Restoring American Finacial Stability Act of 2010 - Continued

Floor Speech

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Mr. MERKLEY. Mr. President, we are coming to the end of a long path of consideration of fundamental financial reforms. A key piece of the discussion along that trail has been whether we are going to modify the way securities operate, how high-risk investment pools operate, and how ordinary banking that takes deposits and makes loans operate, so that all three will do better in their role of aggregating capital and allocating capital.

We have some fundamental challenges in our society. One is that inside of a bank holding company, we have both the high-risk investing and the standard process of taking deposits and making loans. These two are both excellent systems, but they don't belong under the same roof. When they are under the same roof, they create two problems. The first problem is the bank that is providing the loans has access to a discount window in insured deposits. All of that is intended to make sure money gets to small businesses and families. But when they are under the same roof, we have the temptation of the resources being directed to high-risk investing rather than getting into the hands of our families and small businesses.

In every corner of Oregon and in every corner of every State, folks are finding it hard to get loans. Lines of credit are being cut in half. Projects to expand and hire additional employees are being thwarted because the local bank says: We can't do any more lending because we have hit our limit on leverage and our capital is such-and-such.

We do not want large banks that have both functions to be diverting their energy and resources from the lending that is so important to Main Street into high-risk investing. They need to be separate for that reason.

The second reason is that when the investing blows up, as it does periodically, then we have a situation where it blows up the lending, sends shock waves through lending. It causes lending to freeze. When that happens, the economy suffers, Main Street suffers, and families suffer. That is where we are right now.

Let's take a look at the facts. We have a situation where over the past couple years we have seen Lehman Brothers, which had high-risk trading losses of over $30 billion, go down. Merrill Lynch had $20 billion of loss, saved by TARP; Morgan Stanley, $10 billion, saved by TARP; JPMorgan Chase, $25 billion from TARP; Goldman Sachs, $10 billion from TARP; Bank of America, over $45 billion in TARP funds. Proprietary trading blew up some of our biggest financial institutions and froze lending to businesses on Main Street across this Nation.

We need to have a firm separation. We need to make sure that if you are buying fireworks for the Fourth of July, you are not storing those in the living room. By that I mean high-risk investing is the fireworks, and you don't store them in your living room where you are doing the lending so important to Main Street.

This is a Wall Street-Main Street battle. My colleague Senator Levin and I have been working on this for quite some time. We need to make our financial system work better for America.

Two days ago, we offered to have our amendment voted on, not with a 50-vote standard but with 60 votes. The leadership across the aisle thwarted that unanimous consent request and said: You may not have a vote on your amendment.

Not even at 60 votes?

No, you may not.

Not even with two Democratic Senators off in their home States because they had primary elections?

No, you may not. You may not debate this amendment on the floor.

Quite frankly, that is the result of pressure from Wall Street saying that fundamental financial reform should not be discussed in this Chamber. What is this Chamber? Is this Chamber a puppet to Wall Street or are we a serious gathering of men and women from across the Nation whose responsibility is to build a better financial system?

Another fundamental piece of this amendment is to end the conflict in securities. This is simple. If you design securities and you sell them, you don't take out insurance on them because you think they might fail after you have sold them. That is a fundamental conflict of interest.

That is like somebody who wires your house; you bring them to your house and you say: Please do the wiring or fix the wiring. And they take out a fire policy on your house because they know they did such a bad job, they think your house is going to burn down. You would never hire that electrician. Or it is like a car dealer. The dealer says: I will sell you this car. And after they sell it to you, they take out a life insurance policy on you because they didn't do the brakes right. It would make you pretty nervous. You would not buy a car from an auto dealer who has taken out an insurance policy on your life. That is a simple issue addressed in the securities provision of this bill.

We are hearing word that Republicans are going to go

through a parliamentary maneuver, even though our amendment is now in order and pending, to kill debate on the pending Merkley-Levin amendment. We hope that is not true, but we are hearing that in not so many minutes, sometime this evening, there is going to be a process to kill the amendment our amendment is attached to so there will be no debate on this issue.

I cannot believe the Senate of the United States is afraid to have a debate and vote on fundamental financial reforms important to the integrity of our securities and important to Main Street getting loans. But that seems to be where we are headed. I hope I am wrong. I hope my colleagues from across the aisle will come out and say: No, we have reconsidered. We think this body should debate serious issues. You might win, you might lose, but we should hold the debate.

We have asked the Republican leadership to sever the connection between our amendment and the Brownback amendment, which are on different topics. One is on fundamental financial structures, and one is on automobile dealers and whether they are covered by the Consumer Financial Protection Bureau. We said: Sever them. Let each have a separate debate. They have told us no. They will not sever the connection and allow a debate on each topic. That is why, if the primary amendment is withdrawn, ours will go down, too, and the people of the United States will be deprived of having a legislature that debates seriously the structure of reform.

I will wrap it up. I know my colleague is going to expand on these remarks. It has been a pleasure working with him. It has been a pleasure working with the Banking staff.

But before I conclude, I want my colleagues to know that based on the conversations I have had in this body, if we were to have this vote, we would win tonight, based on the comments of folks who say they either support or are strongly leaning toward supporting it. That means we would go to conference with a very strong position, as we should. If this is withdrawn tonight, if we are not able to have this debate and vote, I hope the leadership on both sides of the aisle will say, even though we didn't debate it, we will take this strong position for financial reform to the conference.

The USAA, which is a group that serves our veterans, has commented about this amendment. They said:

Senators Merkley and Levin recognize the value of insurance company investments which already are subject to well-defined state insurance restrictions. ..... In that vein, we urge you to support the amendment and include it in the Restoring American Financial Stability Act that is passed out of the United States Senate.

May 13, 2010.

A person from the Washington Post writes:

Probably the most important amendment comes from Sens. Carl Levin and Jeff Merkley, Democrats from Michigan and Oregon, respectively. It would replace the vague language of the Dodd bill, which gives discretion to regulators as to how much proprietary trading they would allow, with a clear provision banning federally insured banks from such trading respectively (the ``Volcker rule''). If the banks want to turn themselves into casinos, they can--but if Merkley-Levin passes, they would do so without taxpayer support when their bets go sour.

A New York Times editorial:

The Senate bill also imposes needless delays on the enactment of the so-called Volcker rule, which would bar banks from making risky market trades for their own accounts and from owning hedge funds and private equity funds. Senators Carl Levin of Michigan and Jeff Merkley of Oregon, both Democrats, have an amendment to enact the Volcker rule without undue delays or tinkering.

The Independent Community Bankers of America is asking for this to be passed to strengthen our financial system.

The Campaign for America's Future, the former head of Citibank, who watched as the two sides of his bank collided in a spectacular disaster, are supporting this amendment. This amendment should be debated and voted on on the floor of the Senate. To do otherwise would not fulfill our responsibility to the people of the United States of America.

Thank you very much, Mr. President.

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Mr. MERKLEY. Mr. President, the points made by my colleagues from Maine and Connecticut are correct. The purpose of the amendment is to ensure that consumers are sold loans that they are able to repay. The authority granted to the agency to prescribe rules establishing other criteria--and to ``revise, add to, or subtract from'' the existing criteria--relating to the presumption of compliance is intended to allow the agency to craft criteria that would permit lenders who extend low-dollar loans to meet the presumption of compliance, while promoting fair pricing and sustainable lending. This is particularly important in rural areas and other areas where home values are lower.

Mr. President, the gentleman is also correct in regard to streamline refinancing under rules of the FHA, the VA, and other government agencies. It is intended that the Federal Reserve Board, or the bureau, will exempt such loans under the exemption authority of paragraph (7)(A).

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