National Defense Authorization Act for Fiscal Year 2009 - Continued

Floor Speech

NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2009--Continued -- (Senate - September 16, 2008)

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THE ECONOMY

Mr. DURBIN. Mr. President, we continue to read today, as we did yesterday, about dramatic changes in the American economy, particularly the problems facing many of our larger financial institutions.

Not that many weeks ago, the Federal Government stepped in when Bear Stearns was in a terrible economic state and took over the responsibility for that company. It was an extraordinary decision because this is a company that we had not regulated as a Federal Government, not one at least in detail. We knew their transactions and balance sheets, but we put the full faith and credit of the American people and our Treasury behind rescuing Bear Stearns.

Then a little over a week ago the decision was made by this administration to do the same for two entities, Government-sponsored entities, Fannie Mae and Freddie Mac. These were the major institutions for housing in America. Between them, some 50 percent of all mortgages were being held. It was understandable that decision was made because the alternative was unthinkable. If Fannie Mae and Freddie Mac should collapse, it would jeopardize not only mortgages and homeowners but also the American economy. It is such a large part, it is understandable that the administration stepped in to make that decision.

Now this week comes a new round. Lehman Brothers, a company in New York which has prospered for many years, now faces bankruptcy, and along with it the question of the future of Merrill Lynch, a major brokerage house which appears to be in line to be acquired by Bank of America.

These are dramatic and unsettling events and a reminder to all of us that the state of the American economy is not as sound and solid as we would like to see it. But those are the events which happened at the highest levels of finance and the highest levels of Wall Street.

All of us representing our constituents--I represent Illinois--have traveled around our States and met with small business men and women, family farmers, and families as well, talking about the situation they face today. They do not make the headlines as Merrill Lynch or Lehman Brothers, but they should because if you go across the board and talk to these working families, these middle-income families, you will find that over the last 7 or 8 years, this country has not been kind to them. Their spending power has been reduced. They continue to work. They are productive workers. America's economy is a productive economy. And yet they have not been rewarded for their work. Their wages have not kept up with the cost of living. They have fallen behind under this Bush administration some $2,000 worth of spending power at a minimum. These are the people who are paying $4.50 per gallon of gasoline trying to figure out how to get back and forth to work and to meet their obligations to their families and friends.

These are folks who are struggling with the cost of groceries and clothing. They are the same ones trying to figure how in the world to put their kids through college so their kids will not end up with student loans that look like their first mortgages.

They are worried also about health care, about the health insurance plans that do not cover as much this year as they did last year. They are worried about the out-of-pocket payments they may have to make. They realize, most of them, they are one diagnosis away from bankruptcy. That is the reality of life in the economy beyond Wall Street.

So when you look across the board at this economy, you realize the fundamental weaknesses of what we face today. Of course, the housing market has been the catalyst for some of the problems we now see. It turned out that the greed of Wall Street, of the overreaching of some companies, led to loans and mortgages which were totally unwise.

Many of those now have resulted in foreclosures, where people are having to leave their homes. Their misfortune is being visited on their neighbors. I recently had an appraisal on my home in Springfield. It is the same home I lived in when I was first elected to Congress many years ago. I have been there a long time. I have to tell you the value of my home has gone down 20 percent.

Why? It is not because we did not keep it up--we do a fairly good job with that--it is because the economy is weak in my hometown of Springfield, IL, and foreclosures nearby have taken their toll on the value of my home. We made all of our mortgage payments, but the value of our home went down 20 percent. That is the reality a lot of people are facing. My story is not one that should bring tears to anybody's eyes; we will get through it. But a lot of folks cannot. They cannot get through this, and that is where we are in the economy today.

How did we reach this point? We reached this point when we adopted a mentality that was dominant in this city for so long that, first, get Government off my back. Government is my enemy. Deregulate.

That was a pretty popular mantra around here 10 or 15 years ago. In fact, a lot of people laughed about it. Even people such as the venerable wise critic, Rush Limbaugh, said: If we close down the Federal Government no one would even notice.

Well, he was wrong when he said it. He would certainly be wrong today because what has happened to us is a reminder that there is an appropriate and important role that Government needs to play. As strong as our entrepreneurial free market economy is, if it is not subject to oversight and accountability, it can spin out of control.

That is what happened with this subprime mortgage market. Instead of having appropriate oversight and accountability, loans were made which made no sense whatsoever, and eventually that credit operation collapsed leading to the foreclosures we see today.

What we see on Wall Street now with many of these investment banks going under are credit institutions which are not subject to Government regulation. It is like playing ``off the books.'' If a business does that, the IRS comes in and says: You have just violated the law. You are supposed to put everything on the books and report to us.

Well, there is a whole world of credit and finance that is ``off the books'' when it comes to regulation and oversight by the Federal Government. And that is the world that is collapsing. It is an indication to me that when we faced a similar situation 75 years ago, with the Great Depression, that Franklin Roosevelt got it right. He understood that the economic problems in America called for sensible regulation and disclosure and transparency and accountability.

He created agencies which responded to the economy of the day. Regulation, yes, but without that regulation, unfortunately, the market was spinning out of control to the detriment of everyone, not just business owners but workers, farmers, and people who are just trying to get by.

We need to return to a mindset which says there is an appropriate role for Government. There are things which our Government can do which private industry, on its own devices, will not do. That is why we need to be more sensible when it comes to regulation.

Yesterday, the Republican candidate for President, John McCain, said:

Our economy, I think still the fundamentals of our economy are strong.

I would say that Senator McCain does not accurately portray our economy today. I wonder which economy he is talking about? Is he talking about an economy with record

unemployment, the highest in 5 years? Is he talking about an economy with record home foreclosures, the most since the Great Depression? Is he talking about an economy where people's savings that they count on for the future--the value of their home or their 401(k) or their retirement account--have been diminished by the state of this economy? He cannot be talking about the economy where middle-income families have fallen behind in their spending power, where they find it difficult to live paycheck to paycheck, let alone save some money. He cannot be talking about an economy with $4.50 gasoline, with diesel fuel that is even more expensive, and jet fuel that is running the aviation industry out of business.

What economy is John McCain talking about? It is interesting how close his quote comes to one from another person who happened to be elected President. His name was Herbert Hoover; the date was October 25, 1929. This was just shortly before, days before, the great stock market crash.

Here is what President Herbert Hoover said then:

The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis.

That was said days before the stock market collapsed. This quote from John McCain yesterday is reminiscent of President Hoover. It shows the same lack of connection to the real world in which people are living.

When it comes to Senator McCain's philosophy and how we should approach these issues, he has been pretty outspoken. It has been printed this morning in an article in the New York Times written by Jackie Calmes. She wrote:

In early 1995, after Republicans had taken control of Congress, Mr. McCain promoted a moratorium on Federal regulations of all kinds. He was quoted as saying that excessive regulations were ``destroying the American family, the American dream,'' and voters ``want these regulations stopped.'' The moratorium measure was unsuccessful.

He told the Wall Street Journal last March: ``I'm always for less regulation, but I am aware of the view that there is a need for government oversight'' in situations like the subprime lending crisis, the problem that has cascaded through Wall Street this year.

Senator McCain concluded: ``But I am fundamentally a deregulator.''

Later that month Senator McCain gave a speech on the housing crisis in which he called for less regulation saying:

Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.

Senator McCain has been consistent. He has opposed Government oversight, accountability, and regulation. Now, it can go too far. Do not get me wrong. We have seen it at its worst. But if you do not have a fundamental oversight effort being made by the Government, then consumers and the economy are at the mercy of those who go too far.

Inevitably they will go too far. I can recall the savings and loan crisis, leading to a taxpayers bailout. I now see the problems in the subprime mortgage situation leading to a taxpayers bailout of Fannie Mae and Freddie Mac, Bear Stearns, and maybe others. If we do not keep an eye on their activities and demand accountability, we will end up paying the price.

That is why this election is so fundamental. If we want to continue the economic policies of the Bush-Cheney administration that have led us to this sorry moment, then Senator McCain is clearly the person who should lead this country for the next 4 years. But if we are going to change those policies, if we are going to give middle-income and working families a fighting chance in this economy, if we are going to have a Tax Code written not to reward wealth but to reward work for a change, then we need a change in Washington.

We need to have a new approach, not only a new economic and tax policy but the kind of regulation that provides protection from the excesses of the market. Even Senator McCain yesterday referred to the greed on Wall Street. Left unchecked, unfettered, this greed can spin out of control. That is why there is such a fundamental choice facing American families in only 7 weeks.

I ask unanimous consent to have the New York Times article to which I referred printed in the Record.

There being no objection, the material was ordered to be printed in the RECORD, as follows:
[From the New York Times, Sept. 16, 2008]

In Candidates, 2 Approaches to Wall Street
(By Jackie Calmes)

WASHINGTON.--The crisis on Wall Street will leave the next president facing tough choices about how best to regulate the financial system, and although neither Senator Barack Obama nor Senator John McCain has yet offered a detailed plan, their records. and the principles they have set out so far suggest they could come at the issue in very different ways.

On the campaign trail on Monday, Mr. McCain, the Republican presidential nominee, struck a populist tone. Speaking in Florida, he said that the economy's underlying fundamentals remained strong but were being threatened ``because of the greed by some based in Wall Street and we have got to fix it.''

But his record on the issue, and the views of those he has always cited as his most influential advisers, suggest that he has never departed in any major way from his party's embrace of deregulation and relying more on market forces than on the government to exert discipline.

While Mr. McCain has cited the need for additional oversight when it comes to specific situations, like the mortgage problems behind the current shocks on Wall Street, he has consistently characterized himself as fundamentally a deregulator and he has no history prior to the presidential campaign of advocating steps to tighten standards on investment firms.

He has often taken his lead on financial issues from two outspoken advocates of free market approaches, former Senator Phil Gramm and Alan Greenspan, the former Federal Reserve chairman. Individuals associated with Merrill Lynch, which sold itself to Bank of America in the market upheaval of the past weekend, have given his presidential campaign $300,000, making them Mr. McCain's largest contributor, collectively.

Mr. Obama sought Monday to attribute the financial upheaval to lax regulation during the Bush years, and in turn to link Mr. McCain to that approach.

``I certainly don't fault Senator McCain for these problems, but I do fault the economic philosophy he subscribes to,'' Mr. Obama told several hundred people who gathered for an outdoor rally in Grand Junction, CO.

Mr. Obama set out his general approach to financial regulation in March, calling for regulating investment banks, mortgage brokers and hedge funds much as commercial banks are. And he would streamline the overlapping regulatory agencies and create a commission to monitor threats to the financial system and report to the White House and Congress.

On Wall Street's Republican friendly turf, Mr. Obama has outraised Mr. McCain. He has received $9.9 million from individuals associated with the securities and investment industry, $3 million more than Mr. McCain, according to the Center for Responsive Politics, a watchdog group. His advisers include Wall Street heavyweights, including Robert E. Rubin, the former treasury secretary who is now a senior adviser at Citigroup, another firm being buffeted by the financial crisis.

If many voters are fuzzy on the events that over the weekend forced Lehman Brothers Holdings Inc. into bankruptcy and Merrill Lynch & Company. to be swallowed by the Bank of America Corporation, the continuing chaos among the most venerable names in American finance--coming on top of the recent government seizure of mortgage giants Fannie Mae and Freddie Mac and the demise of the Bear Stearns Companies--has stoked their anxiety for the economy, the foremost issue on voters' minds.

So it was that first Mr. Obama and then Mr. McCain rushed out their statements on Monday morning before most Americans had reached their workplaces.

To the extent that travails on Wall Street and Main Street have both corporations and homeowners looking to Washington for a hand, that helps Mr. Obama and his fellow Democrats who see government as a force for good and business regulation as essential. Yet Mr. McCain has sold himself to many voters as an agent for change, despite his party's unpopularity after years of dominating in Washington, and despite his own antiregulation stances of past years.

Mr. McCain was quick on Monday to issue a statement calling for ``major reform'' to ``replace the outdated and ineffective patchwork quilt of regulatory oversight in Washington and bring transparency and accountability to Wall Street.'' Later his campaign unveiled a television advertisement called ``Crisis,'' that began: ``Our economy in crisis. Only proven reformers John McCain and Sarah Palin can fix it. Tougher rules on Wall Street to protect your life savings.''

Mr. McCain's reaction suggests how the pendulum has swung to cast government regulation in a more favorable political light as the economy has suffered additional blows and how he is scrambling to adjust. While he has few footprints on economic issues in more than a quarter century in Congress, Mr. McCain has always been in his party's mainstream on the issue.

In early 1995, after Republicans had taken control of Congress, Mr. McCain promoted a moratorium on federal regulations of all kinds. He was quoted as saying that excessive regulations were ``destroying the American family, the American dream'' and voters ``want these regulations stopped.'' The moratorium measure was unsuccessful.

``I'm always for less regulation,'' he told The Wall Street Journal last March, ``but I am aware of the view that there is a need for government oversight'' in situations like the subprime lending crisis, the problem that has cascaded through Wall Street this year. He concluded, ``but I am fundamentally a deregulator.''

Later that month, he gave a speech on the housing crisis in which he called for less regulation, saying, ``Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.''

Yet Mr. McCain has at times in the presidential campaign exhibited a less ideological streak. As he did on Monday, he from time to time speaks in populist tones about big corporations and financial institutions and presents himself as a Theodore Roosevelt-style reformer. He supported the Bush administration's decision to seize Fannie Mae and Freddie Mac, the mortgage giants, and he has backed as unavoidable the promise of taxpayer money to help contain the financial crisis.

Other than Mr. Gramm, who as chairman of the Senate Banking Committee before his leaving Congress in 2002 worked to block efforts to tighten financial regulation, Mr. McCain's closest adviser on matters of Wall Street is John Thain, the chief executive of Merrill Lynch, who has raised about $500,000 for Mr. McCain. Unlike Mr. Gramm, Mr. Thain has a reputation as a pragmatic, nonideological, moderate Republican. That the men are Mr. McCain's touchstones is typical of his small and eclectic mix of advisers, making it hard to generalize about how Mr. McCain would act as president.

A prominent McCain supporter, Gov. Tim Pawlenty of Minnesota, signaled how Mr. McCain would try to make his antiregulation record fit the proregulation times that the next president will inherit. Mr. Pawlenty suggested in an interview on Fox News that, given the danger that ``any future administration'' would go too far, Mr. McCain would be the safer bet to protect against ``excessive government intervention or excessive government regulation;''

Mr. Obama also does not have much of a record on financial regulation. As a first-term senator, he has not been around for the major debates of recent years, and his eight years in the Illinois Senate afforded little opportunity to weigh in on the issues.

In March 2007, however, he warned of the coming housing crisis, and a year later in a speech in Manhattan he outlined six principles for overhauling financial regulation.

On Monday, he said the nation was facing ``the most serious financial crisis since the Great Depression,'' and attributed it on the hands-off policies of the Republican White House that, he says, Mr. McCain would continue. Seeking to showcase Mr. Obama's concerns, his campaign said Mr. Obama led a conference call on the crisis early Monday that included Paul A. Volcker, the former chairman of the Federal Reserve; Mr. Rubin; and his successor as treasury secretary, Lawrence H. Summers.

Later, citing Mr. McCain's remarks about the economy's strong fundamentals, he told a Colorado crowd that Mr. McCain ``doesn't get what's happening between the mountain in Sedona where he lives and the corridors of power where he works.''

One reason for both men's sketchy records on financial issues is that neither has been a member of the Senate Banking Committee, which has oversight of the industry and its regulators. Under both parties' leadership, the committee often has been a graveyard for proposals opposed by lobbyists for financial institutions, including Fannie Mae and Freddie Mac, which last week were forced into government conservatorships.

Industry lobbyists' success in killing such regulations meant senators outside the banking panel did not have to take a stand on them.

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