicable to the supervision or examina- nancial services firms, the bill specifi- sidiary that is an insurance company tion of persons with respect to Federal

VerDate Mar 15 2010 05:21 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00059 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.077 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5928 CONGRESSIONAL RECORD — SENATE July 15, 2010 consumer financial laws, the Board of year 2014. In order to trigger this au- writing the borrower, subject to cer- Governors may delegate to the Bureau thorization, the CFPB Director would tain protections laid out in the legisla- the authorities to examine persons sub- have to report to the Appropriations tion, while still remaining qualified ject to the jurisdiction of the Board of Committees that the CFPB’s formula mortgages. Governors for compliance with the funding is not sufficient. It is the conferees’ intent that the Federal consumer financial laws.’’ This Section 1085 of the legislation adds Federal Reserve Board and the CFPB provision is not intended to override the Consumer Financial Protection Bu- use their rulemaking authority under section 1026, which will continue to de- reau, CFPB, to the list of agencies au- the enumerated consumer statutes and fine the Bureau’s examination and en- thorized to enforce the Equal Credit this legislation to extend this same forcement authority over insured de- Opportunity Act, ECOA—15 U.S.C. benefit for conventional streamlined pository institutions and insured credit § 1691c(a)(9). The legislation also refinance programs where the party unions with assets of less than $10 bil- amends section 706(g)—15 U.S.C. making the new loan already owns the lion. The conferees expect that the § 1691e(g)—to require the CFPB to refer credit risk. This will enable current board will not delegate to the Bureau a matter to the Attorney General homeowners to take advantage of cur- its authority to examine insured depos- whenever the CFPB has reason to be- rent low interest rates to refinance itory institutions with assets of less lieve that 1 or more creditors has en- their mortgages. than $10 billion. gaged in a ‘‘pattern or practice of dis- There are a number of provisions in Throughout the development of and couraging or denying applications for title XIV for which there is not a speci- debate on the Consumer Financial Pro- credit’’ in violation of section 701, 15 fied effective date other than what is tection Bureau, CFPB, I have insisted U.S.C. § 1691(a). The general grant of provided in section 1400(c). It is the in- that the legislation meet three require- civil litigation authority to the CFPB, tention of the conferees that provisions ments—independent rule writing, inde- in section 1054(a), should not be con- in title XIV that do not require regula- pendent examination and enforcement strued to override, in any way, the tions become effective no later than 18 authority, and independent funding for CFPB’s referral obligations under the months after the designated transfer the CFPB. The CFPB, as established by ECOA. date for the CFPB, as required by sec- the conference report, meets each of The requirement in section 706(g) of tion 1400(c). However, the conferees en- those requirements. I want to speak for the ECOA that the CFPB refer a mat- courage the Federal Reserve Board and a moment about section 1017, which es- ter involving a pattern-or-practice vio- the CFPB to act as expeditiously as tablishes the independent funding lation of section 701, rather than first possible to promulgate regulations so mechanism for the CFPB. filing its own pattern-or-practice ac- that the provisions of title XIV are put The conference report requires the tion, furthers the legislation’s purpose into effect sooner. Federal Reserve System to automati- of reducing fragmentation in consumer I would like to clarify that the con- cally fund the CFPB based on the total protection and fair lending enforce- ferees consider any program or initia- tive that was announced before June 25 operating expenses of the system, using ment under the ECOA. The Attorney to have been initiated for the purposes 2009 as the baseline. This will ensure General, who currently has authority of section 1302 of the conference report. that the CFPB has the resources it under section 706(g) to file those pat- I also want to make clear that the con- needs to perform its functions without tern-or-practice ECOA actions in court ferees do not intend for section 1302 to subjecting it to annual congressional on behalf of the government, receives prevent the Treasury Department from appropriations. The failure of the Con- such pattern-or-practice referrals from adjusting available resources that re- gress to provide the Office of Federal other agencies with ECOA enforcement main after the adoption of the con- Housing Enterprises Oversight, responsibilities and will continue to do ference report among such existing OFHEO, with a steady stream of inde- so under the legislation. By subjecting programs, based on effectiveness. pendent funding outside the appropria- the CFPB to the same referral require- Mr. President, I also wish to explain tions process led to repeated inter- ment, the legislation intends to avoid some of the securities-related changes ference with the operations of that reg- creating fragmentation in this enforce- that emerged from the conference com- ulator. Even when there was not ex- ment system under the ECOA where mittee in the conference report. plicit interference, the threat of con- none currently exists. The report amends section 408 to gressional interference could very well Title XIV creates a strong, new set of eliminate the blanket exemption for have served to circumscribe the actions underwriting requirements for residen- private equity funds and replace it OFHEO was willing to take. We did not tial mortgage loans. An important part with an exemption for private fund ad- want to repeat that mistake in this of this new regime is the creation of a visers with less than $150 million under legislation. safe harbor for certain loans made ac- management. The amendment also re- In addition, because many of the em- cording to the standards set out in the quires the SEC in its rulemaking to ployees of the CFPB will come from ex- bill, and which will be detailed further impose registration and examination isting financial regulators, the con- in forthcoming regulations. Loans that procedures for such funds that reflect ferees take the view that it is impor- meet this standard, called ‘‘qualified the level of systemic risk posed by tant that the new entity have the re- mortgages,’’ will have the benefit of a midsized private funds. sources to keep these high quality staff presumption that they are affordable Section 913 has been amended to and to attract new equally qualified to the borrowers. combine the principle of conducting a staff, and to provide them with the Section 1411 explains the basis on study on the standard of care to inves- support that they need to operate ef- which the regulator must establish the tors in the Senate bill with a grant of fectively. To that end, the conferees standards lenders will use to determine additional authority to the SEC to act, adopted the employment cost index for the ability of borrowers to repay their such as is contained in the House- total compensation of State and Fed- mortgages. Section 1412 provides that passed bill. The section requires the eral employees, ECI, as the index by lenders that make loans according to SEC to conduct a study prior to taking which the funding baseline will be ad- these standards would enjoy the rebut- action or conducting rulemaking in justed in the future. This index has table presumption of the safe harbor this area. The study will include a re- generally risen faster than the CPI, for qualified mortgages established by view of the effectiveness of existing which was the index used in the Senate this section. These standards include legal or regulatory standards of care bill. However, the ECI has typically the need to document a borrower’s in- and whether there are regulatory gaps, risen at a more gradual rate than the come, among others. However, certain shortcomings or overlaps in legal or average operating costs of the banking refinance loans, such as VA-guaranteed regulatory standards. Even if there is regulators, which was the index pro- mortgages refinanced under the VA In- an overlap or a gap, the Commission posed by the House conferees. terest Rate Reduction Loan Program should not act unless eliminating the In the end, the conferees agreed to or the FHA streamlined refinance pro- overlap or filling a gap would improve use the ECI and provide for a contin- gram, which are rate-term refinance investor protection and is in the public gent authorization of appropriations of loans and are not cash-out refinances, interest. The study would require a re- $200 million per year through fiscal may be made without fully reunder- view of the effectiveness, frequency,

VerDate Mar 15 2010 05:21 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00060 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.078 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5929 and duration of the regulatory exami- to appeal the amount of an award. ing financial institutions such as nations of brokers, dealers, and invest- While the whistleblower cannot appeal banks, investment advisers, and ment advisers. In this review, the para- the SEC’s monetary award determina- broker-dealers to disclose the struc- mount issue is effectiveness. If regu- tion, this provision is intended to limit tures of their incentive-based com- latory examinations are frequent or the SEC’s administrative burden and pensation arrangements, to determine lengthy but fail to identify significant not to encourage making small awards. whether such structures provide exces- misconduct—for example, examina- The Congress intends that the SEC sive compensation or could lead to ma- tions of Bernard L. Madoff Investment make awards that are sufficiently ro- terial losses at the financial institu- Securities, LLC—they waste resources bust to motivate potential whistle- tion and prohibiting types of incentive- and create an illusion of effective regu- blowers to share their information and based payment arrangements that en- latory oversight that misleads the pub- to overcome the fear of risk of the loss courage inappropriate risks. lic. The SEC, in studying potential im- of their positions. Unless the whistle- In section 952, the report exempted pacts that would result from changes blowers come forward, the Federal controlled companies, limited partner- to the regulation or standard of care, Government will not know about the ships, and certain other entities from should seek to preserve consumer ac- frauds and misconduct. requirements for an independent com- cess to products and services, including In section 939B, the Report elimi- pensation committee. access for persons in rural locations. In nated an exception so that credit rat- Section 962 provides for triennial re- assessing the potential costs and bene- ing agencies will be subject to regula- ports on personnel management. One fits, the SEC should take into account tion FD. Under this change, issuers item to be studied involves Commis- the net costs or the difference between would be required to disclose financial sion actions regarding employees who additional costs and additional bene- information to the public when they have failed to perform their duties, an fits. For example, it should consider give it to rating agencies. issue that members raised during the not only higher transaction or advisory In section 939F, the report requires Banking Committee’s hearing entitled charges or fees but also the return on the SEC to study the credit rating ‘‘Oversight of the SEC’s Failure to investment if an investor receives bet- process for structured finance products Identify the Bernard L. Madoff Ponzi ter recommendations that result in and the conflicts of interest associated Scheme and How to Improve SEC Per- higher profits through paying higher with the issuer-pay and the subscriber- formance,’’ as well as circumstances fees. After reporting to Congress, the pay models; the feasibility of estab- under which the Commission has issued SEC is required to consider the find- lishing a system in which a public or to employees a notice of termination. ings, conclusions, and recommenda- private utility or a self-regulatory or- The GAO is directed to study how the tions of its study. ganization assigns nationally recog- Commission deals with employees who New section 914 requires the SEC to fail to perform their duties as well as study the need for enhanced examina- nized statistical rating organizations to determine the credit ratings of its fairness when they issue a notice of tion and enforcement ‘‘resources.’’ The termination. In the latter situation, study of resources should not be lim- structured finance products. The report directs the SEC to implement the sys- they should consider specific cases and ited to financial resources but should circumstances, while preserving em- consider human resources also. Human tem for assigning credit ratings that was in the base text unless it deter- ployee privacy. The SEC is expected to resources involves whether there is a cooperate in making data available to need for enhanced expertise, com- mines that an alternative system would better serve the public interest the GAO to perform its studies. petence, and motivation to conduct ex- In section 967, the report directs the and the protection of investors. aminations that satisfactorily identify SEC to hire an independent consultant The report limits the exemption from problems or misconduct in the regu- with expertise in organizational re- risk retention requirements for quali- lated entity. For example, if examina- structuring and the capital markets to fied residential mortgages, by speci- tions fail to identify misconduct due to examine the SEC’s internal operations, fying that the definition of ‘‘qualified insufficient staff expertise, com- structure, funding, relationship with residential mortgage’’ may be no petence, or motivation, the study self-regulatory organizations and other broader than the definition of ‘‘quali- should conclude that there is a need for entities and make recommendations. fied mortgage’’ contained in section more effective staff or better manage- During the conference, some conferees 1412 of the report, which amends sec- ment rather than merely more finan- expressed concern about objectivity of tion 129C of the Truth in Lending Act. cial resources devoted to hiring addi- a study undertaken by the SEC itself. tional staff of the same caliber. The report contains the following tech- We are confident that the SEC will New section 919D creates the SEC nical errors: the reference to ‘‘section allow the ‘‘independent consultant’’ to Ombudsman under the Office of the In- 129C(c)(2)’’ in subsection (e)(4)(C) of the work without censorship or inappro- vestor Advocate. The Ombudsman can new section 15G of the Securities and priate influence and the final product act as a liaison between the Commis- Exchange Act, created by section 941 of will be objective and accurate. sion and any retail investor in resolv- the report should read ‘‘section The report also added section 968 ing problems that retail investors may 129C(b)(2).’’ In addition, the references which directs the GAO to study the have with the Commission or with self- to ‘‘subsection’’ in paragraphs (e)(4)(A) ‘‘revolving door’’ at the SEC. The GAO regulatory organizations and to review and (e)(5) of the newly created section will review the number of employees and make recommendations regarding 15G should read ‘‘section.’’ We intend who leave the SEC to work for finan- policies and procedures to encourage to correct these in future legislation. cial institutions and conflicts related persons to present questions to the In- The report amended the say on pay to this situation. vestor Advocate regarding compliance provision in section 951 by adding a The report removed the Senate provi- with the securities laws. This list of shareholder vote on how frequently the sion on majority voting in subtitle G duties in subsection (8)(B) is not in- compare should give shareholders a which required a nominee for director tended to be an exhaustive list. For ex- ‘‘say on pay’’ vote. The shareholders who does not receive the majority of ample, if the Investor Advocate assigns will vote to have it every 1, 2, or 3 shareholder votes in uncontested elec- the Ombudsman duties to act as a liai- years, and the issuer must allow them tions to resign unless the remaining di- son with persons who have problems in to have this choice at least every 6 rectors unanimously voted that it was dealing with the Commission resulting years. Also in section 951, the report in the best interest of the company and from the regulatory activities of the required issuers to give shareholders an shareholders not to accept the resigna- Commission, this would not be prohib- advisory vote on any agreements, or tion. ited by this legislation. golden parachutes, that they make The report added the authority for Title IX, subtitle B creates many new with their executive officers regarding the SEC to exempt an issuer or class of powers for the SEC. The SEC is ex- compensation the executives would re- issuers from proxy access rules written pected to use these powers responsibly ceive upon completion of an acquisi- under section 971 after taking into ac- to better protect investors. tion, merger, or sale of the company. count the burden on small issuers. Section 922 has been amended to The report required Federal financial In section 975, the report added a re- eliminate the right of a whistleblower regulators to jointly write rules requir- quirement that the MSRB rules require

VerDate Mar 15 2010 05:21 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00061 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.028 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5930 CONGRESSIONAL RECORD — SENATE July 15, 2010 municipal advisors to observe a fidu- I ask unanimous consent that even We all understand why this legisla- ciary duty to the municipal entities though time may be expired, at least 10 tion is trying to prevent this from ever they advise. minutes be reserved for the minority to happening again. I have shown this on In section 975, the report changed the be heard. the floor many times. This was from a requirement that a majority of the The PRESIDING OFFICER. Without credit company called Zoom adver- board ‘‘are not associated with any objection, it is so ordered. tising mortgages. We ran up to a near broker, dealer, municipal securities The Senator from North Dakota. collapse of the economy with compa- dealer, or municipal advisor’’ to a re- Mr. DORGAN. Mr. President, I will nies advertising this: Credit approval is quirement that the majority be ‘‘inde- vote for the conference report on finan- just seconds away. Get on the fast pendent of any municipal securities cial reform. Before I describe why I track at Zoom Credit. At the speed of broker, municipal securities dealer, or think it is essential to vote in favor, light, Zoom Credit will preapprove you municipal advisor.’’ let me compliment Senator DODD. We for a car loan, a home loan, a credit In section 978, the report authorized have had some differences on some card, even if your credit is in the tank. the SEC to set up a system to fund the issues, but that is not unusual. What is Then it says: Zoom Credit is like Government Accounting Standards unusual is when a piece of legislation money in the bank. We specialize in Board, the body which establishes this complicated, this consequential, credit repair and debt consolidation. standards of State and local govern- and this large gets to this point so we Bankruptcy, slow credit, no credit? ment accounting and financial report- will have a final vote and it will go to Who cares? ing. the President for signature. It is going We wonder how this country got in The report added section 989F, a GAO to make a difference. It is not all I trouble. Today on the Internet this ex- Study of Person to Person Lending, to would want. I would have written some ists. Nothing has changed. Speedy, bad recommend how this activity should be of it differently. But there are provi- credit loans. If you want to get a loan, regulated. sions in this legislation that will pre- you have bad credit, go to the Internet The report added section 989G to ex- vent that which happened that nearly to this site. I am not advertising for empt issuers with less than $75 million caused this country to have a complete them because clearly it is probably a market capitalization from section economic collapse. That was the pur- bunch of shylocks running this oper- 404(b) of the Sarbanes-Oxley Act of 2002 pose of writing the legislation. ation. Bad credit, no credit, bank- which regulates companies’ internal fi- This bill on financial reform estab- ruptcy, no problem, no downpayment, nancial controls. This section also adds lishes a new independent bureau, no delays. Come to us, if you want an SEC study to determine how the housed at the Federal Reserve Board money. Unbelievable. Commission could reduce the burden of but not reporting to it, dedicated to This is on the Internet today. It de- complying with section 404(b) of the protecting consumers from abusive fi- scribes why we have to pass this legis- Sarbanes-Oxle Act of 2002 for compa- nancial products and practices. It puts lation and what we are trying to do to nies whose market capitalization is be- in place systems to ensure taxpayer protect the American consumer and tween $75 million and $250 million for funds will not be used for Wall Street why regulations that come from this the relevant reporting period while bailouts in the future. It creates an ad- are so important. Easy loan for you. maintaining investor protections for vanced warning system, looking out for Instant approval. Regardless of your such companies. Section 989I adds a follow-up GAO troubled institutions to make sure we credit score or history, approval is study on the impact of the Sarbanes- understand who they are and where guaranteed. Oxley section 404(b) exemption in sec- they are, those whose failure would This sort of nonsense is not good tion 989G of this bill involving the fre- threaten financial markets and the business. It is not a sensible way to do quency of accounting restatements, economy. It imposes some curbs on things. It is what nearly bankrupted cost of capital, investor confidence in proprietary trading and hedge fund this country. the integrity of financial statements ownership by banks. There are a num- Wall Street Journal, July 14, let me and other matters, so we can under- ber of things that are salutatory and read the first sentence: Shirley Davis, stand its effect. important. 66 years old, retired phone company ad- The report added section 989J, which The vote this afternoon is a starting ministrator, lives in Brooklyn, NY, is provides that fixed-index annuities be point, not an ending point. I make the more than $33,000 dollars in debt, earns regulated as insurance products, not as point by showing the headlines that $2,400 a month, filed for bankruptcy securities. This provision clarifies a exist in the newspapers these days last month. Shortly before that, she disagreement on the legal status of about the fact that there will be sub- ripped open an envelope from Capitol these products. stantial amounts of work done to try One Financial Corporation which In section 991, the report changed the to curb activities even in the executive pitched her a credit card, even though method of funding for the SEC so that branch with respect to rules and regu- it sued her 4 years ago to recover $4,400 it remains under the congressional ap- lations which are now essential. she owed on a different credit card propriations process while giving the The PRESIDING OFFICER. The time from the same bank. SEC much more control over the under the control of the majority has She is quoting now from the letter amount of its funding. The report also expired. from Capital One: doubled the SEC authorization between Mr. DORGAN. I ask the Senator from At some point we lost you as a customer, 2010 and 2015, going from $1.1 billion to Connecticut, my understanding is Re- and we would like to get you back. $2.25 billion, which will provide tre- publicans have 10 minutes. I began the Mrs. Davis said she was stunned. mendous increase in SEC financial re- process because the Republican Sen- ‘‘Even I wouldn’t give me a credit card sources. These resources can be used to ator was not here to claim that. I will at this point.’’ improve technology and attract needed be happy to cease at this point, if he It is still going on. It is why passing securities and managerial expertise. wishes to take his 10 minutes, and then this conference report is so essential. However, the inspector general of the complete my statement, or I could Would I have written it differently? SEC and others have reported on situa- complete my statement with more Yes. I would have restored part of tions where SEC financial or human re- time. Glass-Steagall. Ten years ago that was sources have not been used effectively Mr. DODD. How much more time taken apart. Those protections were or with appropriate prior cost-benefit would my colleague require? put in place after the last Great De- analysis. While the SEC is receiving Mr. DORGAN. Probably 7 more min- pression, and they protected this coun- more resources, we expect that it will utes or so. try for 70 years or so. It should have use resources efficiently. Mr. DODD. I think it follows more been put back together. Mr. President, Senator DORGAN wish- naturally that way. I would ban the trading of naked es to be heard, which pretty much will The PRESIDING OFFICER. Without credit default swaps. That is betting, end the debate. I will take a minute or objection, it is so ordered. not investing. I would have done that. so to conclude, and then the votes will Mr. DORGAN. I appreciate the cour- I would have imposed more aggres- occur around 2 o’clock. tesy of the Senator from Nebraska. sive curbs on proprietary trading by

VerDate Mar 15 2010 04:07 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00062 Fmt 4624 Sfmt 0634 E:\CR\FM\A15JY6.030 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5931 banks. If the taxpayer has to under- Mr. JOHANNS. Mr. President, I ask often containing junk they want to dis- write you as a commercial bank, you unanimous consent to speak for 10 min- pose of, and then make a bundle bet- ought not have a casino atmosphere in utes as in morning business. ting against those very same products. your lobby. The PRESIDING OFFICER. Without Those who claim this bill fails to rein Having said that, what was done in objection, it is so ordered. in Wall Street cannot explain the mas- this legislation is a very substantial (The remarks of Mr. JOHANNS per- sive amounts of effort and money Wall beginning. It is not an ending, No. 1. taining to the introduction of S. 3593 Street has spent to defeat this bill. If No. 2, the regulatory agencies now are located in today’s RECORD under Wall Street likes this bill, it sure has a have to do a lot of work to make this ‘‘Statements on Introduced Bills and funny way of showing it. bill work, to make this bill effective, Joint Resolutions.’’) The evidence from our investigation to stop what happened from ever hap- The PRESIDING OFFICER. The Sen- and from so many other sources is pening again. ator from Michigan is recognized. clear: We must put an officer back on Finally, I believe there will be an ad- Mr. LEVIN. Mr. President, if there is the beat on Wall Street so the jobs, ditional need to legislate in the future no one on the minority side waiting to homes, and futures of Americans are to address some of the things I men- speak, I ask unanimous consent that I not again destroyed by excessive greed. tioned. be allowed to speak for 4 minutes. I commend Senator DODD and his staff I believe the work done to get to this The PRESIDING OFFICER. Without and all those who have brought us to point in a Chamber in which it is very objection, it is so ordered. this historic moment. More than any- difficult for us to accomplish anything Mr. LEVIN. Mr. President, for too thing else, it is the power of Senator is a success. I commend my colleague, long, too many firms on Wall Street DODD’s arguments and the deep respect Senator DODD from Connecticut, and have had free rein to profit at the ex- for him among the Members of this others who worked on this legislation pense of their own clients, to engage in body that have brought us to the finish in a thoughtful way to try to decide the riskiest sorts of speculation, to line. how we can stop this sort of thing. We prosper from their risky bets when I yield the floor. all understood it. We heard these they pan out, and to have the tax- The PRESIDING OFFICER. The Sen- things on the radio and television. payers cover the losses when they do ator from Connecticut. Massive loans, they would securitize not pan out. For too long, there has Mr. DODD. Mr. President, let me them. They would trade the securities been no cop on the beat on Wall Street. again say to my great friend, we have back up in derivatives and credit de- That must end, and we can end it served here a long time together, Sen- fault swaps. Everybody was making today by passing the Dodd-Frank bill. ator CARL LEVIN of Michigan and I. He money on all sides, but they were The legislation before us will rebuild does a remarkable job as chairman of building a house of cards that came the firewall between the worst high- the Armed Services Committee and the down and nearly collapsed this entire risk excesses of Wall Street and the Governmental Oversight Committee, country’s economy. jobs and homes and futures of ordinary which he also handles as well. A lot of people, as I speak today, are Americans. I am not sure my colleague was here, still paying the price. They got up this The Permanent Subcommittee on In- but I pointed out yesterday that the morning without a job, millions and vestigations, which I chair, spent 18 hearings the Senator held just prior—I millions of them. They can’t find work. months and held four hearings inves- am sure people think we orchestrate They are the victims of this cesspool of tigating the causes of the financial cri- all these things; we look more orga- greed we have watched for far too long. sis. The bill Senator DODD and so many nized than we usually are around here, This legislation has great merit in ad- others have crafted will do much to but the fact is, the Senator from Michi- vancing solutions to these issues. That rein in the problems we identified in gan went off and had planned the hear- is why I will vote yes. Is it perfect? No. our four hearings and during our inves- ings for months. The amount of work Is it an end point? No. It is a starting tigation, and I greatly appreciate the he and his staff did for months in prep- point in a process that is very impor- recognition of the role of our work on aration for those hearings threw a tre- tant. the subcommittee in Senator DODD’s mendous amount of light and great I hope in the months ahead those remarks last night. clarity on the subject so that the aver- who are charged with creating the reg- This bill will prevent mortgage lend- age citizen in this country could actu- ulatory environment to fix this, to im- ers such as Washington Mutual, the ally see—not just read something but plement this legislation, will get it subject of our first hearing, from mak- see—a moment occurring during those right because they have the oppor- ing ‘‘liar loans’’ to borrowers who can- 2 days when the exposure of what had tunity the way this is written to get not repay, from paying their sales- occurred was so vivid and so clear. this right if they are smart and effec- people more for selling loans with Then, frankly, it was a matter of days tive and want to protect this country’s higher interest rates, and from unload- after that when we were on the floor economy. ing all the risk from their reckless considering the legislation. Thanks to those who put this to- loans on to the rest of the financial As I said, I would love to tell people gether. I intend to cast my vote as yes. system. that was a highly organized set of I yield the floor. This bill will dissolve the Office of events. It was purely coincidental the The PRESIDING OFFICER. The Sen- Thrift Supervision, which looked the way it occurred. Again, those hearings ator from Connecticut. other way despite abundant evidence of that occurred publicly involved weeks Mr. DODD. Briefly, I thank my col- Washington Mutual’s abuses, as our and months of preparation before they league from North Dakota. He has been second hearing showed. were actually conducted. an outspoken advocate on behalf of This bill will bring new oversight and So I say to my friend from Michigan, working families in the time we have accountability to credit rating agen- I thank him immensely for his work, served together. The concerns he has cies, which, as our third hearing for his contribution to this bill as well, expressed consistently in this process showed, issued inaccurate ratings that not for just the set of hearings but then are ones I appreciate very much. We misled investors. Those ratings were working to include the provisions that did have a couple of disagreements paid for by the very same companies are a part of this legislation. The Sen- over how to proceed, but that is the that produced the products being rated, ator has made a very valuable con- normal process of doing business. It which is a clear conflict of interest. tribution and has highlighted a very was done with civility during the de- The bill before us will rein in the important point. bate and consideration of the legisla- abusive practices of investment banks It was fascinating to me, by the way, tion. But I am deeply grateful to him such as Goldman Sachs, the subject of as to the number of former chief execu- for his contributions and those of his our fourth hearing. It will sharply tive officers from major financial firms staff. He made some good suggestions, limit their risky proprietary trading. in the country who strongly endorsed and I thank my friend. It will stop the egregious conflicts of what the Senator was doing. This was The PRESIDING OFFICER. The Sen- interest that result when these firms not merely a suggestion coming from ator from Nebraska. package and sell investment products, consumer groups or labor organizations

VerDate Mar 15 2010 04:07 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00063 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.080 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE S5932 CONGRESSIONAL RECORD — SENATE July 15, 2010 or others that one might associate I see my colleague from the State of Mr. DODD. Mr. President, I thank with the Senator’s idea. But people Washington. I do not know if she cares the Senator from Washington. Again, I who literally had spent their careers in to be heard. I was sort of filling in time thank her for her contribution. the financial services sector were for the next few minutes. Mr. President, we have arrived at strongly recommending the contribu- Let me thank the Senator. She has that moment. Let me make a par- tions the Senator made to the bill. been an advocate with great passion on liamentary inquiry. There are two I do not think that was said often these issues. She brought a great deal votes, as I understand it. One is on the enough, that this was a significant con- of knowledge. She is someone who has waiver of the budget point of order, and tribution endorsed by those who under- spent a career herself in the area of fi- the second vote that will occur will be stood, had worked, had earned liveli- nancial services and understands this on adoption of the conference report. Is hoods in this industry, who had issue beyond just the intellectual and that correct? watched an industry change dramati- theoretical standpoint but has lived it. The PRESIDING OFFICER. The Sen- cally over the years which subjected She saw the successes of it and the fail- ator is correct. this country to the exposure that we ures of it. So she brings a great wealth Mr. DODD. Mr. President, have the are suffering from today. of information and ability to the issue. yeas and nays been ordered on the So I thank my friend from Michigan. I yield to my colleague. waiver of the budget point of order? The PRESIDING OFFICER. The Sen- The PRESIDING OFFICER. The Sen- The PRESIDING OFFICER. They ator from Washington. ator from Michigan. have. Mr. LEVIN. Mr. President, I thank Ms. CANTWELL. Mr. President, I thank the chairman for yielding time. Mr. DODD. Have the yeas and nays my dear friend from Connecticut. He been ordered on adoption of the con- has made such an extraordinary con- I thank the Senator for his diligence, particularly in the area of the deriva- ference report? tribution, not just to this bill but to tives market and the fact that this leg- The PRESIDING OFFICER. They this Senate over the years. I cannot islation will be the first time—the first have not. say enough about him, his extraor- time—the over-the-counter derivatives Mr. DODD. Mr. President, I ask for dinary integrity and passion that he market in this country will be regu- the yeas and nays on the adoption of brings to these subjects. lated. the conference report. Senator MERKLEY, on the proprietary The fact that Congress made a mis- The PRESIDING OFFICER? Is there trading language, of course, as the Sen- take and said hands off to derivatives a sufficient second? ator from Connecticut has already rec- in 2000, and then an $80 trillion market There is a sufficient second. ognized, is in the lead there and has exploded into what is today a $600 tril- The yeas and nays were ordered. been an absolutely great partner and lion dark market—the chairman has Mr. DODD. Mr. President, in conclu- leader on that. now made sure that for the first time sion, I express my thanks to all. I want But I want to especially thank the ever, over-the-counter derivatives will to thank the floor staff as well, both on Senator from Connecticut for his pas- be regulated. That means for the first the minority and majority side. We sion and for his—and I was very serious time over-the-counter derivatives will have spent a lot of time together over about the respect with which the Sen- have to be exchange-traded, which the last year, and I am deeply grateful ator is held in this body. Without it, means there will be transparency. It is to them for the orderly way in which without that feeling about the Senator, the first time over-the-counter deriva- they conduct their business and how as well as the cause the Senator es- tives will have to be cleared, which fair and disciplined they are about pouses with others, obviously, we means a third party will have to vali- making sure the floor of the Senate would not be where we are today. date whether there is real money be- runs so well. So I thank them im- The PRESIDING OFFICER. The Sen- hind these transactions. mensely for their work. ator from Connecticut. It is the first time the CFTC will be I urge my colleagues to waive the Mr. DODD. Mr. President, I thank my able to enforce aggregate position lim- point of order and to support this his- friend. its across all exchanges, which means toric landmark piece of legislation We are about to wrap up this long you cannot hide this dark market de- that we hope will set our country on a journey, now going back a long ways. rivative money on some exchange that course of financial stability and suc- Let me mention a couple things. is not properly regulated or try to cess in the generations to come. First of all, yesterday I included the make the market across all exchanges. I yield the floor. names of the Senate Banking Com- It is the first time things like the Lon- The PRESIDING OFFICER. The mittee staff who have made such a dif- don Loophole will be closed so we can- question is on agreeing to the motion. ference in the bill. I am not going to go not have markets and exchanges that The yeas and nays have been ordered. back over all their names. They are are not regulated. So the American arrayed in the Chamber. A couple of The clerk will call the roll. people will know something as dan- The bill clerk called the roll. them are sitting next to me on the gerous as credit default swaps—which floor. Others are in the back. They are The yeas and nays resulted—yeas 60, brought down our economy—that now nays 39, as follows: led by Eddie Silverman, who worked for the first time we will have regula- [Rollcall Vote No. 207 Leg.] with me 20 years ago, as I arrived in tion of these over-the-counter deriva- the Senate. He spent decades with me tives. YEAS—60 and then left Senate service and went I thank the chairman for his efforts Akaka Franken Murray off and did other things in his life. At Baucus Gillibrand Nelson (NE) in that area. Bayh Hagan Nelson (FL) my request, he came back for the last A $600 trillion market, which is Begich Harkin Pryor year or so to be a part of this effort. So greater than 10 times the size of world Bennet Inouye Reed I thank a great personal friend, Eddie GDP, is a danger to our economy if it Bingaman Johnson Reid Silverman, for the job he did. Boxer Kaufman Rockefeller is not regulated. Thank God we are Brown (MA) Kerry Sanders I thank Amy Friend, who was also going to be regulating it for the first Brown (OH) Klobuchar Schumer deeply involved in this legislation. If I time. I would encourage all my col- Burris Kohl Shaheen start down the list, I am going to miss leagues on the other side of the aisle, Cantwell Landrieu Snowe Cardin Lautenberg Specter somebody. That is always a danger. who at one point in time said these are Carper Leahy Stabenow But I thank all of the Members for the too complicated to understand—under- Casey Levin Tester tremendous work they have contrib- stand, they brought down our economy Collins Lieberman Udall (CO) uted to this legislation. Conrad Lincoln Udall (NM) and understand we are going to, for the Dodd McCaskill Warner I thank HARRY REID, the majority first time, regulate over-the-counter Dorgan Menendez Webb leader. Again, I know I have talked derivatives. Durbin Merkley Whitehouse about him on a couple of occasions. I thank the chairman for his leader- Feinstein Mikulski Wyden But if we do not have someone to help ship. NAYS—39 bring this all together, it does not hap- The PRESIDING OFFICER. The Sen- Alexander Bennett Brownback pen. ator from Connecticut. Barrasso Bond Bunning

VerDate Mar 15 2010 04:07 Jul 16, 2010 Jkt 089060 PO 00000 Frm 00064 Fmt 4624 Sfmt 0634 E:\CR\FM\G15JY6.082 S15JYPT1 smartinez on DSKB9S0YB1PROD with SENATE July 15, 2010 CONGRESSIONAL RECORD — SENATE S5933 Burr Graham McCain NAYS—39 firmation proceeding of Supreme Court Chambliss Grassley McConnell Alexander DeMint Coburn Gregg Murkowski LeMieux Justice Whittaker, saying that the Barrasso Ensign Cochran Hatch Risch Lugar Senate did not ask questions about the Bennett Enzi Corker Hutchison Roberts McCain Bond Feingold important substantive matters. During Cornyn Inhofe Sessions McConnell Brownback Graham the confirmation of Chief Justice Crapo Isakson Shelby Murkowski Bunning Grassley DeMint Johanns Thune Risch Rehnquist, I asked him a series of ques- Burr Gregg Ensign Kyl Vitter Roberts tions which he declined to answer; I Chambliss Hatch Enzi LeMieux Voinovich Sessions Coburn Hutchison cited his own words, and then he an- Feingold Lugar Wicker Shelby Cochran Inhofe Thune swered a few—not very many, just The PRESIDING OFFICER. On this Corker Isakson Vitter about enough to be confirmed. Which Cornyn Johanns Voinovich vote, the yeas are 60, the nays are 39. Crapo Kyl Wicker has been my conclusion, generally, Three-fifths of the Senators duly cho- having been a party now to 13 con- sen and sworn having voted in the af- The conference report was agreed to. firmation hearings. Nominees answer firmative, the motion is agreed to. Mr. DODD. Mr. President, I move to just about as many questions as they reconsider the vote by which the con- think they have to. Mr. REID. Mr. President, I have been ference report was agreed to and to lay conferring off and on throughout the When Justice Scalia came up for con- that motion on the table. firmation in 1986, he answered virtually day with the Republican leader. There The motion to lay on the table was will be no more votes today following nothing. When the question came up agreed to. about Marbury v. Madison, he said: final passage. That will be the last vote The PRESIDING OFFICER. The Sen- today. Well, I can’t answer that question. It ator from Pennsylvania is recognized might come before the Court. We are going to swear in the new for 30 minutes. May the RECORD show the look of Senator from West Virginia at 2:15 p.m. f amazement on the face of the distin- on Tuesday. Immediately after that, as NOMINATION OF ELENA KAGAN guished Senator from Minnesota who is soon as that is over, at 2:30, we will presiding. I was frankly amazed by it vote on extending unemployment bene- Mr. SPECTER. Mr. President, I have myself. fits. sought recognition to state my posi- But, with the tenor of the times, fol- The Republican leader and I are tion on the nomination of Solicitor lowing the very contentious nomina- working on a way to move forward on General Elena Kagan to be Associate tion proceeding of Chief Justice small business. I think we have a pret- Justice of the Supreme Court of the Rehnquist, and other factors, Justice ty good path figured out on that. United States and to comment about Scalia was confirmed handily, 98 to After that, it is my intention to the appropriate role of the Senate, nothing. move to the supplemental appropria- what is happening to the doctrine of I have seen him frequently at social tions bill. It appears that we are going separation of powers, and how institu- events. I saw him at one a couple of to have to have a cloture vote. I think tionally the Senate might assert itself weeks ago. I commented to a group we can work out the time on that and to stop the erosion of powers from this standing with him that prisoners of not spend too much time. body to the Court and from the Con- war give their name, rank, and serial gress to the executive branch. I have conferred with the Republican number, but in the Scalia nomination I am supporting Ms. Kagan because leader at the beginning of the work pe- proceeding he would only give his name of her intellect, her professional back- riod, on Monday. We have a list of and rank. It just about amounted to ground, her academic background, and things we need to accomplish before we that. because I think she will be an effective leave here. As everybody knows, we are Following the hearing on Justice balance in the ideological battle which going to be here either 4 or 5 weeks. Scalia, Senator DeConcini and I were is being waged in the conference room The leaders—Democrat and Repub- formulating a resolution which would of the Supreme Court—the ideological lican—are betting on 4 rather than 5 establish standards that Senators balance which is so sorely needed at weeks. But we need cooperation to get would insist on, or could insist on— the present time. that done. some guidance to try to get more The hesitancy I have had, as I have forthcoming answers. Then we had the The PRESIDING OFFICER. The expressed it in the hearings, has been confirmation hearing of Judge Robert question is on agreeing to the con- on the failure of Ms. Kagan to respond Bork, who answered questions. Judge ference report. with substantive answers so that Sen- Bork did so in a context of having very The yeas and nays having been or- ators would have a realistic idea as to extensive legal writings, an article in dered, the clerk will call the roll. where she stands philosophically on the Indiana Law Journal in 1971 on The legislative clerk called the roll. some of the very important questions original intent. In the context of that The PRESIDING OFFICER. Are there of the day—not how she would decide article, and books, many speeches, law any other Senators in the Chamber de- cases but what standards she would review articles, I think it is realistic to siring to vote? apply if confirmed, and I will be very say that Judge Bork had no alternative specific about that. The result was announced—yeas 60, but to answer questions. It has been especially troublesome Since the Bork hearings, the pattern nays 39, as follows: because Ms. Kagan has been outspoken has evolved where nominees do not [Rollcall Vote No. 208 Leg.] in the past about the importance of give substantive answers. It is a well- YEAS—60 having substantive answers in nomina- known fact of confirmation life that Akaka Franken Murray tion proceedings. She wrote a now-fa- there are murder boards. That is what Baucus Gillibrand Nelson (NE) mous article for the University of Chi- they call them, when the nominee goes Bayh Hagan Nelson (FL) cago Law Review criticizing Supreme down to the White House and they have Begich Harkin Pryor Bennet Inouye Reed Court proceedings on nominations by practice sessions. Since that time it Bingaman Johnson Reid saying that they were vacuous and a has been pure prepared pablum. That is Boxer Kaufman Rockefeller farce and by name criticized Justice what we get in these hearings. Brown (MA) Kerry Sanders Ruth Bader Ginsburg and Justice Ste- So there had been reason to expect Brown (OH) Klobuchar Schumer Burris Kohl Shaheen phen Breyer for not answering ques- more from Ms. Kagan. We didn’t get it. Cantwell Landrieu Snowe tions and, in effect, criticized the Sen- I had expressed at the hearings the Cardin Lautenberg Specter ate and Senators for not asking and concern as to how we could get answers Carper Leahy Stabenow Casey Levin Tester pressing questions to find out where on substantive issues and was there Collins Lieberman Udall (CO) nominees stood. There was a similar any way to find that out short of vot- Conrad Lincoln Udall (NM) article written by a young lawyer in ing ‘‘no,’’ and rejecting a nominee? I Dodd McCaskill Warner Phoenix, AZ, named Bill Rehnquist, decided it would not be sensible to vote Dorgan Menendez Webb Durbin Merkley Whitehouse back in 1958, for the Harvard Law no to issue a protest vote in the con- Feinstein Mikulski Wyden Record, where he criticized the con- text of what has regrettably become

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