Restoring American Finacial Stability Act of 2010
Floor Speech
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Mr. DURBIN. Mr. President, let me basically set the stage on what we are doing in the Senate today and why it is so important.
This bill, which Senator Dodd of Connecticut has worked on for months with his staff--1,407 pages--is basically a bill that has been designed to create financial stability in the United States. Even with this great economy we have and all of the financial institutions and businesses notwithstanding, this recession has brought us economic pain that many of us have never seen in our lifetimes and only remember vaguely from our parents and grandparents describing the Great Depression.
What Senator Dodd and the Banking Committee set out to do was to basically change the law to establish more oversight of financial institutions to make sure we never get into this mess again. It took quite a few pages to do it. This week, we start considering amendments to the bill, efforts to improve it, change it, and delete sections. It is the Senate in its historic role as a deliberative body.
Today, there are no votes and that is why there are few Members on the floor. Amendments will be offered and the votes will start maybe as soon as tomorrow if Senator Dodd and Senator Shelby can reach an agreement. It is worth a moment's reflection to understand why we are here with a bill of this importance and magnitude, which may take a week or more--probably more--before it is completed. The Pew Financial Reform Project recently summarized what we have been through in this recession. It is a painful reminder, but it is worth noting as we start this debate. This is what they estimate to be the devastation caused by the recession we are in: $100,000, the cost to the typical American family in combined losses from declining stock and home values; $360 billion, the estimated loss in wages due to slow economic growth, in October 2008 through 2009, and that is a loss in wages of over $3,250 for the average U.S. family because of the recession; $3.4 trillion, the total loss in real estate wealth from July 2008 until March 2009, so roughly, on average, every household in America who owns a home lost $30,300 in value; 5.5 million, the number of additional jobs lost due to slow economic growth, and some 8 million Americans are unemployed, and another 6 million are discouraged and not looking for work; 500,000, additional number of homes foreclosed upon during the most acute phase of the crisis; $7.4 trillion, total loss in stock wealth from July 2008 through March 2009. That is more than $66,000 per household, and it was usually felt in retirement accounts and savings accounts of families all across America.
These are indications of what we have been through and, to some extent, are still going through. We are emerging from this recession, but it was a devastating loss to families and businesses across America, and a loss many are still trying to recover from. Senator Dodd took on the unenviable task of looking at the laws we have on the books and asking: How can we strengthen them to avoid this from happening again?
Of course, there are several things that stand out. Why did the United States get in the business of stepping up and saying we are going to take taxpayer dollars to save private businesses? That is what we did. AIG, the largest insurance company in the world--initially, the Federal Reserve came in with some $85 billion when they were about to fail. If I am not mistaken, over the course of time, they added another $100 billion given to this one entity to keep it afloat. Why? Because they had basically guaranteed with insurance policies business contracts at every level in the American economy, and they were about to fail. They didn't keep an adequate reserve. So as these contracts started to fail, this insurance company couldn't pay off its promise. The feeling was that the whole economy would collapse on itself if we didn't prop up AIG to keep it in business.
The same was true for major financial institutions--institutions that dreamed up securities which had never existed before. They decided to start packaging mortgages. So the mortgage I entered into in Springfield, IL, with my local bank could have been sold off to another bank, and then to some other financial institution, and then chopped and diced into pieces, those pieces each going to a separate security; and people were investing in them, guessing whether my wife and I were going to make our mortgage payments.
As they went along, these rating agencies that are supposed to look at these securities and decide whether they are good or bad were giving them sky-high AAA ratings, as good as a government security. Why? Because there weren't many defaults in real estate mortgages and, historically, real estate values went up. So they said this is a safe investment. Meanwhile, there were people looking at derivatives, saying we think this may be too optimistic, and we think maybe people are being loaned money for mortgages who might not be able to pay.
As we got into it deeper, that is exactly what happened. Banks and financial institutions were offering mortgages to people under no-doc loans, no document loans, which basically meant if you said, I am making $100,000 and my wife is making $100,000 and we have maybe $50,000 in debt, they would say: That is all we need to know; let's go to closing.
But where were the income tax returns and the documents to prove it? They weren't worried about that because they would get the mortgage and quickly sell it off to somebody else. That created this house of cards that eventually tumbled.
What Senator Dodd and the Banking Committee are trying to do is make sure we never get in the position where American taxpayers never have to be called on to prop up banks, financial institutions, and insurance companies which, if they failed, would bring down the economy.
The first amendment we have is from Senator Boxer of California. It has been referred to by the minority whip, Senator Kyl, in his opening remarks. He referred to it and described it as kind of a sense-of-the-Senate offering. For those not familiar with how the Senate works, at the end of the day, we have a long list of resolutions that we offer for winning basketball teams and for national dairy ice cream dairy month, and fair play for Paraguay, and all sorts of things. These are sense-of-the-Senate resolutions, where we express our warm feelings for the good things happening in this country.
This offering by Senator Boxer is not a sense-of-the-Senate resolution. It is an amendment to the bill. It is so short and direct that I want to read it. It consists of three sentences. Listen to them in clear, plain English, and you will understand why Senator Boxer's amendment is the right one for us to start with:
First:
All financial companies put into receivership under this title shall be liquidated. No taxpayer funds shall be used to prevent the liquidation of any financial company under this title.
Second paragraph:
All funds expended in the liquidation of a financial company under this title shall be recovered from the disposition of assets of such financial company, or shall be the responsibility of the financial sector, through assessments.
Third:
Taxpayers shall bear no losses from the exercise of any authority under this title.
This is not a greeting card. This would be a law with teeth prohibiting the taxpayers of America from ever being left holding the bag again when a bank makes stupid decisions and faces liquidation. That is not a sense-of-the-Senate resolution. It would be a law and should be the first thing we pass.
Senator Boxer listened to the debate back and forth about taxpayer bailout. She said to me and others: I am going to make this clear. I am going to put it in as clear language as I can think of to make sure that at the end of the day, we never go through this again. Her leadership on this amendment--it is right to be the first subject to be brought up. Those on the other side who dismiss this as not being powerful enough need to take the 2 or 3 minutes it would take to read it. If they read it, they will understand it is powerful, direct, and understandable language that says we are never going to let the taxpayers face this kind of obligation.
It is not the only provision in this bill. There are many others that have been worked on for a long time. Senator Dodd negotiated with the other side literally for months trying to reach a bipartisan agreement. I know he tried. He tried hard with Senator Shelby, the ranking Republican, with Senator Corker, a member of the committee, also a Republican. At a committee hearing he held, the Republicans offered 400 amendments, something of that nature. When the time came to call the amendments so there would be an open debate and the bill could be changed one way or the other, they made a decision not to call any amendments, not to offer any changes to the bill.
I say on behalf of Senator Dodd, he has shown a good-faith effort to try to make this a strong bipartisan effort. It is not too late. As we start the debate this week, we have a chance to reach, I hope, some agreement and make this a strong bipartisan bill at the end.
But when I listen to Senator Kyl of Arizona talking about the goals of this bill and what we want to achieve, I am worried. You see, the Republicans issued their summary of their substitute bill, the bill they want to offer to replace this bill. Within that summary, there is one thing that stands out: There is not a single provision in the Dodd bill which the Republican substitute would strengthen. There is no language we could find in their summary where they say: We are going to make sure we protect families and businesses and consumers more. Each and every section of their substitute weakens this bill, strengthens the banks, and removes the oversight and transparency requirements in so many different areas.
When we take a look at the powers that the Dodd bill provides to the Federal Reserve, unfortunately this Republican substitute does not even give those same powers so that the Federal Reserve which could require, for example, more leverage requirements so that a bank would have more money in the bank to back up investments they would make, liquidity requirements, those are all weakened by the Republican substitute. Time and again their approach to this bill to avoid an economic disaster is to water it down.
Last week, they had a different strategy. The strategy was a filibuster strategy to stop us from even coming to this bill. When they could not sink the bill, they decided they would let us move forward and try to water it down. I don't think that is a move in the right direction for the American economy. I hope we will stand against amendments which weaken this bill.
It is estimated that the financial industry is spending over $100,000 a day in Washington on lobbyists who are trying to get us to weaken or defeat this bill. One may not see them as one walks around Capitol Hill. Believe me, they are busy at work--on the telephones and visiting the offices--asking Members to weaken this bill.
I hope we have the fortitude to say no because this is something that needs to be done. This bill needs to be passed. If anything, we need to strengthen provisions of it.
There is one section that means a lot to me on consumer financial protection. I offered a separate bill on the subject before it came up. Historically, we gave consumer financial protection to a lot of different agencies. Sadly, none of them took it too seriously.
I can recall when the Chairman of the Federal Reserve, Ben Bernanke, was up for reconfirmation just a few months ago. I talked with him in my office. He said: Over the years, the Federal Reserve was given powers to protect consumers. He said: What happened was we never used them. Recently we have started to, but historically we did not use this authority.
We had a situation that when it came to the safety and soundness of banks, they were doing their job, trying to make sure the banks had enough in reserve, that their practices were meeting the law. But when it came to protecting the people, the customers of the banks, they did not really apply themselves to that situation. That was repeated in several other agencies.
What Senator Dodd has done is to create the strongest consumer financial protection law in the history of the United States of America. He is not creating a massive bureaucracy as his critics say. Rather, he is saying we will have one agency with its own funding and its own authority which will be able to look at legal documents that Americans, families, and businesses deal with every day to protect us from the tricks and traps into which we can run.
There will be more complete disclosure when it comes to signing an important document--such as a mortgage, credit card agreement, a student loan, an automobile loan, a retirement plan--so that individuals will be empowered across America to look at the facts and make the choice that is best for them.
We are not going to create any kind of guardian angel society. People may still make a bad decision, but they will do it with their eyes wide open instead of being lured into a document which has a secret clause that ends up exploding and hurting them financially.
It happened not that long ago. My colleagues may remember if any of them have been to real estate closings, sitting down in that bank office at a table with your spouse, with two ballpoint pens in hand as they turned the corners of the documents and you signed away for about 20 or 25 minutes. About halfway through you say: What is this again? Oh, don't worry, it is standard boilerplate, just required by the government; been through it all; done it a thousand times. Off you go.
At the end, you put the ballpoint pen down, stand up, shake hands, hand a check, get the keys, go to the new house. But you never know until a later time whether there is a clause or provision in one of those agreements that can come back to haunt you. Let me give an illustration.
In the days of subprime mortgages, people used to be lured in to take a mortgage on a house because the payments were so low: In the first couple of years you mean my monthly payment is going to be half of what I was paying, and I can have this big house? It's a deal. In the third year, there is going to be a change, but the home is going to go up in value. And off you go and sign up.
Some people did not seriously take into consideration that things might go bad for them personally, such as losing a job or the value of the home may not go up as promised or the interest rate may go sky high and they cannot handle it.
In the early mortgages, they had a prepayment penalty. That one clause, that one sentence meant those people at that moment in time would face the worst economic situation of their lives because instead of being able to renegotiate a different mortgage with a different bank with affordable terms, there was a penalty built into their original mortgage that cost them tens of thousands of dollars they could not pay, and they ended up in foreclosure and ended up losing their homes and lost their downpayments. Many of them lost their life savings because of one sentence in that stack of closing documents.
The purpose of this consumer financial protection agency is to make sure we shine a light on those provisions so that people know when they make a decision what that decision means.
Now come the Republicans, and they have come up with a substitute, at least their leadership has. I don't know if it speaks to all the Republicans. They may not agree with it.
In their summary, it appears they start carving out different groups that will not be covered by consumer financial protection. We have them in my hometown of Springfield, IL, and you may have them in yours too. These pay-day loans, title loans, where you come in and hand the title of your car over and they give you a basic loan and say: We are not going to take your car away.
The next thing you know, interest rates are going up, you refinance the loan, and pretty soon you may lose your car. It appears in the Republican substitute those folks in their business ventures should not be covered by the Financial Consumer Protection Act. Go figure. Some of the shabbiest credit operations in America are going to be exempt under the Republican approach to this bill. I don't think it makes much sense.
They also, when it comes to check cashers, currency exchanges, debt collectors, some of the used car dealers, start cutting out exemptions, these lobbyist loopholes that are carving out different financial institutions which will not be subject to this kind of consumer protection.
That is a step in the wrong direction. We ought to make sure everybody is onboard. Groups have come to me from Illinois and said: Could you just acknowledge the fact that our operation has been clean, everybody loves us, we are good neighbors? No, everybody should play by the same basic rules of disclosure and honesty. Good businesses can live with that standard. Those that are not so good, maybe they should not be in business.
When it comes to the attorneys general in the States across America, the Republican substitute says they cannot enforce the provisions we are putting in here. That is a step in the wrong direction. That weakens this good bill. I hope we do not succumb to that proposal.
There are a number of other things in here. I will not go through it in detail. One of the staff refers to it as a ``term paper.'' It goes on page after page summarizing what the Republican substitute will do.
It basically weakens the credit rating agencies I mentioned earlier. Remember the ones that gave AAA ratings to bad securities? Senator Dodd starts addressing these with review of their practices, and the Republican substitute weakens that. How can that be any good, to weaken that after the experience we have been through?
That is the debate we are going to face. I hope my colleagues, during the course of this week, will have the opportunity to take this good bill, this strong bill, and make it stronger. I will offer a few amendments along those lines. If those on the other side of the aisle want to join in that effort, I welcome them to see what they have to offer. But if those who come to the floor to offer amendments to weaken this bill, to weaken the oversight, to have less transparency and less security, they are virtually eliminating a cop on the beat that we need on Wall Street to make sure we never, ever experience the kind of economic crisis we are currently experiencing across America.
Mr. President, I yield the floor.
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