Providing for Consideration of Senate Amendment to House Amendments to Senate Amendment to H.R. 3221, Housing and Economic Recovery Act of 2008
PROVIDING FOR CONSIDERATION OF SENATE AMENDMENT TO HOUSE AMENDMENTS TO SENATE AMENDMENT TO H.R. 3221, HOUSING AND ECONOMIC RECOVERY ACT OF 2008 -- (House of Representatives - July 23, 2008)
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Ms. KAPTUR. With a heavy heart, I rise in opposition to this rule and the Wall Street rescue bill. Why? The key provision added over the weekend amounts to a huge elephant galloping over the American people with its blank check to Wall Street. In exchange, the American people get to cling to fool's gold--a few billion dollars to cities and States which are facing hundreds of billions of dollars of loss. Ohio alone needs the total amount of meager funds allocated to workouts. Sadly, less than one percent of the assistance in this bill is targeted to those local communities! We need a bill that strengthens each community's real estate values through Federal bond guarantees to them, not to the big investment banks and uninsured housing enterprises that caused this problem in the first place. I thank the gentleman very much for yielding.
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INTRODUCTION
President Franklin Roosevelt aptly gave a name to the Wall Street financial manipulators who, time and again, put our nation in enormous financial peril. He called them ``malefactors of wealth''--``malefactors,'' from the Latin ``mal'' meaning ``bad,'' and ``factor,'' meaning ``makers'' ..... makers of bad. That is, people who do great harm with the use of wealth.
As a scion of old wealth himself, Roosevelt knew them well. He knew the lengths to which they would go to satisfy their cravings for more, and more, and more--as if reason and prudence didn't apply. And they did not care who they ran over in their quest. Their deeds have placed our nation at risk, time and again. Now, with the mortgage foreclosure crisis, they have done it again--this time, the damage is so huge it dwarfs the savings and loan fiasco of the 1980's when they ponzi-schemed up housing markets, saw them crash, and then ran to Congress to bail them out. Back then, the perpetrators centered their attention on California, Texas, Arizona, and the hot housing markets. Yet all Americans, from all states--like Ohio which was not one of the epicenters of their gluttony--were forced to pay the bills for their bad deeds.
Today, Congress will vote to burden the American people with another blank check, totaling hundreds of billions of dollars lasting three generations, to Wall Street brokerages and the shareholders of Freddie Mac and Fannie Mae. It is times like this that my heart feels very heavy for my fellow countrymen and women, as I cannot save us from this wrongful debt being imposed. This bailout of Wall Street giants never had a hearing in Committee.
Why should our people be made to pay for them? What will our communities get for this added, massive debt obligation?
THE LEGISLATION
The Foreclosure ``Rescue'' bill we're being asked to vote on today won't live up to its name. I challenge any Member to tell me how much help your district will receive from this trickle down to turn around local housing markets. This bill does not measure up to the challenge
The Congressional Budget Office under estimates that the bailout package will cost the American public $25 billion. This estimate isn't a good indication of the potential cost since $25 billion is just an estimate based on many faulty assumptions. The potential cost to the public actually is several hundred billion dollars. Fannie Mae and Freddie's current debts total $5.2 trillion, which equals our national debt of $5 trillion.
The fig leaf offered--and that our communities are clinging to is the promise of a mere $4 billion in community aid plus $10 billion for state housing authorities to counteract the nearly $356 billion loss in property values and property taxes in 2007 and 2008. $4 billion doesn't even meet the City of Cleveland's needs; Ohio alone is estimated to need $164.2 billion, just the gap for the state housing authority is $20 billion. With blocks of abandoned, vandalized, and stripped homes to contend with, along with an onslaught of displaced families, our communities are being asked to do more than ever, with fewer and fewer resources.
This bill asks taxpayers to issue a blank check with the words ``stand by authority''--to Wall Street--for the first time to federally uninsured investment houses and secondary market housing agencies. This critical provision never went through Committee, there were no hearings. This was a Boardroom deal.
The former head of Goldman Sachs is now the Secretary of Treasury under a Republican administration; under the former Democratic administration, the Secretary of Treasury was from Goldman Sachs. Just this week, Goldman Sachs' top banker, Ken Wilson, will take a leave from his job there to join his former boss at Treasury, Secretary Paulson. Who's running whose show here? Is Treasury serving the American people or simply Goldman Sachs, IndyMac Bank, and Bears Stearns?
Further, under this bill the Department of Treasury that failed to regulate, examine, and audit is now going to be given even more power to create another bureaucracy to regulate the Department that didn't regulate. This house of cards only gets more topsy.
Last year, Freddie Mac Chairman and Chief Executive Richard Syron received $19.8 million in compensation--even though the company's stock lost half its value. During the same period, Fannie Mae President and Chief Executive Daniel Mudd was paid $12.2 million, including a $2.2 million bonus. But curbing their excess doesn't even come close to offsetting the huge debt this bill anticipates for the American people.
Our cities are left holding the bag, yet the greedy corporations that blew through town are being made whole. Meanwhile, homeowners have lost decades of savings and equity. Once tight-knit communities are left shattered, shuttered, and dangerous. In order to make things even worse, big banks like Citigroup are now plundering our local communities even more by offering land contracts. How much lower can these banks sink? And yet Congress rewards them?
SAVINGS AND LOAN CRISIS BACKGROUND
Even worse than the proposed no strings attached bailout is the fact that this is déja 2 vu all over again. The Savings and Loan bailout of the 1980s cost the American taxpayers upwards of half a trillion dollars. The American people were asked to grin and bear it for the good of the Nation. States like Ohio were not among the worst abusers, yet our taxpayers were forced to bear this debt load too.
The savings and loan scandal destroyed an entire class of community banks, moved more power to Wall Street and money center banks, and exploded our public debt. Back then, they told Americans that if they were bailed out, such catastrophes would never happen again. They claimed a new money instrument was being developed by Wall Street called the mortgage backed security. Through its magic, the public would never have to worry again about greedy bankers in the housing market. Your mortgage would be safer, as it would be packaged with others and sold through securities Wall Street would invent, like an anonymous piece of paper.
Meanwhile, face to face community banking, and necessary underwriting and regulation first enacted for home lending in the Great Depression, were destroyed. Financing became more and more hot wired, more absentee, even over the phone and internet. A deluge of promotional materials from the banks arrived at our doorsteps, almost daily, urging mortgagees to borrow more and more against their shrinking home equity, to borrow for almost anything--a vacation, a car, to put on a roof. Few cautioned against it, and the debt pushers pushed on.
Home values inflated beyond their worth. But the regulators, like FNMA and Freddie, the OTS and FDIC stood frozen in place. The mortgage itself--which is a debt that must be repaid--was rolled up and packaged with thousands of other mortgages and, as America itself is in debt, sold into the international market for the first time to foreign buyers. Try to work out a loan when your financier is located in China.
Sadly, their entire modus operandi is an old trick--create a house of cards with money by pushing risk beyond what can be considered prudent, leverage the money pyramids where the underlying asset is purposely poorly appraised, and voila--the perpetrators make billions until the market they have created busts. Then blame the American people and run to Congress to close the gap by borrowing, borrowing, and borrowing from the very people they thought so little of. Oh yes, and then, blame the whole washout on ``them,'' the public.
Wall Street's money grabbers are back, this time stretching their long arms even deeper into your pockets to cover their latest craze--draining out our home equity and home values. Americans have built their equity over decades in their mortgages. Yet Wall Street set its sights on families' home equity, and went after it with a vengeance. It was the only major savings pool America had left other than our public assets like roads, water systems, and public works. Millions of families succumbed to the snake oil.
Overall, home equity in our nation, our largest source of savings--has now dipped below fifty percent for the first time in modern history. Millions of Americans have negative equity in their homes, they own more on their homes than their homes are worth.
So, to fill the gap, Wall Street wants the American taxpayer--the people they bilked--to bail them out, again. Bear Stearns succeeded to the tune of $30 billion. So now there is a longer line of bankers lined up to prop up their profligacy. This bill legitimizes their behavior and gets crumbs in return for the American people. The malefactors wealth manipulated and created panic in the market. They got the Bush Administration to propose an ``emergency'' bailout plan. And then they got Congress to ``limit'' executive pay as a fig leaf to cover over their real motherload in this bill. Not a bad bit of insider dealing.
But what about the American people? What about their interests?
MEETING THE NEEDS AND STRENGTHENING OF OUR COMMUNITIES
Let's get something real for the taxpayer. And let's get it now. As the Economist proposed this week, Fannie Mae and Freddie Mac could issue their own debt and exchange it for loans from the government--this way, our taxpayers who are on the hook at least get something if markets recover. Otherwise, all this bill does is hand over the U.S. Mint to Wall Street.
I ask any Member: how much of this bill is going to your district relative to what it is going to cost to turn your local real estate market around?
If you don't know the details, you shouldn't vote for the bill.
And how do you know when the help will arrive? This bill is a trickle down from Wall Street; communities across this nation will be left holding an empty bag.
Our communities need expanded bonding power at the grass roots, not more rewards for Wall Street brokers who got us into this sorry situation in the first place.
We need trickle up, not trickle down.
Our communities need expanded bonding power at the grassroots level to raise the funds to combat this crisis, not more rewards to the very institutions and people who created this mess.
I have a better idea. Rather than Congress vowing to borrow more money--plus interest--from the American taxpayer for three generations to come, to make Wall Street whole, why not instead design a refinancing approach that benefits the taxpayer, and the communities they live in? Rescue local real estate markets. Give the bulk of assistance there. Let any refinancing medium reach deep into every affected community across this country.
Stop the hemorrhage. Accelerate workouts now to save real estate values from plummeting even further--including on families who own properties that had nothing to do with this ponzi scheme.
Strengthen each community's real estate values through federal bond guarantees to local countries and cities, not Wall Street. Empower local people. Empower local housing authorities' ability to respond. Democratize this bond offering. The largesse of the American people should not trickle down from the big bond houses on Wall Street who caused the problem, traffic in debt, and operate far from home. The bill being proposed in Congress is weighted WAY too heavily in their favor. For affected localities, less than 1 percent of this proposed aid is targeted to them; Wall Street gets the lion's share. Imagine a bill that strengthens local real estate markets NOW, and into the future through additional federal bond guarantee authority to those same communities. The ability of hundreds of affected jurisdictions to do refinancing and workouts will be direct, local and not just through Wall Street. Direct support to localities should be at a level commensurate with the scale of the foreclosure crisis--not just one percent of the largesse while Wall Street cleans up.
CONCLUSION
This approach makes sense as real estate markets are local. There is a greater likelihood that units will be turned around more responsibly and expeditiously at the local level. Wall Street is too far away. And they are already hawking their disgusting ``land contracts'' to move foreclosed units which are further blighting troubled neighborhoods.
Let's democratize this bond offering in community after community. Let's not give it away to the same Wall Street crowd that bleeds us time and again, but pays us no respect. Franklin Roosevelt understood the difference between money and wealth. He was about creating wealth in community after community, household after household, not letting Wall Street raid us dry. This Congress should remember how his policies built a middle class. We should champion that democratic vision of capitalism. It's long overdue. As this bill moves to the Senate, perhaps someone there will remember what representative democracy is all about and make this a much better bill. My vote is cast for the American people and against the malefactors of wealth.
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Addendum
FANNIE MAE AND FREDDIE MAC
A Better Approach: Based upon Treasury Secretary Paulson's emergency announcement and proposal on July 13, 2008, ``The two companies could issue their own debt and exchange it for loans from the government--at least the American people might yield something rather than giving wall street the equivalent of having access to the printing press.'' (Source: The Economist, July 19th-25th, 2008)
Additional Facts: According to a Federal Reserve economist, because the U.S. government has essentially guaranteed Fannie Mae and Freddie Mac's debt, the ability of home buyers to borrow has remained difficult, while the savings Fannie and Freddie have realized--about $79 billion--instead went straight to their shareholders. (Source: The Economist, July 19th-25th, 2008)
Current regulation, ``allowed Fannie and Freddie to operate with tiny amounts of capital. Their capital reserves (as defined by the regulator, Office of Federal Housing Enterprise Oversight [OFHEO]) of $83.2 billion at the end of 2007 supported $5.2 trillion of debt and guarantees, a ratio of 65 to one.'' Imagine if a household earned $83,000 a year and was able to borrow $5.2 billion on that salary.
In 1998 Freddie Mac owned $25 billion of other securities, according to OFHEO and by the end of 2007 it had $267 billion. Fannie Mae's outside portfolio grew from $18.5 billion in 1997 to $127.8 billion at the end of 2007. This shift in investing in outside securities does not meet Fannie and Freddie's core mission of increasing home ownership.
OFHEO as recently as July 10th said that both Fannie Mae and Freddie Mac had enough capital.
Freddie Mac lost $3.5 billion in 2007; Fannie Mae reported a $2.2 billion loss in the first quarter, having lost $2.05 billion in 2007. Each had credit-related write-downs of between $5 billion and $5 billion last year.
Currently, Freddie Mac only has a market value of $5.3 billion.
On a fair-value basis, Freddie Mac had a negative net worth of $5.2 billion at the end of the first quarter.
FANNIE MAE AND FREDDIE MAC'S DEBT AND FOREIGN OWNERSHIP
``Paulson said the Fannie and Freddie have issued $5 trillion in debt and mortgage backed securities. Of that amount more than $3 trillion is held by U.S. financial institutions and over $1.5 trillion is held by foreign institutions.'' (AP; Crutsinger, July 22, 2008)
Fannie Mae and Freddie Mac's foreign debt has tripled from $504 billion in 2001 to $1.5 trillion in 2007. Fannie Mae and Freddie Mac's $1.5 trillion foreign debt is owned by China $376 billion, Japan $228 billion, Russia $75 billion, South Korea $63 billion, and Middle Eastern Oil-Exporters $29 billion. Now, both interest and principal is owed to foreign bondholders.
The current proposal will allow Bank of America to purchase Countrywide's portfolio. Then if Bank of America works out a refinancing, FHA stands ready to insure it. If the owner fails to make payments, FHA assumes the unit. This is a great bonanza for Bank of America.
WHAT THE LEGISLATION NEEDS
A better solution would be to let Fannie Mae and Freddie Mac issue debt and then exchange that for a government loan. At least our people would get something back on the upside--just as America did when Chrysler Corporation was refinanced through redeemable warrants.
Democratize the bond offerings by diverting some of the securitized debt that is intended to prop up Wall Street, Fannie Mae, and Freddie Mac. Direct it to Main Street--our counties, our cities, our housing agencies and authorities. Make the approach more equitable to the taxpayer. This approach allows communities, not only corporations, mega-banks, and investment houses, to actually own something. Isn't that a value worth fighting for?
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