Fifth Anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act

Floor Speech

BREAK IN TRANSCRIPT

Mr. Speaker, I come to the floor today on this fifth anniversary of Dodd-Frank to reflect a little bit on a signal piece of legislation that, to this day, remains controversial.

Dodd-Frank, of course, was a response to the worst economic meltdown that we have seen in this country since the Great Depression of the 1930s.

I want to reflect back on what led to the need for Dodd-Frank, the impact that that Great Recession, as we have come to call it, had on Americans and American families all over this country and then think a little bit about what Dodd-Frank has and has not done in the 5 years since its passage.

It remains a controversial piece of legislation. All you have to do is look at the steady stream of press releases from the majority party on financial services.

I have a few here:

Dodd-Frank has enshrined too big to fail into law.

Obama claimed Dodd-Frank would lift the economy. It has done the opposite, despite the fact that we learned today, of course, we have got one of the lowest jobless rates in a very, very long time.

Financial crisis was caused by Washington's dumb regulations. That would come as a surprise to pretty much anybody with economic know-how who saw the long chain of malfeasance and irresponsibility in the mortgage market that actually led to the crisis.

Dodd-Frank is setting the stage for the next crisis.

``Dodd-Frank Act leaves America less stable, less prosperous, less free.''

These are truly extravagant claims.

So let's back up a little bit and remember January of 2009. That happens to be the month that I was given the privilege of serving in this Chamber.

It came after the last quarter of 2008 in which the United States' economy actually shrank at an 8 percent rate on an annualized basis.

The economy was very literally melting down. The stock market was half of what it is today. Businesses were closing.

Americans saw literally trillions of dollars of value--let's talk for a second about what ``value'' means.

``Value'' means that retirement fund that you were relying on in order to retire. It means the money that you had set aside in a brokerage account to educate your children.

It means those savings that you had accumulated over many, many years of foregoing that vacation or scrimping on the budget, those things. All of that, for many Americans, was wiped out or cut in half, devastation.

And, by the way, in January of 2009--I remember this--though the bailout had passed this House what was known as the TARP, the Troubled Asset Relief Program, and though that had been put into place by the United States Congress and seemed to have stabilized the market, at least temporarily, we worried day in and day out as to whether this--let's face it--obnoxious measure--I don't think there is anybody who thinks in a free market system there should be bailouts--this obnoxious, politically toxic measure which, nonetheless, reasserted some stability in the financial services sector--nobody really knew if it was enough.

I remember wondering whether we might not see a bankruptcy in a money center bank, a moment, perhaps, in which ATMs wouldn't have money in them. This was January of 2009.

Most importantly--there are a lot of big words--asset values, this, that, and the other thing, money center banks--this meant devastation for millions of Americans who lost their jobs, for families who weren't going to be able to send their kids to school, who were going to have to postpone retirement, unemployment going into double digits, meaning that--and I spoke to one of my constituents yesterday who has an Ivy League degree who found himself working as a clerk at Home Depot, surrounded by other people with lots of education who were fortunate to have that job back in 2009, 2010 because the economy had been devastated by a financial services industry and, yes, by Fannie Mae and Freddie Mac, and insufficient regulation and irresponsibility on the part of some of the regulators had devastated the economy and left the American people holding the bag.
So what happened? We went to work. We went to work in 2009. In 2010, we passed the Dodd-Frank Act. The Dodd-Frank Act is a complicated, big thing, but it addressed every stage of that chain of irresponsibility and malfeasance, starting with the selling of toxic and explosive mortgages to families that brokers and others knew couldn't possibly repay those mortgages to the bundling of those toxic mortgages into complicated securities which, frankly, you needed a Ph.D. to understand, to the fact that some of the credit rating agencies then put investment-grade AAA ratings on these toxic securities, to the fact that derivatives were then written on these securities, derivatives that were largely unregulated as the result of an act of this Congress, a long line of malfeasance and irresponsibility of insufficient regulation and of regulation insufficiently enforced, a terrible market practice.

And, of course, in the middle of 2008, the chickens came home to roost and the economy was devastated and the American people, almost without exception, suffered.

We saw the Troubled Asset Relief Program--the bailout--passed. Imagine how shocking that is to the American people. I have lost my job; I have lost my home, and there is a bailout of these institutions that I don't know a whole lot about; but I suspect, correctly, were at the heart of this crisis.

No wonder we had political upheaval in this country after that happened. Every step in that chain, Mr. Speaker, from toxic mortgages to securities that nobody understood, to credit rating agencies doing an awful job in evaluating those securities, to Fannie Mae and Freddie Mac acting irresponsibly, to regulators being asleep at the switch, Dodd-Frank addressed every element of that set of problems which combined to devastate the American economy and to hurt American families.

Did it do it perfectly? Of course, it didn't do it perfectly. We were legislating under conditions of great fear and heightened emotions, and at the end of the day, we are mortals addressing very, very complicated issues.

It was a good-faith effort to address what had clearly caused this problem. This notion that the Republicans are peddling that it was caused by Washington's dumb regulations is beyond insane because Dodd-Frank looked at what actually caused the problems of 2008 and addressed them.

What happened? We were told that Dodd-Frank would be a job killer. This was back in 2010 when anything that the then-Democratic Congress did was going to be a job killer.

The Affordable Care Act which, as it turns out, has provided health insurance to 16 million Americans, was going to be a job killer. Dodd-Frank was going to be a job killer. Everything was going to be a job killer. When we turned the lights on in this room, it was a job killer.

You don't hear that much anymore because, since those fantastic descriptions of job-killing legislation, we have added almost 13 million jobs to the economy. The unemployment rate today is as low as it was before the meltdown of 2008.

The stock market has doubled since then, business confidence is up, business investment is up, and our capital markets are healthy. This idea that it was going to be job-killing was just flat-out wrong, certainly compared to the crisis, which was the true job killer.

Mr. Speaker, the other accusation that was made, of course, was that Dodd-Frank was going to crush credit markets, that the sources of financing that a family needs to buy a home or to send a child to college, the sources of financing that give rise to startup companies, companies like Google which didn't exist 25 years ago, venture capital, the stock market that, of course, gives equity to our businesses to grow and expand and employ more, those were going away because of Dodd-Frank. The criticisms leveled and the predictions made about the credit markets were apocalyptic.

Let's take a look at what actually happened. I assembled a little bit of the data here just to show what has happened in the credit markets. We all love venture capital, that iconic image of the entrepreneurs in the garage developing a product that grows into a multibillion-dollar corporation that provides an electronic device that changes our lives and that makes our lives better--venture capital.

Here is the line. Venture capital at the start of Dodd-Frank and, today, that is a line running up and to the right.

Let's look at total consumer credit. You want to buy a car; you want to buy a television set. Consumer credit, we all use it. At the start of Dodd-Frank, 5 years ago--and today--a dramatic increase in consumer credit.

Stock market--the stock market, of course, is where established companies go to raise money and where we put money hoping it will grow. What has happened there? A near doubling of the stock market--robust.

Commercial and industrial loans--what if you are a business and you don't want to raise money in the stock market, you want to borrow money? Commercial and industrial loans--every one of these lines which capture most of the financing mechanisms and how healthy they are running at the point in time when Dodd-Frank was started to today is running strongly upwards.

All of those criticisms that it was going to crush the credit markets are completely rebutted by pretty much anything that is happening in the credit markets today.

Let's just spend a minute, Mr. Speaker, on what was actually in Dodd-Frank because this is pretty complicated stuff. What was actually in Dodd-Frank were a couple of important ideas, that we should have something called a Consumer Financial Protection Bureau that says to credit card companies, No, you can't switch the order of a purchase to make it look like somebody overdrew an account or spent too much money so that you can charge a $25 fee; that said to mortgage brokers, No, you can't put somebody into an inappropriately risky or high-cost mortgage just because you make more money for doing so.

Mr. Speaker, we have standards in our country. You can't buy a toaster that will burn down your house. You can't buy a car that will explode when you turn on the ignition. That happens because we have minimum safety standards.

If you can't buy a toaster that will burn down your house, why should you be allowed to be sold a mortgage that very clearly will cause you to lose your house? That is what the Consumer Financial Protection Bureau does, and it has returned literally millions and millions of dollars to the American public as a result of its telling those cheats, those people who would prey on the financial naivete of the American people: You can't do that anymore; and if you do it, we are going to shut you down, and you are going to give the money back.

That is what the Consumer Financial Protection Bureau is doing today.

Mr. Speaker, the second important thing that Dodd-Frank did was to say, for the first time, that maybe we ought to regulate this derivatives market. Now, derivatives are a fairly complicated financial instrument.

Most Americans don't use derivatives directly and don't necessarily know what they do. They are essentially bets, and that is okay. If you want to bet that oil prices are going to go up or down because you use oil, you ought to be able to take that bet to hedge your risk. That is okay.

But in the early 2000s, the derivatives market had become very literally nothing but a betting game for people who simply wanted to roll the dice on the mortgage market or on the direction of a corporate credit or on the stock market.

You could take any bet. People would lend you money; you could place that bet, and off you went. That is, of course, what brought down what was otherwise an iconic American insurance company, AIG. This was truly a storied insurance company that got into the derivatives business and touched off the crisis.

Shockingly, by law, the derivatives market, even though it is more complicated and larger than the stock market, by law, was not regulated. When you wanted to buy or sell a derivative, you picked up the phone; you called your broker; you did the deal, and nobody necessarily knew about it.

That obviously doesn't happen in the stock market.

You go through a broker; the trade gets registered, and the SEC looks over the shoulder of the market to make sure it operates in a safe and sound fashion.

By law, the derivatives market was unregulated and untransparent, and Dodd-Frank said that does not make sense and said that, if you are going to trade derivatives, you are going to do it over an exchange, the way we trade stocks. If you are going to trade derivatives--particularly risky ones--you are going to put up capital against the bet you are taking so that if you lose, you can pay it off.

That is what happened with AIG. They took a whole lot of very big bets that they had no ability to pay off when they lost.

Who lent them the money to take those bets, Mr. Speaker? It was banks and brokerages who, when they found out that the bet they thought they won, there was no money coming to them, that is when we got into real trouble at places like Bear Stearns and Lehman Brothers.

We said, crazy though it may sound, a market as complicated and as large as the derivatives market ought to be subject to the same transparency and regulation that the stock market has been subject to since the 1930s. That is what Dodd-Frank did.

Finally--Dodd-Frank did a lot, but this is another really big thing--Dodd-Frank said we ought to actually have a mortgage market that is a little friendlier to the American people because, for most Americans, the savings that they have is in their homes.

For generations, until 2008, generally, home prices had gone up. Let's face it, the middle class works pretty hard not making a lot of extra money. The growth in the value of their home was the way you amassed a nest egg to retire or to buy that vacation cabin, whatever it was you aspired to do; yet by 2008, this had become yet another dangerous casino.

It was true at the time, though it is not true anymore, that a broker could sell a mortgage to a family that was a lot more expensive and a lot riskier than it needed to be because that broker could get paid more in commission for selling that more complicated, more risky mortgage than that broker would get paid for selling a plain vanilla mortgage.

Those days are gone. Those days are gone, and that is a very, very good thing for the American people. Remember, homes are where people--most people--have their savings. That is what Dodd-Frank was.

My friends on the Republican side who have these incredible statements, like the financial crisis was caused by Washington's dumb regulations, fail to see that Dodd-Frank was actually a proportionate and targeted response to a truly devastating financial crisis that had real impact on an awful lot of families.

I am sorry about that. The reason I am sorry about that is because Dodd-Frank, of course, is not perfect. There are clearly issues around some things like Fannie Mae and Freddie Mac, which Dodd-Frank was silent on.

Today, the vast majority of American mortgages are still explicitly backstopped by the Federal Government because we didn't reform Fannie Mae and Freddie Mac.

Shame on both parties for that, by the way. We had a lot to do when the Democrats were running the show, and we didn't get to that point. In the many years since the Republicans have been controlling this Chamber, they have not taken that up. We should take that up. I am very proud to be, along with Congressman Delaney and Congressman Carney, a sponsor of legislation which would do just that.

Mr. Speaker, there is still difficulty for Americans who should probably qualify for a mortgage in getting that mortgage. It is possible that Dodd-Frank swung the pendulum a little far in the mortgage market in a way that we ought to look at and be very, very careful about because, remember, at the core of the crisis in 2008 were mortgages that an awful lot of people shouldn't have been in, an overcommitment on the part of public policy and others to make every American a homeowner, to make it cheap, and to have outrageously complicated mortgages so that could happen. Carefully, we ought to look at what is happening in the mortgage market today.

Mr. Speaker, there are more technical issues. There are questions about whether there is enough liquidity in the mechanisms, particularly bonds, that companies use to finance themselves.

There are fair questions about whether we have adequately dealt with the question of too big to fail. Dodd-Frank certainly put profound strictures on large institutions. It gave the government unprecedented authority to look into the so-called too-big-to-fail institutions and say: Sorry, you have got to shrink down. You have got to get out of this business.

It put additional capital--in fact, just this week, the Federal Reserve announced the additional capital that large institutions will be required to set aside. It is a fair debate as to whether or not we have truly dealt with the question of too big to fail.

Mr. Speaker, this is the rub: as long as the discussion we have about Dodd-Frank is a near religious discussion with my friends in the Republican Party making statements like Dodd-Frank should be repealed, the Dodd-Frank Act leaves America less stable, less prosperous, and less free; and, yes, frankly, as long as the Democrats don't open the door to the notion that we may not have gotten it perfectly right on each one of its pages, we won't be able to come together to do something which is essential in any piece of legislation, but particularly in financial regulation, which is to adapt and allow the regulatory structure to change to reflect changing conditions.

There are very few markets as adaptive, that change more rapidly, that innovate for good and for ill, as rapidly as the financial services market. As a result, we need a regulatory apparatus that adapts along with the market, that looks for new threats, and that realizes that the regulation of 40 years ago actually doesn't make a lot of sense today.

This near religious conflict that we have with the Republicans saying, You ought to do away with the whole darn thing--they say that, of course, they have never actually brought legislation forward to repeal Dodd-Frank which should cause you to ask, Mr. Speaker, how serious they are about truly repealing it, but as long as that is the conversation--repeal or don't change a word of this legislation--we give up the opportunity to make it better and to make it change with the underlying conditions that it seeks to regulate.

That is where we need to go. We need to acknowledge that Dodd-Frank has done some very, very good things, that it has addressed some catastrophic problems, that it took on behavior that is embarrassing to contemplate when looked back 5, 10 years, but that maybe we didn't get it 100 percent right and start that conversation.

We should do that to make sure that American families are never put in the position they were put in back in '09. We should do that because the truth is that the financial services industry is crucial to prosperity in this country.

If you want to buy a house, educate a child, buy a car, invest in a company, start a company, grow a company, you have to have access to capital. One of the competitive advantages of this country is our incredibly liquid and efficient capital markets. It is a big part of why we are as prosperous as we are today.

But if we can't acknowledge that the regulatory structure has to adapt and change, we risk either putting Americans at risk one more time or damaging these incredible capital markets that are truly a national competitive advantage of the United States, one of the reasons we are the center of innovation on the planet.

I think, Mr. Speaker, we can get that balance right. I think we just need to take the temperature down, approach this from the standpoint of what makes sense, acknowledge that we all have good ideas, and move forward so that we remain innovative, we keep our competitive advantages, but we never, ever allow the American people to suffer the way they did starting in 2008.

So looking back over 5 years, I think Dodd-Frank was a tremendous accomplishment. It really addressed a cataclysmic problem. But it doesn't stop there. I urge my colleagues to recognize that we have taken a very big step in the right direction, but the next step demands us to be constructive and remember that we can find a balance between innovation and liquid and strong capital markets and the protection of our constituents.

Mr. Speaker, I yield back the balance of my time.

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