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The Wall Street Transparency & Accountability Act of 2010

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Guest AlwaysRed

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Guest AlwaysRed

I think this letter explains the possible corruption


Mr. Michael J Williams

President and Chief Executive Officer

Fannie Mae

3900 Wisconsin Avenue, NOW

Washington, DC 20016-2892


Dear Mr. Williams:


It was recently brought to our attention that Fannie Mae's former CEO, Franklin Raines is credited with patenting a system for residential emissions tradings (Patent No. 6,904,336) The patent was filed with the US Patent and Trademark Office on November 8, 2002 and issued on June 7, 2005. The patent was assigned to Fannie Mae and CO2e.com, LLC.


We are troubled by evidence that, while Fannie Mae was funding hundreds of billions of dollars in risky mortgages that were a primary cause of the financial crisis, it was simultaneously pursuing a patent to capitalize on the potential of legislative efforts that would have the effect of increasing energy costs to millions of Americans.


According to one news report, this patent "gives Fannie Mae proprietary control over an automated trading system that pools and sells credits for hard-to-quantify residential carbon reduction efforts (such as solar panels and high-efficiency appliances) to companies and utilities that don't meet emission reduction targets. It appears that this has nothing to do with Fannie Mae's public mission, which is to "provide liquidity, stability and affordability to the U.S. housing and mortgage markets."


In order to assist the Committee with its investigation of this matter, please provide the following information no later than close of business on Thursday, May 27, 2010:


1. A full and complete explanation of Fannie Mae's decision to file the patent application ( Patent No. 6,904,336)


2. All records and communications referring or relating to the decision to file the patent application (Patent No. 6,904,336)


3. All records and communications referring or relating to the development of Fannie Mae's position on cap-and-trade legislation proposed between 2002 and the present.


4. All records and communications referring or relating to Fannie Mae's lobbying efforts related to cap-and-trade legislation between 2002 and the present.


5. All records and communications referring or relating to Fannie Mae's projection of potential financial returns to the company if cap-and-trade legislation were to become law.


6. All records and communications referring or relating to legislation affecting energy markets between Fannie Mae or its representatives and the following:


A. Franklin Raines

B. G. Scott Lesmes

C. Robert Sahadi

D. Kenneth Berlin

E. Michelle Desiderio

F. Elizabeth Arner Cavey

G. Jane Bartels

H. Representatives of CO2e.com LLC, CantorCO2e, Cantor Fitzgerald, or Mitsui & Co. Ltd.


Please not that, for purposes of responding this request, the terms "records," "communications," and "referring or relating" should be interpreted consistently with the attached Definitions of Terms.


The Committee of Oversight and Government Reform is the principle oversight committee in the House of Representatives and has broad oversight jurisdiction as set forth in House Rule X. Thank you for your cooperation in this matter.


If you have any questions regarding this request, please contact Christopher Hixon or Kristina Moore of the Committee staff at (202) 225-5074.


Darell Issa

Ranking Member

Committee on Oversight and

Government Reform


Jason Chaffetz

Ranking Member

Subcommittee on Federal

Workforce, Postal Service,

and the District of Columbia



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Guest AlwaysRed

In accordance with the mission of Fannie Mae to enable home ownership by a greater proportion of the population, Franklin Raines, while Chairman and CEO, began a pilot program in 1999 to issue bank loans to individuals with low to moderate income, and to ease credit requirements on loans that Fannie Mae purchased from banks. Raines promoted the program saying that it would allow consumers who were "a notch below what our current underwriting has required" to get home loans. The move was intended in part to increase the number of minority and low income home owners. The Investor's Business Daily editorial staff has noted that the expansion of easy credit to home buyers with a lesser ability to pay them back was one of the major contributing factors to the subprime mortgage crisis.


On 16 July 2008 The Washington Post reported that Franklin Raines had "taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters." Also, in an editorial in August 27, 2008 titled "Tough Decision Coming", the Washington Post editorial staff wrote that "Two members of Mr. Obama's political circle, James A. Johnson and Franklin D. Raines, are former chief executives of Fannie Mae." On September 18, 2008, John McCain's campaign published a campaign ad that quoted the Washington Post reporting regarding Raines and Obama. The ad also notes that "Raines made millions and then left Fannie Mae while it was under investigation for accounting irregularities".[

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Guest B Funny

It appears Mr. Raines needs to become Mr. Madoff's cellmate. I am sure Frank and Bernie would make great bunk buddies.

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Guest BlingBling

Franklin Raines had left Fannie long before the financial mess began.


Angelo R. Mozilo was a die-hard neoconservative Republican. Mozila idea of "lending poor people money", was a sham that contributed no net value to anyone. Countrywide’s dirty lending practices facilitated massive borrower fraud. Trace his connections to the Giuliani Exploratory Committee. …I’ll be watching

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Guest Soldier of God

Those of you that have not sinned cast the first stone. Forgiveness is a reality.

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Guest LPAC

The derivatives markets must be shut down now!"


"German Chancellor Merkel, with her sovereign ban on parts of the derivatives market as of May 19, has done the right thing, acting to protect her nation from the devastation of the speculators. The U.S. government must be forced to take the same action, immediately.


The tens of thousands of American patriots now mobilizing to enforce the Glass-Steagall principle, must escalate their efforts, with a clear understanding of the danger. The issue of the derivatives gamblers, which Senator Dodderer is moving to protect, is inextricably linked with the Glass-Steagall issue. We must insist that the derivatives markets be shut down now. And we must immediately put in place the Glass-Steagall standard of separation between the commercial and investment banks, to protect our people from chaos, and establish the basis for the recovery program which I have laid out in detail.


Let the U.S. Senate know that it is we patriots who are going to determine the policies of the U.S. government, not a bunch of predator British lackeys who run Wall Street. Demand they enforce sanity: Shut Down Derivatives, Implement Glass-Steagall.

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Guest LAW

Floor Statement of Sen. Carl Levin, D-Mich. on Senate Passage of the Restoring American Financial Stability Act of 2010


Mr. President, a year and a half ago, the Permanent Subcommittee on Investigations began a review of the causes of the financial crisis. The Subcommittee, which I chair, sought to answer a fundamental question about a crisis that was, at that moment, threatening to bring on a second Great Depression, and that has cost millions of Americans their jobs, their homes, their businesses and their savings. The question we sought to answer: How did this happen? And we asked that question so that we could inform our colleagues, and the public, on steps we might take to protect ourselves from the danger of future crises.


The Subcommittee examined millions of pages of documents, interviewed hundreds of witnesses, and conducted four hearings with more than 30 hours of testimony. What we learned was sobering:


* We learned that mortgage lenders such as Washington Mutual Bank sought to boost their short-term profits by making increasingly risky mortgage loans to borrowers increasingly unlikely to be able to repay them. WaMu, as it was known, made billions of dollars of loans, many of which were fraudulent, and then packaged and sold these loans, dumping toxic assets into the financial system like a polluter dumping poison into a river.


* We learned that regulators such as the Office of Thrift Supervision identified problems at WaMu on many occasions, but failed to act against them, and in fact hindered other federal regulators from taking action.


* We learned that credit rating agencies, institutions that investors depended on to make accurate, impartial assessments of the risks that these assets carried, failed completely in this task. This failure was caused by faulty risk models and inadequate data, and these problems were not addressed in part because of a dangerous conflict of interest: the profits of these credit rating agencies came from the same financial institutions whose products they were supposed to analyze.


* And we learned that investment banks such as Goldman Sachs helped feed the conveyor belt of toxic assets that nearly brought economic ruin. Goldman Sachs repeatedly put its own interests and profits ahead of the interests of its clients and our communities. Its misuse of exotic and complex financial structures helped spread toxic mortgages throughout the financial system. And when the system finally collapsed under the weight of those toxic mortgages, Goldman profited from the collapse.


The lesson of our findings is that this disaster was man-made. And yet, perhaps the most stunning finding, came from our hearings themselves, when top executives from institutions that collectively destroyed millions of jobs and billions of dollars of wealth repeatedly dodged responsibility, saying the mistakes were someone else’s, that they had done nothing wrong, that those who questioned their actions simply failed to understand how the financial system worked. Mr. President, if Wall Street refuses to take responsibility for its actions, it is incumbent on us to take responsibility for putting a cop back on the beat on Wall Street.


The bill before us contains many important provisions that directly address the problems revealed in our investigation. Begin with the lenders. The Consumer Financial Protection Bureau this legislation will create is an important tool to protect borrowers and the financial system from the abusive lending at banks such as WaMu that helped bring about the crisis. Thanks to an amendment offered by Senator Merkley, which I was proud to cosponsor, lenders will no longer be able to pocket a quick profit by selling a “liar loan,” requiring no documentation of wages or the ability to repay. Under Senator Merkley’s amendment, borrowers will be required to provide reliable evidence of their income, either through a W-2, tax return, or other such record. The amendment would also require lenders to verify borrower income.


Together, those provisions essentially impose a ban on so-called stated-income loans, which is exactly what is needed. Negative amortization loans, in which borrowers can spend years making payments so small that they end up owing thousands of dollars more than the original loan amount, will become rare. Putting a cop on the beat means protecting all of us from the consequences of reckless behavior by those who seek short-term gain at the expense of financial stability. It is also significant that lenders will be required to retain some of the risk they create by keeping a portion of mortgages they securitize on their own books, ending the current situation in which lenders can make risky loans and then dump all that risk into the financial system.


This bill also addresses many of the regulatory failures our investigation identified. The Office of Thrift Supervision, which failed so badly in its oversight responsibilities, is dissolved under this bill. The Federal Reserve would be given important authority to oversee the largest financial institutions, regardless of their legal status as bank holding companies, investment banks or other entities, offering powerful protection against risks to the stability of the financial system that went unrecognized through the web of federal regulation during this crisis.


This legislation includes substantial reform of credit rating agencies. These agencies will now be liable for the quality of their analytical process, and required to institute procedures and policies to mitigate their own conflicts of interest. The Securities and Exchange Commission will establish a new office to oversee the agencies, another example of how we would put a cop back on the beat. And thanks to amendments offered by Senators Franken and Lemieux, we have addressed the dangerous conflict of interest under which the supposedly impartial analysis of financial instruments is paid for by the issuers of those financial instruments.


Mr. President, we had an opportunity as well to address the issues identified in our investigation with the actions of investment banks such as Goldman Sachs. This legislation makes some progress there. Importantly, the legislation will bring the shadowy derivatives market into the light, requiring derivatives undergo a standardized clearing process that includes requirements that derivatives traders meet capital requirements that ensure, if their risky bets fail, they can cover the losses from their own accounts, and not – as, for instance, the insurance company AIG did – come to the taxpayers for a bailout.


But I wish the Senate had a chance to consider Senator Dorgan’s amendment to ban “unclothed” credit default swaps, the ultimate gambles in the casino that Wall Street has created in recent years. That amendment included a provision I had sought banning synthetic asset backed securities that would have reduced the high-risk, conflicts-ridden practices that too often are a part of Wall Street today.


And of course I wish the Senate had been allowed to consider the amendment that Senator Merkley and I offered to rein in proprietary trading and address the conflicts of interest that have too often been business as usual on Wall Street. I am very disappointed that Senator Brownback decided to withdraw his amendment, which meant the Merkley-Levin amendment could not get a vote. The legislation now includes a provision requiring regulators to study and implement restrictions on proprietary trading. But we have missed an opportunity to strengthen that provision by putting in statute, without the ability of agencies to modify, prohibitions on risky trading by banks, and strict limits on such trading by nonbanks. And of prime importance, our amendment would have ended the conflicts of interest that now allow financial institutions to assemble and sell complex financial instruments – even instruments with a significant possibility of failure – and then bet that those instruments will fail, profiting mightily from their bets against their own clients.


Mr. President, I do not understand how Senators can be shown the damaging conflicts of interest identified by our investigation and not see the need to address those conflicts. If we do not address them, we will have poorly served our constituents and missed a chance to make a future financial crisis less likely.


Still, taken as a whole, the legislation before us is an important step toward policing Wall Street’s excesses and protecting current and future generations from the suffering that this crisis has created. The millions of documents and long hours of testimony gathered by the Permanent Subcommittee on Investigations present a detailed history of the financial crisis. But all that complexity tells a pretty simple story, really, one of unbridled greed that created unheeded risk, risk that exploded into the worst recession in decades. Wall Street may not have learned the lessons of that story, but we must pay attention. We must act. We must return the cop to the Wall Street beat, or once again suffer the consequences of Wall Street’s greed. Hopefully the Senate-House conference will get us closer to that goal.

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Guest LAW

Press Briefing by Press Secretary Robert Gibbs, 5/21/10

Q And will the administration push to have the Consumer Protection Agency stand alone, as Barney Frank wants?


MR. GIBBS: Well, look, I think what -- the President met with Senator Dodd and Congressman Frank today to -- first, I think to congratulate them for their effort. We have -- I think many people might have believed at the beginning of the year and certainly into February that getting financial reform done this year wasn't possible, and that certainly having a strong consumer protection portion of this -- having the Volcker rule, limiting the size and scope of the activities that banks can be involved in and regulating derivatives was not something that -- we'd be lucky to get one of those and were likely to get none of those in a final piece of legislation that passed the Senate. Throughout this process, the legislation has gotten stronger.


In term of consumers, the bill is very strong in the Senate. They're going to go through each of these provisions together, the conference committee will, in making some of those decisions. We think it is important that there be less the address and more the independence of the consumer agency in having its own budget and its own leadership.


As I said yesterday, that many families in this country, their interaction with our financial system is through the many things that this area would regulate, whether that's getting a loan for a car, getting a loan for a house, getting a credit card. It's the very type of protections that the American people need the most.


Q Can you talk about timing and strategy?


MR. GIBBS: Well, broadly on timing, I think both members and the President believe we can get something done by the Fourth of July.


Q You guys were very prescriptive in the latter days of the financial regulatory reform negotiations. In the Senate you weighed in on specific amendments. Do you intend to play that kind of interventionist role during the conference committee? And where do you stand specifically on these various competing derivatives proposals? MR. GIBBS: Well, look, I don't think that that level of detail was gotten into today with the President and the two chairs. They talked more broadly about the strength of the bills. And I'm sure that the -- I'm sure that as we go through -- as Congress goes through to look at and compare provisions, we will have an opportunity to weigh in, and I'm not going to get ahead of that process.


Q There’s some individuals who say that the derivatives proposals in the Senate bill would trim 20 percent off of bank profits. Do you buy that number and do you think that that's a genuine concern?


MR. GIBBS: I don't know what the basis is for that number. Again, we -- the proposal the President put forward in the white paper last year called for pulling the type of activities that we're talking about out of the dark and into the light, putting them on exchanges and regulating those exchanges. The Volcker rule, which met initial resistance and may have continued resistance on Wall Street, the President believed was enormously important as it related to the size of banks and the scope of what activities they can take part in.


So I think as they get through the process of appointing who’s going to deal with these issues, we'll have a chance to go through and compare those provisions.



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Guest Fedup

Barney Frank either has a short memory or he is being payed off by Wall Street. I believe that it must be the latter. Derivatives fueled the financial crisis by creating economic incentives for failures. Come on Congress! Are we going to have daily knowledge of Wall Street Bank's position on derivatives? Otherwise, this latest reform is just a joke and the casino will remain open.


House Financial Services Committee Chairman Barney Frank (D., Mass.) on Tuesday said the White House's proposal to stop banks from certain risky trading practices would "very likely" be in the final financial overhaul, but he said a separate provision to force banks to spin off their derivatives businesses "goes too far."



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Guest nydivide

Barney Frank may be the most dangerous person in Congress. In 2005 he did not believe there was a housing bubble. Whenever a government program goes wrong, he blames a lack of regulation and the need for more legislation. However our current financial and economic crisis, like all others, resulted from ineffective regulation (that most made the mistake in relying on) and legislation that initially created and eventually further compounded and exacerbated the problem into a complete crisis. Said Barney Frank on September 25, 2003: "I want to roll the dice a little bit more in this situation towards subsidized housing."


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Guest LAW

John C. Dugan

Comptroller of the Currency

Before the

Special Seminar on International Banking and Finance

Tokyo, Japan

November 18, 2009


It is impossible to talk about any financial topic now without putting it in the context of the financial crisis that has swept the globe. I like to think of the extraordinarily stressful events of the last two years as having three distinct phases. The first was the liquidity panic phase, which appeared to begin with a market event that seemed relatively smaller and contained when it surfaced: sharp losses in the market prices of securities backed by subprime mortgages. In reality, however, the seeds for this market event began much earlier when the subprime mortgages were first made to borrowers. The underwriting practices that lenders used in extending these loans were exceptionally poor – a stubborn fact that I will return to later in my remarks – and it was only a matter of time before significant delinquencies and losses would ensue. That they did, effectively popping the bubble in house prices and setting off a chain reaction of securities losses and steep market declines. That in turn created a pervasive climate of contagion and fear, capital hoarding, and sharp runs on liquidity. Governments around the world were forced to respond with massive and ultimately successful interventions to restore confidence. This was by far the most frightening phase of the crisis, but thankfully, it seems to be largely at an end.


Cheap credit and easy underwriting helped qualify more consumers for mortgages, which increased demand for houses, which increased house prices. That in turn made it easier for lenders and investors to rely more on house price appreciation and less on consumer creditworthiness as the ultimate source of repayment for the underlying loans – so long as house prices kept rising.


In addition, many mortgage brokers and originators sold mortgages directly to securitizers. They therefore had no economic risk when considering the loan applications of even very risky borrowers. In the United States, we sometimes refer to this lack of economic risk as failing to have “skin in the game,” a gambling expression describing money at risk of loss. Without any “skin in the game,” brokers and originators had every incentive to apply the weakest underwriting standards that would produce the most mortgages that could be sold. And unlike banks, most mortgage brokers in the United States were virtually unregulated, so there was no regulatory or supervisory check on imprudent underwriting practices.


The rapid increase in market share by these unregulated brokers and originators put pressure on regulated banks to lower their underwriting standards, which they did, but not nearly to the same extent as was true for unregulated mortgage lenders. Indeed, from my very first days on the job as Comptroller more than four years ago, we worked hard to keep the national banks we supervise from engaging in the same risky underwriting practices as their nonbank competitors. That made a difference, but not enough for the whole mortgage system.


The combination of all the factors I have just described produced, on a nationwide scale, the worst underwritten mortgages in our history. When house prices finally stopped rising, borrowers could not refinance their way out of financial difficulty. And not long after, we began to see the record levels of delinquency, default, foreclosures, and declining house prices that have plagued the United States for the last two years.


Next came the credit loss phase. In this stage of the crisis, financial market disruptions translated into problems in the real economy, producing a severe global recession and growing losses in nearly every class of credit extended by U.S. banks – mortgages, credit cards, leveraged loans, and commercial real estate loans, among them. These credit losses have burned through earnings and forced banks to raise substantial amounts of capital and build substantial amounts of loan loss reserves. They have also caused nearly 150 smaller banks in the United States to fail. Unfortunately, we’re still in the middle of this phase – perhaps farther along in the cycle of consumer credit losses, but still early on in the losses we face on commercial real estate loans.


despite all of the hard and very fine work that is being done around the world on these very difficult regulatory issues, relatively little attention has been paid to the initial problem that sparked the crisis: the exceptionally weak, and ultimately disastrous, mortgage underwriting practices accepted by lenders and investors – primarily but not exclusively in the United States. Among the worst of these practices were the following:


• The failure to verify borrower representations about income and financial assets – the infamous “stated income” or “low documentation” loans;

• The failure to require meaningful borrower equity in homes in the form of real down payments, resulting in very high “all-in” loan-to-value ratios;

• The toleration of very high debt-to-income ratios, or similar indications of obvious strain in borrowers’ capacity to make regular loan payments;

• The qualification of borrowers for so-called “nontraditional” mortgages based on their ability to afford artificially low initial monthly payments, and not on their ability to afford the much higher monthly payments that would come later;

• And the explicit or implicit reliance on future house price appreciation as the primary source of repayment, either through refinancing or sale.


In addition, many states barred lenders from personal recourse to borrowers in the event of losses exceeding the value of the underlying home, which made it easier for borrowers to take out mortgages they could walk away from if the value of their property dropped too much.


Stepping back and looking at these practices – either individually but especially as a whole – it’s simply hard to believe how far and how fast mortgage originators strayed from basic, fundamental, common-sense principles of sound underwriting. And perhaps it’s even more astounding that lenders, investors, and yes, regulators, allowed this to happen.


The fact is that, when it came to mortgage credit at the beginning of the 21st century, we in America fundamentally lost our way. The consequences were disastrous not just for borrowers and financial institutions in the United States, but also for investors all over the world due to the transmission mechanism of securitization.


This leads me to two important questions. First, how in the world did this happen? Let me begin my answer with an important contextual observation. For many, many years, home ownership has been a policy priority in America, just as it has been in many other countries. As a result, when times are good, we as a nation have an unfortunate tendency to tolerate looser loan underwriting practices – sometimes even turning a blind eye to them – if they make it easier for more people to buy their own homes. Against that backdrop, an unhappy confluence of factors and market trends created a major problem – a perfect storm, if you will.


Around the world, low interest rates and excess liquidity spurred investors to chase yields, and U.S. mortgage-backed securities offered higher yields on historically safe investments. Hungry investors tolerated increased risk in order to get those higher yields, especially from securities backed by subprime mortgages, where yields were highest. The resulting strong investor demand for mortgages translated into weak underwriting standards to increase supply.


Structured mortgage-backed securities, especially complex collateralized debt obligations, were poorly understood. They gave credit rating agencies and investors a false sense of security that, no matter how poor the underwriting of the underlying mortgages, the risk could be adequately mitigated through geographic and product diversification, sufficient credit tranching, and other financial engineering.

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Guest LAW

Remarks by

John C. Dugan

Comptroller of the Currency

Before the

Special Seminar on International Banking and Finance

Tokyo, Japan

November 18, 2009


I believe that we need to do more to directly address the core underwriting problems that led to so much misery. And we need to do so in a way that applies equally to all mortgage lenders – bank or nonbank – that operate in a given market. This point is critical: any new mortgage regulation that is adopted must apply to all providers to prevent the kind of competitive inequity and pressure on regulated lenders that eroded safe and sound lending practices in the past.


What I am suggesting here is that regulators establish certain minimum underwriting standards for all home mortgages in a given country – an idea that the U.K. broached recently in a very thoughtful paper on the mortgage market.1 These would not be “best practices” or even suggested practices that regulators bless as appropriately prudent. Instead, they would be the true minimums that we believe must be observed to keep lenders from risking too much loss to both themselves and their customers. These standards would not dictate every underwriting feature of a mortgage product; instead, they would focus on core practices of sound underwriting on which there is the broadest consensus.


And, let me add, I am not suggesting that these standards should be the same everywhere in the world. Each country has its own unique credit culture and different approaches to mortgage financing, and what works well in one might not work well in another. What I am suggesting, though, is that each country should articulate what those standards are for their lenders, and should report periodically on how well those standards are working.


What exactly am I talking about? Well, let me use the United States as an example, because that is the market I know best. Here I believe that regulators, with additional legislative authorization as necessary, should establish minimum requirements regarding at least three underwriting practices.


First, underwriters should verify income and assets. Low- and no-documentation mortgages have performed extremely poorly in terms of delinquency, default, and foreclosure. The failure to verify invites misrepresentation and even fraud. It also invites a borrower to assume more debt than he or she can afford. And it materially distorts the integrity of other underwriting practices that depend on accurate measures of a borrower’s financial resources, such as debt-to-income ratios. While unverified income might not have been the very worst underwriting practice in the United States – although some would argue it was – it is the one that seems to have the least justification and on which there is the broadest consensus to impose limits. Regulators should consider prohibiting this practice except in very, very limited circumstances where it clearly can be justified.


Second, borrowers should be required to make meaningful down payments. Not too long ago in the United States, the accepted underwriting practice for non-subsidized mortgages was that the value of a mortgage loan could not exceed 80 percent of the value of the house. The borrower had to come up with the remaining 20 percent, and at least half of that 20 percent had to be in the form of cash, with the rest possibly coming from mortgage insurance. The borrower was not permitted to borrow from someone else to get that cash, either – it had to be real equity. Somewhere along the way, the U.S. mortgage market drifted away from this traditional requirement that borrowers put up real money – real equity or real skin-in-the-game – as a condition for obtaining a mortgage. Rising house prices were the likely culprit. They meant that down payments had to be larger in order to meet the 20 percent threshold, and fewer borrowers – especially first-time home buyers – could come up with the increased amount of cash. More important, rising house prices also made it easier for a borrower to repay a mortgage – even a poorly underwritten one – based on the appreciated value of the house. Over time, as prices rose and few borrowers defaulted, lenders and investors began to tolerate “no money down” loans in the form of 100 percent financing, “silent second mortgages,” and other types of increased leverage.


The effect has been pernicious: our data show that, without their own equity in homes, borrowers have been much more willing to default and walk away from their mortgages when house prices decline. Accordingly, requiring some minimum amount of real equity in a down payment would be very helpful to restoring credibility to the underwriting process. Of course, it will not be easy to establish exactly what that minimum should be, because too high a requirement could result in many creditworthy borrowers being denied credit. We will need to exercise great care in striking that balance. But just because it’s hard doesn’t mean we should throw up our hands and avoid establishing a presumptive minimum. Why? Because we know from bitter experience that, whatever the optimum minimum should be, it should not be zero, or so small that we start down the path once again to the problems that brought us to our knees these last two years.


Third, a borrower should not be eligible for a mortgage where monthly payments increase over time unless the borrower can afford the later, higher payments. Too many “nontraditional” mortgages were structured to lower initial monthly payments to make them affordable, with later monthly payments increasing, sometimes sharply, to payments that were often unaffordable. But in many cases, lenders qualified borrowers based only on the affordability of the lower initial rate, and not the higher later rate. That is the type of underwriting practice that generally should be prohibited, because it often implicitly relies on house price appreciation as the ultimate source of repayment of the loan – and as we have learned all too painfully in the last two years, house prices can certainly go down as well as up. We also should generally prohibit the lowering of monthly payments through so-called “negative amortization” mortgages, which have performed terribly. These mortgages lowered initial monthly payments by allowing borrowers not to pay the full amount of interest due, with the unpaid interest added to the principal balance of the loan. Borrowers should not be allowed to dig deeper into debt with each monthly payment.


Now, I don’t mean to suggest that these three basic, common-sense underwriting requirements are the only ones that should be embraced in the United States, because others may be warranted either now or in the future. And again, I am not suggesting that such requirements would necessarily be appropriate for other countries (although they certainly should be considered). But I am suggesting that all countries should look to adopt some basic minimums that suit their own circumstances, and that they should publish and report on the effectiveness of their requirements so that other countries can learn from their experiences.


Indeed, with house prices sharply increasing in recent months in some countries, this seems an apt time for countries around the world to take note. That is one reason why enhanced mortgage underwriting standards are currently under consideration by the Joint Forum, the international group I mentioned at the outset, as one of several areas of recommendations to the Financial Stability Board to address differences and gaps in the regulation of financial services around the world.


Let me conclude by saying that relying on regulators to establish minimum mortgage underwriting practices is not a position I come to easily. I am normally much more comfortable with markets establishing the terms for credit extension by willing lenders to willing borrowers, with supervisors focusing on lenders’ ability to manage the credit risks they assume, and on lenders’ compliance with consumer protection laws. But sometimes, when underwriting standards get so out of balance that they cause widespread damage to borrowers and lenders alike, it becomes necessary for regulators to act more prescriptively. If ever there was a demonstrated need for such intervention, the searing U.S. mortgage market experience of the last several years fits the bill. We should do all we can to avoid repeating that experience, not just in the United States, but in countries all over the world. I firmly believe that establishing minimum requirements for mortgage underwriting practices would help.

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The U.S. Department of the Treasury released the following statement from Treasury Secretary Tim Geithner on the Senate's passage of S.3127, the Restoring American Financial Stability Act of 2010: "Today we stand closer than ever to enacting meaningful financial reform that will benefit every American family and business, help improve the competitiveness of our financial markets, and strengthen the safety and soundness of our financial system. I commend Chairman Dodd and Majority Leader Reid for their tremendous leadership in passing the Restoring American Financial Stability Act of 2010. Today's bipartisan vote follows many months of hard work. The House and Senate have now each passed strong bills that protect consumers, limit risk-taking by large institutions, and addresses the problem of "too big to fail." As we move ahead, I look forward to working with the House and Senate to produce a sensible, prudent reform bill that strengthens the American financial system and preserves our ability to innovate and compete in a global economy."

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Deputy Secretary Neal Wolin

Remarks before the Financial Industry Regulatory Authority's

Annual Conference

Baltimore, MD


Thanks very much for that kind introduction. It's a pleasure to be here this morning.


Just under a year ago, in the wake of the worst financial crisis since the Great Depression, President Obama put forward a comprehensive, detailed proposal to reform financial regulation.


The proposal was designed to address the key causes of the crisis; to lay the foundation for a safer, more stable financial system; and to make sure that the financial system works for American families and small businesses, not just for the largest financial firms.


Last December, under the leadership of Chairman Frank, the House passed a strong bill, substantially consistent with the President's plan. And last week, under the leadership of Chairman Dodd, despite formidable procedural obstacles, the Senate passed its own bill – also strong, and also substantially consistent with what the President put forward.


There is plenty of work left to do. The House and Senate bills, while both strong and broadly consistent, have their differences. Those differences will have to be reconciled in conference in the coming weeks.


But while there may be uncertainty about the ultimate fate or form of one particular provision or another, the mystery is for the most part gone. The parameters of the ultimate financial reform bill are largely set.


So I'd like to start by walking through, briefly, some of the key elements of the House and Senate bills – those places where it is now clear, I think, what the final financial reform bill will accomplish.


When the President signs a financial reform bill, it will put an end the corrosive, costly problem of "Too Big to Fail." Under both the House and Senate bills, the federal government will get the tools to shut down large, failing financial firms in an orderly way – without putting the rest of the financial system or the taxpayers at risk.


The effect of those provisions is plain: in the future, no firm will be insulated from the consequences of its actions, no firm will be protected from failure, and taxpayers will not foot the bill for Wall Street's mistakes. Future Administrations will never again be forced to choose between bailouts and economic collapse.


When the President signs a financial reform bill, there will be – for the first time – a single agency dedicated to consumer financial protection.


Today, seven different federal agencies have authority to write rules for consumer financial products and services, enforce the rules, or both. But none of them sees consumer financial protection as its top priority. And large parts of the consumer financial marketplace still operate without meaningful federal oversight.


And as anyone knows who has ever tried to cut through the jungle of mortgage disclosure forms, or discovered that the interest rates on their credit card balance went up retroactively, the current approach to consumer financial protection is utterly inadequate.


This failed, fragmented system will be substantially consolidated into one independent consumer financial protection agency with a clear mission: to promote transparency and consumer choice and to prevent abusive and deceptive practices.


When the President signs financial reform, the multi-trillion dollar derivatives market will be brought under a sensible, thorough regulatory regime.


Businesses large and small depend on the smooth functioning of the derivatives markets. But today, the market for derivatives operates largely in the shadows.


Instead of the opaque, unregulated market we have today, both the House and Senate bills provide for strong regulation and transparency for all derivatives. Standardized derivatives will be centrally cleared and traded. Over the counter derivative dealers and all other major OTC market participants will be subject to strong prudential standards and regulation. And the SEC and CFTC will have full enforcement authority, to monitor markets, set position limits and take action against manipulation and abuse.


By bringing the derivatives markets out of the shadows, reform will benefit those businesses that use derivatives to manage their real risks. That's good for every farmer and every manufacturer that uses derivatives the way they were meant to be used. And it's good for all of us who have a stake in the basic stability of the financial system.


When the President signs financial reform, those firms that pose the most risk will be subject to tighter, tougher regulation – regardless of their corporate form;


advisers to hedge funds will have to register with the SEC for the first time, bringing transparency and oversight to these unregulated financial firms;


securitizers of mortgage- or other asset-backed securities will be required to have skin in the game and to disclose the loans that make up those securities;


shareholders will have a say in the compensation of senior executives at the companies they own;


the SEC will have the explicit authority to prohibit or limit the use of mandatory binding arbitration agreements.


These reforms are long overdue. These reforms are important. And looking at the House and the Senate bills today, I think we can say with confidence that these reforms – along with many others – are moving swiftly towards enactment. When the President signs financial reform, he will sign a bill that is comprehensive, far-reaching, and that addresses the core causes of the financial crisis.


All that said, there are still real issues at stake in the conference process. Financial reform is complex. The details matter. And so, as conferees begin the process of reconciling the remaining differences in the two bills, we will continue to fight for the strongest financial reform bill possible. And we will oppose any attempts by particular interests to use the conference process as an opportunity to weaken the final bill.


Just a few examples:


First, we remain focused on an issue that I know is of particular relevance to many of you here: fiduciary duty. We believe that retail brokers offering investment advice should be subject to the same fiduciary standard of care as investment advisors, and we will work to include that provision in the final bill. Clients receiving investment advice don't distinguish between broker-dealers and investment advisors and neither should the law.


I want to commend FINRA for its leadership on this issue. Rick [Ketchum], I know that you have been an outspoken advocate not only for harmonizing the standard of care but for taking additional measures to ensure that firms live up to that standard in practice.


Second, we oppose efforts to weaken the consumer protection agency – including, in particular, the carve-out for auto dealers.

Despite the fact that the auto dealers originate almost eighty percent of the auto loans in this country – and despite the fact that, after homes, automobile purchases are the most significant financial investments most American families make – the dealer-lenders have lobbied vigorously for a carve-out.


Following the lead of our colleagues at the Defense Department, who have expressed particular concern over the unscrupulous auto lending practices targeted at service-members, we will fight hard on this front. The issue is simple: We have no interest in interfering with car dealers' ability to sell cars. But where car dealers act like banks or like other non-bank financial companies, they should be subject to the same consistent rules of the road. American families and Americans serving in uniform deserve nothing less.


Third, we will work hard to include the so-called "Volcker Rule" provisions, which would protect taxpayers and depositors by separating "proprietary trading" from the business of banking – and, in addition, would limit the size of financial firms by preventing acquisitions that would result in a concentration of more than ten percent of the liabilities in the financial system.


Fourth, we will advocate for inclusion of the strong rules on conflicts of interest and transparency at Credit Rating Agencies.


And fifth, with respect to resolution authority, we will seek to ensure that there are sensible safeguards in place to prevent resolution authority from being used unless absolutely necessary – but that regulators retain the ability to act swiftly and effectively in times of crisis, to protect taxpayers and to minimize the risk of panic or contagion.


These are just a few of the issues that Chairman Dodd, Chairman Frank and their fellow conferees will likely consider in the coming weeks. These issues matter, and the Administration intends to remain deeply engaged through the remainder of the legislative process.


We take nothing for granted. But it's important recognize just how far we have come. While serious work remains to be done, both houses have already risen to the moment and – with the tremendous leadership of Chairmen Frank and Dodd– have passed the most far-reaching financial regulatory reforms in generations.


Congress is now in the homestretch. Nearly two years after irresponsible risk-taking and lax oversight brought our financial system to the edge of catastrophic collapse, the President looks forward to signing a strong, comprehensive financial reform bill.


Thank you.

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Remarks by the President in Meeting with Bipartisan Leaders of Congress


We think that it is important during this work period to finish the financial regulatory bill. The financial markets I think deserve certainty, but more importantly in my mind consumers and the American people deserve to know that there’s a regulatory framework that is in place that protects consumers, investors, ordinary folks, and assures taxpayers that they never again are put in a position where they’ve got to bail out somebody because of their irresponsible acts.

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The House agreed to the Frank (MA) motion to disagree to the Senate amendments and agree to a conference on H.R. 4173, to provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, and to regulate the over-the-counter derivatives markets.

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Mr. FRANK of Massachusetts. Mr. Speaker, pursuant to clause 1 of rule XXII and by direction of the Committee on Financial Services, I move to take from the Speaker's table the bill (H.R. 4173) to provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes, with the Senate amendments thereto, disagree to the Senate amendments, and agree to the conference asked by the Senate.


The Clerk read the title of the bill.


The motion was agreed to.


Mr. BACHUS. Mr. Speaker, I have a motion at the desk.


The SPEAKER pro tempore. The Clerk will report the motion.


The Clerk read as follows:


Mr. Bachus of Alabama moves that the managers on the part of the House at the conference on the disagreeing votes of the 2 Houses on the Senate amendment to the bill H.R. 4173 be instructed as follows:


(1) To disagree to the provisions contained in subtitle G of title I of the House bill.


(2) To disagree to section 202 (relating to the commencement of orderly liquidation and the appointment of the Federal Deposit Insurance Corporation as receiver) and section 210 (relating to the powers and duties of the Federal Deposit Insurance Corporation as receiver) of title II of the Senate amendment.


(3) To not record their approval of the final conference agreement (within the meaning of clause 12( a )(4) of House rule XXII) unless the text of such agreement has been available to the managers in an electronic, searchable, and downloadable form for at least 72 hours prior to the time described in such clause.


The SPEAKER pro tempore. Pursuant to clause 7 of rule XXII, the gentleman from Alabama (Mr. Bachus) and the gentleman from Massachusetts (Mr. Frank) each will control 20 minutes.


The Chair recognizes the gentleman from Alabama.


Mr. BACHUS. Mr. Speaker, I yield myself such time as I may consume.


This motion to instruct directs the conferees to insist that this legislation end the possibility of taxpayer-funded bailouts once and for all by stipulating that bankruptcy is the only available option for liquidating a failed financial firm. The motion also requires that the conferees and the public, by extension, have at least 72 hours to review the contents of the conference report before its final approval.


We've heard time and time again that the Democrats "resolution authority" to wind down systemically significant financial institutions ends the too-big-to-fail doctrine and protects taxpayers. That's an outrageous and false claim. Read the bills. Both the House and the Senate let the FDIC do the following: lend to a failing firm, purchase the assets of a failing firm, guarantee its obligations to creditors, take a security interest in its assets, and even sell or transfer assets that the FDIC acquired from it.


And while the House establishes a $150 billion bailout fund to pay for the resolution of a failing firm, with an extra $50 billion line of credit with the Treasury if the original $150 billion is exhausted and cannot fully fund the bailout, the Senate approach is no better. The Senate would allow the FDIC to potentially provide trillions of dollars from the Treasury in order to pay off a failed firm's creditors and counterparties in the aftermath of its failure with the hopes that the funds can be recouped at some later date. But only a hope.


The Senate bill institutionalizes backdoor bailouts that have so infuriated the American people by conferring on the FDIC the exact same tools that were used to rescue the creditors of Bear Stearns, AIG, Fannie Mae, and Freddie Mac with the taxpayer price tag today of over a trillion dollars. This would continue the misguided too-big-to-fail bailouts that allowed U.S. regulators to pay Goldman Sachs and other large European banks 100 cents on the dollar at the expense of hundreds of smaller institutions and companies which were considered too insignificant or small to save or to pay.


The Democrats like to call their plan a ``death panel'' for large financial firms, but if you read the bill, in reality, it is nothing less than the taxpayer-funded life support to pay off the creditors of the failed institutions but not necessarily all of the creditors. They could pay some of the creditors and let others hang out to dry. We saw that with AIG and other bailouts.


And don't forget the so-called too-big-to-fail institutions have only grown larger and more dominant through the regulator-directed but taxpayer-funded bailout process, a process this legislation institutionalizes.


The better, more equitable approach to dealing with failed nonbank financial institutions--the only way to make sure taxpayers are protected from paying for Wall Street mistakes--is bankruptcy, first proposed by House Republicans. Unlike the FDIC, which can funnel unlimited amounts of taxpayer cash to a failing firm's creditors as part of a so-called resolution, a bankruptcy court has neither the authority nor the funds to make creditors whole. Bankruptcy is an open, transparent process administered according to clear rules and settled precedent and preferences, preferences that, in this bill, could be disregarded.


By contrast, the resolution authority proposed by the Democrats would be carried out entirely behind closed doors with no guarantee of adequate stakeholder participation and protection and without a bankruptcy judge to ensure a fair and equitable outcome. The Democrats have been careful to include in their bill a provision that explicitly states that taxpayers will bear no losses from the government's exercise of resolution authority. But that promise, like the promise we heard in Fannie and Freddie, is an empty one, not worth the paper it is printed on.


You will remember, on this floor we heard the Secretary of the Treasury say, $300 billion that will never be used. It was used, and almost another trillion dollars more was guaranteed.


The only way to ensure that the pockets of taxpayers will not again be picked by Wall Street and government bureaucrats with the help of this Congress--a coalition which sometimes I refer to as the reckless and the clueless--is to insist that failing firms be resolved through bankruptcy.


In conclusion, let me remind my colleagues that for 99.9 percent of core companies and all individuals who find themselves unable to meet their obligations or their creditors, bankruptcy--not a government bailout--is the only alternative. It ought to be the alternative for failing too-big-to-save corporations as well.


This motion to instruct would eliminate the two big to fail/too small to save double standard in the Democrat bill that has so infuriated the American people and makes bankruptcy the only option for the systemically significant firms, many of which created the crisis our economy and the American people face today. I urge my colleagues to support it.


I reserve the balance of my time.


Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself such time as I may consume.


Mr. Speaker, we have just seen an elephant stick wielded on the floor of the House. The elephant stick refers to the man who's walking around the Mall here in Washington carrying a big stick, and people say, Why do you have that big stick. He said, Well, I've got to keep away all the elephants, and the people say to him, Well, there aren't any elephants here, and he said, Right, my stick works.


My friend from Alabama is determined to prevent from happening what's not going to happen, what's not authorized in the bill. It is true that we had bailouts, and of course, what we also have here is the latest in a series of stunning repudiations of the Bush administration by its former loyal followers. All the bailouts the gentleman mentioned, of course, happened under the administration of President Bush, and I believe President Bush's administration did the best they could with weak tools at the time to deal with the problem.


What we have are ways to avoid that from happening. There is reference to too big to fail. No institution will be too big to fail under this bill. They will fail. The question is, will their failure lead to consequences that you should have some ability to deal with.


We do model some of this after the FDIC. The FDIC, run by a very able appointee, Sheila Bair, a former aid to Senator Dole and a Republican appointed to the job by President Bush, had a major role in helping us decide how to do this, and it is to say, first of all, the institutions that get too far into debt will die.


My Republican colleagues were actually right in the wrong place earlier this year, which is better than their usual average, when they talked about death panels. We are legislating death panels this year but for financial institutions, not elderly women. We don't have them in the health care bill. We have them in the financial bill. There is no too big to fail institution.

I will say in the instruction motion some things that were done were not done as well as they should have been--that's why we go to a final conference--and to the extent that there are suggestions that some of these institutions might survive, we will clean them out. The Senate bill has some provisions I don't like, and section 202 of the Senate bill I hope to change.

On the other hand, the notion that in this very complex system that we have, with the debts that are out there, to only do bankruptcy is simplistic. By the way, if my Republican colleagues really believe that bankruptcy was the only way to deal with these institutions, they would have an amendment or would have had an amendment to do away with the dissolution authority in the FDIC. The major exception of bankruptcy right now is in the Federal Deposit Insurance Corporation. We don't have simple bankruptcy for banks. We have a method given that particular relevance in the society on how you wind them down.


So, there are many things in here that I agree with. As to the conference report being open, again here I welcome my Republican colleagues as converts to the cause of openness and interbranch negotiations. When the Republicans controlled this institution for 12 years and had the Senate for most of that time, conferences were so rare that I've had to explain to Members who came during the years of Republicans how a conference works. Now they have become great advocates of an openness they never implemented themselves.


We will have a conference, which I announced was my intention last year, last fall. It will be open. Things will be presented. They will be debated. They will be subject to amendment. They will be voted on. I was asked if they were going to be televised. Now, I am not the editorial director of C-SPAN. I hope it will be covered. I hope TV will be there. I hope it will be widely covered, and I think it probably will be given the interest.


So, when they talk about a 72-hour requirement, I expect that we will beat that. The timetable I am hoping for will have this bill done in a couple of weeks, and it should be reported out, if we can work this out by a Thursday, and not come to the House until Tuesday which is more than 72 hours. One never knows whether there is going to be some emergency, what might happen. This will be a fully debated bill.


So there are aspects of the instruction report that I agree with. There are aspects with which I disagree. Of course, we have to go to the Senate. That's why instruction motions are not binding. But I do disagree with two points.


First of all, the entirely enacted allegation that this perpetuates bailouts, they have us confused with the situation that occurred in 2008. I don't blame the Bush administration for these bailouts in part because I think some of them could have been conducted more sensibly and better and with more concern for the impact on the average citizen, but they didn't have the tools. This gives them tools that first the Bush administration and now the Obama administration has asked for, not to keep institutions alive but to put them to death in a way that does not cause great perturbation in the rest of the economy. There will be no taxpayer money expended under here. That's already done. I do not doubt that years from now they will take credit for what we had already decided to do.


The instruction motion, in other words, is a mixed bag. Some parts of it I hope we will act on. The ex-ante fund we talk about of $150 billion, recommended to us again by Chairwoman Bair of the FDIC, many of us thought that made sense. The Senate and the administration were opposed to it. It will not survive the conference. People know that. So, to that extent, that's going to disappear anyway.


But saying that you only have bankruptcy and nothing else that helps you buffer the consequences of the failure of these institutions--and failures they will be, they will be hard to fail and will be dissolved--I think is reckless.


So I plan to vote against the motion to instruct, and given that it is such a mixed bag of things and given that it's not binding, I will predict that the outcome is likely to be very similar no matter how this goes. That is, there are some things we are going to do, some things we have to negotiate with the Senate. We haven't got the power to order. So I think this will be a useful discussion, but I will go back to just the last central point.


There will be no taxpayer funds, and there will be no institutions that are not allowed to fail. There will be an effort--and this has to be negotiated--to work with the Senate so that we do not simply say that the consequences are of no interest, and I would repeat again. Those who genuinely believe that only bankruptcy should be used have made a major concession by not applying those rules to the banking system. If only bankruptcy should be used, then where was the amendment during the process to convert the FDIC dissolution process on which this is modelled to a bankruptcy model?


I reserve the balance of my time.


Mr. BACHUS. Mr. Speaker, at this time I yield 4 minutes to the gentleman from Texas (Mr. Hensarling).


Mr. HENSARLING. Mr. Speaker, the question before us, with apologies to William Shakespeare, to bail out or not to bail out, that is the question. The motion to instruct by the ranking member says no more bailouts. Quite simply, it cannot be said any other way. Unfortunately, whether you're dealing with the House bill or the Senate bill, they are still identifying firms that in their view are too big to fail. Now the phrase that is used is systemically significant, systemically risky, but they are identifying firms for a specific regulatory scheme, and in the House version, as the distinguished chairman of the Financial Services Committee pointed out, is a prefunded bailout fund. In the Senate version, they drop their prefunded, but there is an infinite line of credit that the FDIC can draw upon with respect to the Treasury. Again, if you have firms, Mr. Speaker, that are too big to fail, then you are saying they can't fail. If they can't fail, then at some point you're going to bail them out.


Now, I've heard the distinguished chairman of the Financial Services Committee, the gentleman from Massachusetts, on many occasions say no taxpayer funds will be used. I heard him say it seconds earlier and I know he believes it and I know he means it, but unfortunately, the track record for him and many of his colleagues on that side of the aisle in predicting such is really not very good.


The distinguished chairman was the same one who told us he didn't believe that taxpayers would be called upon to bail out Fannie and Freddie. Well, approximately $150 billion later, we know that Fannie and Freddie did have to be bailed out, that rolling the dice was not a good strategy.


These are the same folks who also told us that the National Flood Insurance Program would never go broke, the crop insurance program, Medicare will never go broke. We've heard it before, Mr. Speaker. To somehow believe that ultimately taxpayers were not being called upon to have to bail out these firms is asking us frankly to ignore history and to suspend disbelief. Again, it is time to end the bailouts, and the motion to instruct would do that. Too big to fail becomes a self-fulfilling prophecy. Again, in many respects, the bill ought to be renamed the Perpetual Bailout Act of 2010. It has the wrong scheme. Bankruptcy is the proper scheme.


Now, I know the chairman has told us, well, we have death panels for these financial firms. Well, what happened on Chrysler and GM on their so-called death panels? Well, we know that Washington decided to play favorites. Certain creditors were benefited at the expense of others. Unsecured creditors, particularly the UAW, United Automobile Workers, somehow they jet to the front of the line. Secured creditors, they go to the back of the line. It creates avenues for political favoritism in Washington, D.C. It will again lead to Washington picking winners and losers.


We know how this ends. We know that AIG refused to make counter parties whole. CIT was designated too big to fail. They got billions of dollars. They failed anyway but it was resolved quickly. It is time to end the bailouts. The Nation cannot afford to be on the road to bankruptcy. It is time to end the bailouts, Mr. Speaker, and it is time to approve this motion to instruct.


Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself such time as I may consume.


I would like to yield to any of my Republican colleagues who will tell me why during this process they never moved to require bankruptcy as the way of dealing with failing banks. If bankruptcy is the only way to do it, why have the Republicans never proposed that we substitute for the current FDIC proposal bankruptcy? Well, I'm used to being unanswered when I ask hard questions. I think that proves the point.


I will yield to the gentleman from Texas.


Mr. HENSARLING. Well, I would say to the distinguished chairman that depositors are very different from investors, and when we have taxpayer money specifically at risk, it calls for a different regime.


Mr. FRANK of Massachusetts. Well, the gentleman is wrong about that because, yes, depositors are different than investors and depositors are insured, but we have deposit insurance. If you on the other side generally believe this, Mr. Speaker, they would provide deposit insurance and then bankruptcy. The gentleman's incorrectly answered the question. Deposit insurance takes care of the depositors, but there are other things that are done to try and reduce the cost to the government. So bankruptcy and deposit insurance has not been the method.


Mr. HENSARLING. Will the gentleman yield?


Mr. FRANK of Massachusetts. Yes.


Mr. HENSARLING. Is the distinguished chairman suggesting that we need deposit insurance for firms like Citigroup and Goldman Sachs? Is that what the gentleman is suggesting then?


Mr. FRANK of Massachusetts. I would take back my time to say that's even by the standards of this debate wholly illogical. No, I'm not remotely suggesting that. What I'm suggesting is the glaring inconsistency between saying bankruptcy is the only way you put an institution out of business and the failure to apply that to the banking business.


By the way, I don't mean to be rude but the gentleman mentioned Citicorp. There's a bank there that has deposit insurance. So maybe the gentleman wasn't aware that the bank there has deposit insurance.


Mr. Speaker, there is another error in the comments. This is that the bill designates institutions too big to fail as systemically important. That is misleading as stated.


In fact, the bill in the House does not designate any institution as being systemically important. The only way an institution would be designated as systemically important is if it was found to be troubled. So there would be no situation in which an institution would have that label and go out and be able to do things with it.


Under the bill that we have, only a finding that the institution is in difficulty triggers a systemic importance designation, and it is accompanied with restrictions on that institution. It is exactly the opposite of this being a badge to get more loans. It is publicly identified as a troubled institution.


The last point I would make is this. Yes, there was flood insurance, Medicare, a number of things. None of them have the language we have in this bill. This bill has very specific language banning those things because we have learned from experience.


We have learned from the experience of 2008, with all those bailouts. And, again, remember, every single bailout activity was initiated by the Bush administration. And I say that not for political purposes but to indicate the inherent difficulties here.


And it was the people in the Bush administration who first said to us, ``Give us different tools. We have to be able to deal with putting these institutions out of business, but not ignore the consequences.''


So, with that, Mr. Speaker, I reiterate: This bill very explicitly prevents bailouts. It designates no institution as systemically important. It says that regulators may step in when they find an institution to be troubled. And if they think that that troubled institution could cause damage, they don't just designate it, they put severe restrictions on it.


So it is exactly the opposite suggestion that some will be too big to fail. They will be on notice that they have to increase their capital, decrease their activity. And people will be told that if that institution does fail under this bill, those who have invested, et cetera, will be wiped out.


Mr. Speaker, I reserve the balance of my time.


Mr. BACHUS. Mr. Speaker, I yield 4 minutes to another gentleman from Texas (Mr. Paul).


(Mr. PAUL asked and was given permission to revise and extend his remarks.)


Mr. PAUL. I thank the gentleman for yielding.


Mr. Speaker, I rise in support of this motion to instruct. I think it is a good idea that we don't have the taxpayers bailing out eternally institutions that are bankrupt.


But there is an important thing to remember, that when an economy gets out of kilter, the marketplace demands a correction of that. And that's usually called the recession. Of course, we are not discussing here today exactly how we get into the excesses, but we do. And, unfortunately, debt gets too high and mal-investment gets too excessive, and the market wants to correct this.


Now, it's essential that this excessive debt be liquidated. It can be liquidated in two different ways. It can be written off by inflationary currency and paid off with bad money, or it can be liquidated actually through the bankruptcy process.


So I am in strong support of this, but I also want to make a point here and a suggestion to the conferees that they pay attention to the provision in the House version of our bill dealing with the Federal Reserve. And that provision is called H.R. 1207, which deals with the auditing. And there is a difference between the Senate version and the House version.


So, although we are not talking about that specifically, to me it's important, not only for the issue of oversight and transparency, but there is also an opportunity for the Federal Reserve to provide bailout provisions for certain organizations, as well. We are talking about taxpayers' funds, the appropriated funds, TARP funds and others. But when we come to extending loans, in a way this very much is a bailout.


So I would like to suggest that we look at that and stand by the House provision. We do have 319 cosponsors of this provision.


Mr. FRANK of Massachusetts. If the gentleman would yield, as you know, I was for some form of that. And I guarantee, because the Senate has acted, we will have tough auditing provisions of the Federal Reserve in the final bill.


And I do want to note to my friend from Texas that, when the Republicans offered a motion to recommit to the bill, they would have wiped out a number of things, including his audit provision. So despite the fact that my friend from Texas temporarily abandoned his audit provision to the perils of a recommittal provision, I will join with him in reviving it.


And, as he knows, we have in our bill a severe limitation on this power under section 13(3) for making these loans. What they did with AIG will no longer be possible. There will be no more loans to individual institutions.


But he has been the leader on the audit situation, and I intend to continue to work with him to make sure it is well done.


Mr. PAUL. I thank the chairman.


And I would just like to reemphasize that it is the responsibility of the Congress to commit to oversight of the Federal Reserve, something that we have been derelict in doing. I think the mood of this House and the mood of the Senate and the mood of the country is more transparency and more oversight.


The provision in the Senate version is not adequate for an audit of the Fed. So I am encouraged that we are getting more attention because, ultimately, it is necessary that we understand exactly how the business cycle comes about and how the Federal Reserve participates in this.


Because, under the circumstances of today, on what we are doing, we are prolonging our agony. And someday I would hope to see that our recessions--and now we are talking about depressions--are minimized and shortened. And I am concerned that the programs that we are working with today are prolonging those changes.


So the most important thing that we can do is make sure that we exert our responsibilities, have oversight of the Federal Reserve, commit to these audits of the Federal Reserve, and not to endorse the idea that the Federal Reserve is totally secret, can do what they want, can bail out other companies and banks and foreign governments and foreign central banks without fully knowing exactly what they are doing.


Once again, I thank the chairman of the committee for his support for auditing the Fed.


Mr. FRANK of Massachusetts. Mr. Speaker, I yield such time as he may consume to the chairman of the Subcommittee on Financial Institutions, the gentleman from Pennsylvania (Mr. Kanjorski), who had a major and constructive role in this bill and was pushing for things like reform of the Volcker rule before it was popular in other quarters.


Mr. KANJORSKI. Mr. Speaker, I rise maybe to make a suggestion. I know it may drop on deaf ears, but, you know, we are about to undertake an historic event, both in this institution, the Congress of the United States, and in the United States of America, and that is to enact laws by a democratic society through their elected representatives that will cause occasions to happen that may actually save the economy of this Nation or the economy of the world.


It seems to me at this first preparation date we are awaiting the appointment of our conferees here on the House side, that we are already indicating that there will be a political flavor to this conference as opposed to an attempt by both sides of the aisle to find what is best for America and what is best for the economy of this country.


Now, I suggest, and I will concede, having worked with the chairman and Members on the other side, the ranking members and others, for these last 15 or 16 months, that this is not a perfect bill or a perfect solution. I wish it were. But I think we will all have to wait until another day of a higher order to get to perfection.


All we are trying to do here is to work in the regular order of the legal process to see if we can make certain that we don't bring down our economy or our government or the world's economy or the world governments. And that's what we are attempting to do.


Now, you know, we have all these titles, and I am probably as guilty as others, ``too big to fail.'' And we talk about that like that's an easily definable entity. Well, in reality, it isn't.


The fact of the matter is, some things are so interconnected and intertwined and involved in our economic system that, for all intents and purposes, they would appear not to be a risky organization, but that when you examine them and you see the tentacles that they send out through our society and other organizations throughout the world, that their failure can precipitate a failure of the economic system of the world.


That's what we experienced in an organization known as AIG. You know, an organization in excess of 100,000 people, working in tens of countries around the world, had a little organization in London, England, called AIG Financial Products. Those 400 people were able to take a name, AIG, American International Insurance Group, and utilize that to get into the derivative business to the tune of $2.8 trillion without the support of adequate assets to meet their counterparty positions.


Mr. KANJORSKI. It is certainly a pleasure to address the Speaker, and I will. I am sure we should adhere to the decorum of the House and the rules of the House, and I will definitely do that.


I wouldn't think of calling the attention of my observations to my colleagues on the other side. That could be frightful if we did that because they may have to respond to those observations. So we won't call those observations.


I was going through how we got here and why we are here. And how we got here was we met in rooms around this Capitol for a number of weeks, 2 or 3 weeks, as I recall. And the President of the United States, George W. Bush, in his last year of presidency, or in the last several years of his presidency, indicated that his Secretary of Treasury and the Chairman of the Federal Reserve were his designees to work with Congress to see what we could do to prevent the potential meltdown or catastrophe to the world's economy. And we went to work to do that.


Now, as I recall--and I sat in some of those meetings, not all of those meetings--we would periodically tune the conference telephone to economists, Nobel Prize-winning economists around the world, of all political persuasions and philosophical positions. And, to my best recollection, there were several dozen. And to a man, or woman, not one of them disagreed that what we were facing was total meltdown and that precipitous action had to be taken.


And the precipitous action that was taken was to provide a rescue package, giving unusual, incredible authority to the executive branch of government, to be utilized by the Secretary of the Treasury, to do what we could to prevent a meltdown in the United States.


Now, at all times, as I recall, those eminent economists were telling us that it was their opinion that even if we did these strange and unusual activities of empowering the President and the Secretary of the Treasury to borrow monies, use monies, buy assets, do all kinds of things, the chance of success was rated at about 50/50.


As I recall, we worked for about 2 or 3 weeks crafting what originally was a three-page bill that ultimately became a 400-page bill and became known as the ``rescue'' bill. We brought it to the House floor, if all of you will recall, and it failed. And the day that it failed, the hour that it failed, the half hour that it failed, the New York Stock Exchange dropped 900 points. And finally, there was a realization across the country and across the world that if this rescue package was not passed, we probably were looking at the beginning of the failure of the American economic system, and we went to work to see if we could put a coalition together to get it passed, and that took another week, if I recall.


Now, we did those things in the midst of an election. We did those things with a Republican President and a Democratic Congress, and it seems we did it pretty successfully. And we didn't call it a ``bailout'' bill. That became a political terminology so that people could be misinformed, misdirected, and have a visceral reaction to what the Congress has done when they really didn't understand it. And what occurred? Well, that prevailed. Rather than calling it a "rescue" bill anymore, it became known as the "bailout."


I want to correct that because I've heard that term used here at least a dozen or two dozen times. I asked the question, what did we bail out? We made extensive commitments to banks in the United States. To the best of my knowledge, all those banks have now repaid those commitments to the Treasury or to the Federal Reserve. What was the success of that? Most of them did not fail and our economic system did not fail, in totality, so it was pretty good, but we were losing employment and falling like a rock, the economy, to the tune of, in January, when the new President of the United States was sworn into office, this Nation lost 750,000 jobs and had been losing jobs at that rate for several months before and it continued several months after. And we started to get into, as opposed to discussing economics, free market situations and legalities of how we handle this problem. We got into a political ramble that has continued to this day. I think that's what I got up to address.


If we stay on this course and this direction, the only thing that's going to happen at this conference committee--and ultimately the bills that are enacted into law and signed by the President--will be very limited-capacity pieces of legislation that will not nearly accomplish what could happen. On the other hand, I say to my friends on the other side and the Members and colleagues of this Congress, if we can put our personal prejudices, our political advantages to the side and spend the next 2 1/2 or 3 weeks in an honest effort to get the best bill possible to reform the financial markets of the United States, and indeed the world, we can do something that is so historic in nature that we place the stability of our economy for the next 75 years as it was ably put together in the 1930s.


If we don't accomplish that, what we're going to end up with is a temporary solution to a disastrous problem, fighting a lot of silly political questions which will long disappear before most of us do from the face of the Earth, but not accomplishing anything for the American people.


So I just end this dialogue with saying this--to the gentlemen on both sides of the aisle, so I'm not charged with directing it towards one side--let's put our disagreements aside for the next 2 or 3 weeks. Let's listen to the chairman of the House committee and the ranking member. Let's listen to the chairman of the Senate committee and ranking member and the other 30 participants of this conference committee, with the commitment of doing the best we can within our powers to prevent this from happening, certainly in the near future, or potentially ever again. If we fail to do that, we will have failed our job.

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Guest LAW

White House Press Briefing by Press Secretary Robert Gibbs, 6/29/10


Q Robert, does the White House support removing the bank tax from the financial regulation bill in order to gain 60 votes?


MR. GIBBS: Jeff, obviously we are working with the conferees on removing any hurdles to passage of strong financial reform legislation, which we're on the cusp of doing. So I would leave it at we're working with them to ensure that we have 60 votes to move this legislation forward.


Q Do you see that tax as one of the hurdles that could be removed?


MR. GIBBS: Well, obviously that's certainly a discussion that is going on amongst those on Capitol Hill.


Q And if those on Capitol Hill went that way, is that something that you would support?


MR. GIBBS: Well, again, we're working with them to look for any solution that might be needed.


Q Thank you. On financial reform, how confident is the President that he is going to get the 60 votes? And does he think he could have it on his desk by July 4th, as they had originally hoped?


MR. GIBBS: Look, we -- Chip, our hope is to get this done as quickly as possible. I do think, whether or not it is done by the end of this week, obviously there are some logistical hurdles that are going to have to be met in order to do that.


I will say that if you go back to January or even many of the months between January and now, there was always a question as to whether this was going to get done. I don’t think there is a question now whether it will get done. It will either get done more likely the week -- the next week that they’re back than this week, but the President will very shortly sign comprehensive financial reform legislation that puts in place rules that prevent the type of activity and the type of effect that happened in September of 2008 from ever happening again.


Q And has the President had -- reached out to or had any conversations with any of the Republicans who they hope to --


MR. GIBBS: Let me check and see the last time he made -- has made calls.


Q Okay, that wasn’t -- that wasn’t the hard one. So he did know about it. Second, on fin reg, if you don’t get the bank fee, is this something you will continue to pursue further if it does not -- it’s not a part of --


MR. GIBBS: Yes, the President outlined in his State of the Union address earlier in the year the need to repay the taxpayers fully for the Troubled Asset Relief Program. So this does not close the door on that.


Q So if it’s not in here, you could --


MR. GIBBS: It doesn’t close the door on doing that at a later date.


Q Robert, can you say how often Ben Bernanke briefs the President on a -- at an economic daily briefing?


MR. GIBBS: I don’t have all of that in front of me, Mark. He has been over here on occasion. He was over here today to speak about where we’re headed in financial reform and where we are in the arc of our economic recovery.


Q Is it infrequent rather than frequent?


MR. GIBBS: Again, I don’t have the stats in front of me to the degree to which -- how many times the President has talked to him or not.


Q Robert, you just said you didn’t know how frequently Bernanke is there for the morning eco briefing, but it’s pretty infrequent when the President makes a statement with Bernanke by his side. Talk to us about the optics of that. What was the message there?


MR. GIBBS: Well, look, again, Chairman Bernanke was here to talk of several things. Obviously the President concluded some important meetings over the weekend on the international response to the economic crisis that we’ve all dealt with. We’re on the cusp of real and genuine financial reform. And we are continuing to move forward on steps like a small business lending facility that action was taken in the Senate today to move that proposal forward, on how we can continue to make progress in our economy. We’ll see -- it’s jobs week -- we’ll see numbers at the end of the week.


Q But why do a statement with Bernanke by his side? He rarely, if never, does that. What’s -- I mean, does he want the gravitas of Ben Bernanke? Does he want to calm markets?


MR. GIBBS: I think you heard him talk about -- where we are on our economic recovery is something that the President talks about quite frequently, and having Chairman Bernanke here to discuss those other topics seemed appropriate.


Q So it was just random that Bernanke was there next to him?


MR. GIBBS: Well, it wasn’t random that he was there. I mean, he was obviously here to talk about the things that I just talked about.


Q But I still don’t understand why he was there for the public statement that the President gave to us. Because if he’s here frequently or infrequently --


MR. GIBBS: So that Bloomberg could have exclusive access to the Chairman of --


Q No, I mean, it’s a serious question, you guys --


MR. GIBBS: No, no, I understand.


Q Right, I mean, you -- I’m trying to --


MR. GIBBS: I’ve tried to give you a serious answer three times.


Q Well, I’m trying to understand why the President felt that he needed to give a statement on the economy, which he does nearly every week, with Bernanke by his side -- what we should read into that.


MR. GIBBS: I don’t know that you should read anything into it, despite my best efforts to describe otherwise. Again, Chairman Bernanke obviously, as you know, plays an incredibly important role; has worked for the past 17 months to stabilize our financial system, to speed our recovery; was here to meet with the President and the economic team. And I want the record to reflect this is the first time you guys have -- that Hans has complained about too much access.


Q We’re not complaining.


Q Robert, House Minority Leader John Boehner today likened your approach to financial regulatory reform to “killing an ant with a nuclear weapon.”


MR. GIBBS: If I understand the analogy correctly, I think it’s important, Glenn, that we understand that he apparently believes that the financial crisis -- I think the ant in that is the financial crisis. Now, I don’t know whether opening one’s mouth and removing most of the doubt that you’re completely out of touch with America in thinking that a financial crisis that caused 8.5 million jobs to be lost, the savings of tens of millions of Americans wiped out in a financial crisis, to have lives altered forever, to make that type of analogy I think demonstrates -- well, I will say it demonstrates how out of touch you are currently and it demonstrates exactly the type of mindset that he would bring to leading the House of Representatives. It’s led him to oppose an economic recovery plan that has grown our economy and brought us back from the brink of a Great Depression.


It has -- he has voted against strengthening the rules that govern Wall Street. Maybe he thinks that the rules that we had in place that caused what happened in September of 2008 are just the type of regulation Wall Street needs. The President doesn’t believe that, and I think the majority of Americans don’t think that.



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Guest Mitch

Last night, just before 7 p.m. Eastern Time, the House passed Wall Street reform by a vote of 237 to 192. This is a huge victory for our movement -- and all American consumers.


Now, there's just one hurdle left before this historic bill can be signed into law. It must be passed by the Senate -- a vote likely to come right after the July 4th congressional recess.


Protecting consumers and holding the big banks accountable is a key piece of the change that all of us fought for in 2008. It's up to us to bring it across the finish line -- making sure every champion in the Senate knows that we're standing with them, and that those in opposition know that Americans are demanding reform.

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Guest Uncommon Wisdom

The financial reform getting worked over in Congress right now is a toothless wonder. It does nothing to address the main problem on Wall Street, which is that the banks we apparently can't allow to fail are entwined with the trading houses that are ripping us off.


At one time, banks did boring ol' banking and brokers gambled with other people's money. This was due to the Glass-Steagall Act, passed in the 1930's to help prevent a recurrence of the 1929 market crash and the Great Depression. It provided strict separation of the activities of various types of financial firms, the overlapping of which was significantly responsible for creating the late 1920's market bubble and subsequent crash.


Glass-Steagall forced financial firms to divest themselves of overlapping operations and focus on their core business. Reinstating Glass-Steagall is the most obvious financial reform needed. The fact that the Obama administration opposes reinstating Glass-Steagall raises another needed reform.


Since some of the banks we bailed out have paid back some of the money, the total cost of the bailout is now expected to be $89 billion. Since Wall Street will repeat its mistakes unless we change things, reinstating Glass-Steagall will probably save us at least another $89 billion.


#4) Close the Revolving Door between Wall Street and Washington. The major players shuttle between top jobs in Washington and Wall Street. As a result, the government is "captured" and in effect becomes an arm of Wall Street, passing laws to make bankers richer rather than protecting average citizens.


In the late 1990s, Sandy Weill, then head of Citicorp, led the fight to rescind Glass-Steagall. Phil Gramm, the chairman of the Banking Committee, worked with Citigroup lobbyists to get it the repeal passed. The repeal was called the Gramm-Leach-Bliley Act after the three Republican senators who pushed it through Congress. President Clinton embraced the repeal.


According to PBS's "Frontline," just days after the Treasury Department agreed to support the repeal, Clinton's Treasury Secretary, Robert Rubin, accepted the job as Weill's chief lieutenant at Citigroup. Phil Gramm went on to become an executive at UBS, another giant bank that was a big beneficiary of repeal.


What is needed is obvious. If you work in the government, you can't work on Wall Street for 5 years. Period. That may mean we'll have to accept that we don't have the best and brightest in those jobs. Considering that the best and brightest seem to be ripping us off, I'll settle for competence and adherence to the spirit as well as the letter of the law. It will be far less expensive.

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Guest American4Progress

Democrats appear to have "won the 60 votes" needed to pass Wall Street reform in the Senate. With Republican Sens. Olympia Snowe (ME) and Scott Brown (MA) announcing their support on Monday, Democrats will not have to wait for the late Sen. Robert Byrd's successor to secure better oversight of the financial system in "the second major legislative overhaul, after healthcare reform."

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Guest Mitch

The Senate just passed Wall Street reform. The bill will become law the moment President Obama signs it.


This reform represents the boldest financial regulations since the aftermath of the Great Depression -- and the strongest consumer protections in history.

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