The Reform Of Wall Street
Floor Speech
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Mr. ELLISON. I thank the gentleman for yielding. I also thank the gentleman for holding down this Special Order tonight. It is very important to talk about the American economy, so let me dive right in, as there are a few facts the American people may want to consider.
Barack Obama took office on January 20. George Bush was the President that whole month. There were 741,000 jobs lost to the American economy. There were 741,000 jobs lost under the Republicans when they had the Presidency, even back when they had majorities in both the Senate and the House of Representatives.
I think this board is very revealing. On the vertical axis, it demonstrates Time, which is months during the year--'07 all the way to March 2010. On this vertical axis are Job Changes.
Here we see, in January 2008, Bush begins to lose jobs, and they very clearly go down to hit the very bottom when we see December 2008-January 2009.
What we see during the Obama administration is a steady climb back up from the abyss. Very recently, we have even seen positive job growth for a few months.
This is an important fact to point out in the very beginning because, as we talk about who ran the economy into the ditch, it is very clear that our Republican colleagues managed that on their own and that it is the Democrats who steered the American economy back to a point of safety.
Let me also say this: When it comes to financial deregulation--and of course, tonight, we're going to be talking about the Wall Street Reform Act and about accountability. The fact is it was during the Bush administration that the climb on foreclosures began and that we saw 2.8 million people face foreclosure. In the last year, we saw foreclosures begin, and we have yet to see an antipredatory lending bill passed under any Republican regime. While the Republicans were in the majority, they did not do anything about foreclosures. They did not do anything about predatory lending. They did not do anything about yield spread premiums. They did not do anything about 2/28 mortgages and 3/27s. This is when people were being encouraged and persuaded to sign these fine-print, no-doc, low-doc mortgages. At the end of their teaser rate periods, they would see these mortgages explode, and they would find themselves in foreclosure.
The fact is the Democrats have taken the bull by the horns, and we have begun to right our ship of state to bring the American economy back to health. We have seen increases in the gross domestic product. Under the Democrats, we have seen increases in the number of jobs and decreases in the rate of unemployment. Thank goodness, we are here on the verge, hopefully, to pass Wall Street reform in order to really put the American economy back in the shape it deserves to be in.
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Mr. ELLISON. Yes. If the gentleman would yield, I want to just say that this is an excellent list and really helps listeners to sort of zero in on some of the
key features that we will elaborate on right now.
Let me just give my own take on consumer protection. There are about seven different agencies that had some responsibility for consumer protection. The Federal Reserve Bank, for one, has some responsibility. Actually, it was in 1995 that Congress passed a law that said that the Fed could regulate in the area of mortgage lending, and they didn't do so.
What this Consumer Protection Agency would do is to say, you know what? We're not going to spread the responsibility so that everybody says, well, I thought somebody else was going to do it. What we do is we concentrate it and say we hold this agency responsible for consumer protection. The Fed, as you know, is responsible for monetary policy and responsible for unemployment, keeping the economy going for employment. It also has responsibility historically for consumer protection. What we're saying is that it makes sense for an agency which will have the responsibility for rulemaking with regard to consumer protection, enforcement of consumer protection rules, and examination of companies that have a responsibility to comply, to make sure that if you are going to sell a product, a financial product, a loan, that the terms are clear, that people understand the terms, that people know what they are getting into, that there's transparency, that there is real information that a person could make a good decision on. And then also there might be some products that are just completely and patently unfair that consumers ought to be able to not have to be part of.
Let me just say there's something going on here when we do financial transactions known as information asymmetry. Let's just face it, folks. Look, I'm a 46-year-old man. I bought only one house in my life. I have been at a closing once and only once. I went to college. I even went to law school. I was a State legislator. I am no match, no match at all, for somebody who wants to sell me a mortgage that maybe I don't want. The terms and conditions are just too opaque. It's too much information. If you've ever been to housing selling, you're just signing documents, one right after another. People don't get it. We need a Consumer Protection Agency that will say, look, this has got to be a fair transaction, this has got to be disclosed, it needs to be clear, and that way we may be able to have some good decisionmaking and better decisionmaking on behalf of consumers.
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Mr. GARAMENDI. Mr. Driehaus.
Mr. DRIEHAUS. I appreciate that. And picking up on that point, the CFPA is critical to provide consumers information. But if you go back down to No. 5 on that list, strengthening community banks, this strengthens community banks because so much of the problem occurred outside of the financial institutions in the first place.
Many of these subprime mortgages, many of these bad loans didn't originate with community banks. The community banks were doing the right thing. But there was no regulation of the behavior of these nonfinancial entities. So for the first time, the CFPA will step in and provide regulation over the product itself. So it doesn't matter how you structure your entity to avoid regulation. The regulation will come in the form of the product. So if you're offering a consumer product which is determined to be a bad product for consumers, you will be prohibited from offering that, regardless of the type of entity that you are.
This is important because banks are very wary of regulators and for good reason, especially community banks, who have regulators coming in all the time to make sure that safety and soundness is being complied with and to make sure that consumers are being treated fairly. But what the CFPA gets at isn't additional burdens on community banks, but it's going after those previously nonregulated entities to make sure that they are following the law and that the products they are offering are fair and that the disclosures they are providing are clear, that they're transparent, and consumers know what they are getting themselves into.
Mr. ELLISON. Could I ask the gentleman a question?
Mr. GARAMENDI. Please.
Mr. ELLISON. And I will ask both gentlemen a question.
Now, if the Consumer Protection Agency is going to actually provide regulation to nonbank lenders, most of whom generated these subprime and predatory loans, will that help community banks by taking away the competitive advantage some of those unregulated lenders had?
Mr. DRIEHAUS. Yes, I believe it will absolutely strengthen the community banks.
And as you know, many of the community banks were provided additional protections, Mr. Speaker, by making sure that the CFPA was only part of the regulatory structure when we went into community banks so that we didn't place yet an additional burden in terms of an examination on that community financial institution.
So I believe this is an additional protection because for far too long, these entities were existing outside of a regulated marketplace, which put community banks, the guys that were doing the right thing, the guys that so many of us rely upon, and lend to small businesses, lend to people trying to purchase their homes--they were at a competitive disadvantage, and this really does strengthen those community banks because it forces everybody to have an even playing field.
Mr. GARAMENDI. It's really very, very important that we do focus on the community banks. This is Main Street. This is where the small businessman--the men and women that own the local grocery store, the shop, the person who is the carpenter, the painter, this is where they will get the money that they need, the loan that they need to carry on their business. It's the community banks. But what has happened in America over the last decade is a concentration of economic strength in the hands of just a few.
A very, very few of the large banks, Wall Street banks now, control 80 percent or more of the American financial strength. We need to take that into account, not only because it will give the community banks an opportunity to compete and to have capital available to them so that they can make those loans, but also because of this problem of too big to fail. Too big to fail. That's what happened over the course from 2000--maybe beginning in the nineties--until 2008, when the great collapse occurred. The banks grew bigger and bigger and fewer and fewer so that at one point just a handful controlled most of the financial assets of America. And they grossly mismanaged those assets. AIG, a famous name. Lehman Brothers, another bankrupt company. All of the games that they played, those roosters came home to roost and the droppings were on American homeowners and the hardworking men and women of America that lost their jobs as a result of Wall Street excesses.
So now what are we going to do about too big to fail? The Senate, which is now moving a piece of legislation that would accompany the House bill, which we passed 4 months ago, that piece of legislation may be amended to say that no financial institution in America can control more than 10 percent of the financial strength of this Nation. That is something I really like. Back in college, I learned about the need for competition. I took an economics class. You have to have competition. You've got to have a lot of players. You've got to have a robust free market. Well, we don't really have that in the financial institutions anymore because they've grown too big. Well, if we just make them a little smaller: You get to 10 percent, I'm sorry, you're going to have to shed some business. We'll have to have others pick up the rest of it. But this too big to fail is part of the reform bill. Exactly how it's going to come out of the Senate, we don't know for sure. But it is certainly going to deal with this issue.
Mr. Ellison, I know that you worked on this.
Mr. ELLISON. Well, the gentleman, I'm glad, talks about this issue of too big to fail. If either the gentleman from Ohio or California want to elaborate, I'd just like to pose to both of you gentlemen a question, and that is: If some banks are too big to fail, are there then other banks that are too small to save?
Mr. GARAMENDI. Well, now that's an interesting question. Clearly, we have institutions that are too big to fail. That's where the TARP legislation that was the last act--one of the last acts of the Bush administration--came into being. The Treasury Secretary, Mr. Paulson, who actually was the CEO of Goldman Sachs, as I recall, came to this House, came to the Senate, and said, Oh, my. Oh my. The world is going to collapse unless you immediately cough up a trillion dollars to the banks to stabilize the banks. Fortunately, this House said, Wait a minute. Let's see what we're doing here. Instead of a 1-page bill giving the Treasury Department a trillion dollars, the TARP program was put in place. And it did stabilize the financial institutions but it was a clear sign that Wall Street banks had become too big. AIG. How much have they taken? Twenty-three billion dollars of our money. Are we going to get it back? We don't know.
Mr. Driehaus, if you will carry on here. I know that you were involved in that TARP legislation. Share with us.
Mr. DRIEHAUS. Getting back to the issue of too big to fail, because I think this is really a critical issue for people to get their arms around. I think it's important that we have strong capital markets; that the private sector works well in providing capital to allow our businesses to grow, to allow people to invest in the economy. That's critically important. But the issue of too big to fail really comes back to our responsibility, because when an entity is too big to fail, then it suggests that they go well beyond losses that might just impact the shareholders or losses that might just impact the owners or the employees of a business, but in fact it impacts all of us.
We then have a responsibility so that when the harm that's caused by these institutions is so great that it impacts the public good, then the United States Congress has a responsibility. In this case, the foreclosure crisis. Not only have we seen the greatest recession in our lifetimes but we have seen neighborhoods just devastated by foreclosures all across this country. Certainly, in the State of Ohio, where I come from.
The cost is enormous. That's not being repaid by Goldman Sachs. Lehman Brothers isn't around to do it. The big investment firms on Wall Street aren't there when we're having crime in our neighborhoods due to the foreclosures. It's the residents and the local governments that are left to pick up the pieces. That's what we mean by too big to fail.
So never again will we allow an entity to get so big that its failure will cause such a calamity not just to the economy but to our neighborhoods, to our communities, and obviously to jobs across the country. So we've put mechanisms in place to prohibit entities from growing that large. And if they are so large that their collapse would have this tremendous impact, we provide for a provision to allow the Fed to wind them down and allow Treasury to wind them down--not at taxpayer expense but at their own expense and at the expense of financial entities who are contributing to a pool. We don't believe in the government bailouts. We are trying to put an end to government bailouts. What we are trying to do is allow these to be dissolved in a way that's fiscally responsible. That's what we mean by too big to fail.
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