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50–415 2010

S. HRG. 110–1013 

TURMOIL IN THE U.S. CREDIT MARKETS: THE 

GENESIS OF THE CURRENT ECONOMIC CRISIS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

ON 

THE CAUSES OF THE CURRENT FINANCIAL AND ECONOMIC CRISIS 

THURSDAY, OCTOBER 16, 2008 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html 


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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

CHRISTOPHER J. DODD, Connecticut, Chairman 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, Pennsylvania 

JON TESTER, Montana 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

WAYNE ALLARD, Colorado 

MICHAEL B. ENZI, Wyoming 

CHUCK HAGEL, Nebraska 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

BOB CORKER, Tennessee 

SHAWN MAHER, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director and Counsel 

AMY S. FRIEND, Chief Counsel 

MARK OSTERLE, Republican Counsel 

DAWN RATLIFF, Chief Clerk 

DEVIN HARTLEY, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 


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C O N T E N T S 

THURSDAY, OCTOBER 16, 2008 

Page 

Opening statement of Chairman Dodd .................................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Crapo ................................................................................................... 6 

Senator Akaka .................................................................................................. 7 

Senator Brown .................................................................................................. 8 

Senator Casey ................................................................................................... 10 

Senator Menendez ............................................................................................ 12 

WITNESSES 

Arthur Levitt, Jr., Senior Advisor, The Carlyle Group, and Former Chairman, 

Securities and Exchange Commission ................................................................ 15 

Prepared statement .......................................................................................... 48 

Eugene A. Ludwig, Chief Executive Officer, Promontory Financial Group, 

and Former Comptroller of the Currency .......................................................... 17 

Prepared statement .......................................................................................... 56 

Jim Rokakis, Treasurer, Cuyahoga County, Ohio ................................................ 23 

Prepared statement .......................................................................................... 80 

Marc H. Morial, President and Chief Executive Officer, National Urban 

League ................................................................................................................... 25 

Prepared statement .......................................................................................... 98 

Eric Stein, Senior Vice President, Center for Responsible Lending .................... 29 

Prepared statement .......................................................................................... 108 


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(1) 

TURMOIL IN THE U.S. CREDIT MARKETS: THE 

GENESIS OF THE CURRENT ECONOMIC 

CRISIS 

THURSDAY, OCTOBER 16, 2008 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10:42 a.m., in room SD–538, Dirksen Senate Office Building, Senator Christopher J. Dodd (Chairman of the 

Committee) presiding. 

OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Chairman DODD. The Committee will come to order. 

Let me welcome everyone to the hearing this morning. I want to 

welcome my colleagues who are here. Senator Crapo, I welcome you 

and thank you very much for being here this morning. Senator 

Akaka, Senator, how are you this morning? Good to see you as 

well. And, Sherrod, thanks for being here this morning. Let me 

thank our witnesses as well. 

What I am going to do, if we can here this morning, is to make 

an opening statement, turn to my colleagues for any opening comments they would like to have this morning, and then we will get 

to our witnesses. Any and all statements or supporting documents 

that you would like to have included in the record, we will certainly make it a part of the record. 

Just so people can be aware, my intention over the coming weeks 

is to have a series of hearings and meetings—some of them more 

informal, some of them more formal—to do what we are doing 

today, obviously, to go back and examine how we arrived at the situation we are in today; but just as importantly—in fact, I would 

argue even more importantly—what do we need to do from here 

forward so as to minimize these problems from ever occurring 

again. 

Second, we want to watch and we are going to monitor very carefully, of course, the rescue plan that was adopted several weeks 

ago. As I think all of you are aware, there are provisions in that 

bill that literally require almost hourly reporting, every 48 hours 

or so on various transactions that occur, and we want to watch 

very carefully following the auditing process that we wrote into the 

legislation with the GAO and the Inspector General as well. And 

so the Committee will be working at that almost on a daily basis. 

Then, third, the issue of financial regulatory reform. Secretary 

Paulson a number of weeks ago now, months ago, submitted a proVerDate Nov 24 2008 01:16 Apr 14, 2010 Jkt 050415 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\B415.XXX B415

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posal on regulatory financial reform, and we never got to having 

the hearings we wanted to have on that, frankly, over the summer 

because of events with the foreclosure crisis and more recently with 

the broader economic crisis. 

But I would like over these coming weeks between now and the 

first of the year to have this Committee, both formally and informally, meet with knowledgeable people—and there are some at this 

very panel who could be of help in this regard—as to what the architecture and structures of our financial services system ought to 

look like in light of the changes that have obviously occurred, updating a system that in many instances actually dates back more 

than 80 years. 

The world has obviously changed dramatically, as we are all 

painfully aware, and having an architecture and a structure that 

reflects the world we’re in today is going to be a critical challenge. 

This is not an easy task. It will require a lot of thought, and 

careful thought, about how you do this. But I thought it would be 

worthwhile to begin that process, and then with a new administration arriving on January 20th, to already have sort of an up-andrunning effort that we could then work with the new administration, be it a McCain administration or an Obama administration, 

to move that process along rather than just wait until after January 20th to begin a process that I think will take some time, quite 

candidly, given the complexity involved, going back to the 1933 act 

and other provisions. And as I said, several of you on this panel 

here have a wealth of knowledge about those laws and how they 

work or do not work. So I may very well be calling on some of you 

to participate, either informally or more formally, in that conversation and discussion. 

Today’s hearing is entitled ‘‘Turmoil in the U.S. Credit Markets: 

The Genesis of the Current Economic Crisis,’’ and I want to share 

some opening comments if I can on this and, again, turn to Senator 

Crapo and then to others to share some thoughts as well, if they 

care to, before we turn to our witnesses. 

This morning the Committee examines the genesis, as I said a 

moment ago, of the crisis in our credit markets. Such an examination is in keeping with this Committee’s extensive work over the 

past 21 months to understand the implosion of the mortgage markets and how that implosion has infected the wider economy. 

All told, this Committee has held 73 hearings and meetings since 

January of 2007 when I first became the Chairman of this Committee. No less than 31 of those hearings have addressed in one 

form or another the origins and nature of the current market turmoil. Today’s meeting is essential to understand not only how we 

got here, but just as importantly—and I would argue even more 

importantly—where we as a nation need to go. Only if we undertake a thorough and complete postmortem examination of the corpus of this damaged economy will we have any chance to create a 

world where the mistakes of the past are less likely to be repeated 

and where all Americans will have a fair chance at achieving security and prosperity. 

It is by now beyond dispute that the current conflagration threatening our economy started several years ago in what was then a 

relatively discreet corner of the credit markets known as subprime 


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mortgage lending. The Chairman of the Federal Reserve, Ben 

Bernanke, and Treasury Secretary Hank Paulson and many other 

respected individuals have all agreed on that fact. Mortgage market participants, from brokers to lenders to investment banks to 

credit rating agencies formed an unholy alliance conceived in greed 

and dedicated to exploiting millions of unsuspecting, hard-working 

American families seeking to own or refinance their homes. Relying 

on two faulty assumptions that housing prices would continue to 

rise maybe forever and that new financial instruments would allow 

them to shift the risk to others, these market participants flouted 

the fundamentals of prudent lending. 

Certainly some borrowers themselves sought unjust enrichment 

in the process. They deserve neither our sympathy nor our assistance. But the millions of American homebuyers who today face 

foreclosure and financial ruination, the vast majority were victims, 

not perpetrators, of what will be remembered as the financial crime 

of the century. Indeed, the misdeeds of a few have robbed nearly 

every American. Whether they suffer from the loss of a home, retirement security, a job, or access to credit, Americans are reeling 

from the credit crisis. 

Sadly, in my view, this crisis was entirely preventable. It is clear 

to me that greed and avarice overcame sound judgment in the marketplace, causing some very smart people to act in very stupid 

ways. But what makes this scandal different from others is the abject failure of regulators to adequately police the markets. Regulators exist to check the tendency to excess of the regulated. They 

are supposed to step in to maintain transparency, competition, and 

fairness in our economy. In this case, though, our Nation’s financial 

regulators willfully ignored abuses taking place on their beat, 

choosing to embrace the same faulty assumptions that fueled the 

excessive risk taking in the marketplace. Instead of checking the 

tendency to excess, they permitted and in some ways even encouraged it. They abandoned sensible and appropriate regulation and 

supervision. 

No one can say that the Nation’s financial regulators were not 

aware of the threats posed by reckless subprime lending to homeowners, communities, and, indeed, the entire country. That threat 

had already been recognized by Congress. In fact, the Congress had 

already taken strong steps to neutralize it. In 1994, 14 years ago, 

then President Clinton signed into law the Home Owners and Equity Protection Act. This law required—let me repeat, required, 

mandated—the Federal Reserve Board as the Nation’s chief financial regulator, and I quote, ‘‘to prohibit unfair, deceptive, and excessive acts and practices in the mortgage lending market.’’ 

Despite this direct requirement and mandate, the Federal Reserve Board under its previous leadership decided to simply ignore 

the law—not for days, not for weeks, not for months, but for years. 

Indeed, instead of enforcing the law by simply imposing the common-sense requirements that a mortgage loan be based on a borrower’s ability to repay it, the Fed leadership actually encouraged 

riskier mortgage products to be introduced into the marketplace. 

And the public information on this point is massive. 

The Fed’s defiance of the law and encouragement of risky lending 

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writing in the subprime mortgage market threatened homeownership and wealth accumulation. And it was incompatible with safe 

and sound lending practices. The Fed’s defiance of the law and encouragement of risky lending occurred despite warnings issued by 

Members of Congress, I would add, including some of us who 

served on this Committee, that occurred despite warnings from respected economists and others that the Fed and its sister agencies 

were playing with fire. 

It was only this year, 14 years after the enactment of the 1994 

law, that the Fed finally published regulations to enforce the bill’s 

provisions, the needed protections. By that time, of course, the proverbial horse was out of the barn. Trillions of dollars in subprime 

mortgages had already been brokered, lent, securitized, and blessed 

with unrealistic credit ratings. Millions of American homeowners 

faced foreclosure, nearly 10,000 a day in our country. 

I spoke to a housing group from my State yesterday. There are 

1,000 legal foreclosure proceedings every week in the State of Connecticut, and we have a foreclosure rate that is lower than the national average. A thousand cases a week in the courts in Connecticut in foreclosures. Tens of millions more are watching as 

their most valuable asset—their homes—decline in value. And the 

entire global financial marketplace has been polluted by toxic financial instruments backed by these subprime mortgages, which 

has caused a financial meltdown of unprecedented proportions and 

laid low our economy. 

The evidence is overwhelming. This crisis is a direct consequence 

of years of regulatory failures by government officials. They ignored 

the law. They ignored the risks to homeowners. And they ignored 

the harm done to our economy. Despite this clear and unimpeachable evidence, there are still some who point fingers of blame to the 

discretion of Fannie Mae, Freddie Mac, and the Community Reinvestment Act. These critics are loud and they are shrill. They are 

also very wrong. It is no coincidence that they are some of the very 

same sources who were the greatest cheerleaders for the very deregulatory policies that created the financial crisis. 

Let’s look at the facts, or as Pat Moynihan used to say, ‘‘Everyone’s entitled to their own opinions, but not their own facts.’’ 

On Fannie Mae and Freddie Mac, the wrong-headed critics say 

Fannie and Freddie lit the match of the subprime crisis. In fact, 

Fannie and Freddie lagged in the subprime market. They did not 

lead it. Between 2004 and 2006, the height of the subprime lending 

boom, Fannie and Freddie’s share of subprime securitizations 

plummeted from 48 percent to 24 percent. The dominant players 

were not Fannie and Freddie, but the Wall Street firms and their 

other private sector partners: the mortgage brokers and the unregulated lenders. 

In fact, in 2006, the height of the subprime boom, more than 84 

percent of subprime mortgages were issued by private lenders. Private lenders. One of the reasons Fannie and Freddie lagged is because they were subject to tougher underwriting standards than 

those rogue private unregulated lenders. So it was the private sector not the Government or Government-sponsored enterprises that 

was behind the soaring subprime lending at the core of this crisis. 


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At the risk of stating the obvious, it is worth noting that at the 

height of the housing boom, the President and his supporters in 

and out of Government did nothing to criticize or stop predatory 

lending. They did nothing to support, much less advance, the legislation that some of us were working on to move in the Congress 

that would have cracked down on predatory lending. 

Regarding the Community Reinvestment Act, the critics are also 

speaking in ignorance of the facts. The overwhelming majority of 

predatory subprime loans were made by lenders and brokers who 

were not, I repeat were not, subject to CRA. In 2006, for example, 

24 of the top 25 subprime lenders were exempt—exempt—from the 

CRA. In fact, CRA lending is in no way responsible for the 

subprime crisis. CRA has been the law of the land for three decades. If it were responsible for creating a crisis, this crisis would 

have occurred decades ago. 

The late Ned Gramlich, the former Fed Governor, put it well 

when he said that two-thirds of CRA loans did not have interest 

rates high enough to be considered subprime. Rather than being 

risky, lenders have found CRA loans to have low default rates. According to former Governor Gramlich, ‘‘Banks that have participated in CRA lending have found that this new lending is good 

business.’’ 

So people are entitled to their own opinions, as Pat Moynihan 

would say, but they are not entitled to their own facts. And Ronald 

Reagan once said, ‘‘Facts are stubborn things.’’ Indeed, they are, as 

they should be in this regard. 

Let me also say that I have learned over the years from this debacle that the American consumers, when all is said and done, remain the backbone of the American economy and deserve far better 

than they have been getting from too many people. 

The lessons, obviously, of this crisis are already becoming clear 

to us. One of the central lessons is that never again should we permit the kind of systematic regulatory failures that allowed reckless 

lending practices to mushroom in the global credit crisis. Anther is 

that never again should we allow Federal financial regulators to 

treat consumer protection as a nuisance or of secondary importance 

to safety and soundness regulation. 

If we have learned one thing from all of this, it is, as I said a 

moment ago, the American consumer, when all is said and done, 

remains the backbone of the American economy, that consumer 

protection and safe and sound operation of financial institutions 

are inextricably linked. 

I look forward to hearing from our distinguished panel of witnesses and from my colleagues this morning as we go back and 

look at what occurred here and the ideas that can be put forward 

as to how do we minimize these problems from ever occurring 

again. 

Again, I thank the witnesses very much and my colleagues for 

interrupting their time back in their respective States and districts 

to be here this morning to participate in the hearing. 

With that, Senator Crapo. 


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STATEMENT OF SENATOR MIKE CRAPO 

Senator CRAPO. Thank you very much, Mr. Chairman. Our financial markets and the economic crisis that we face today represent 

a very serious and a real threat, and we need to make sure that 

we are very clear about what the sequence of events were that occurred and what choices were made to place us in this catastrophic 

state of affairs. I agree that we have got to figure out how we got 

here so that we can correctly and properly address it. 

I was pleased to hear that you intend to pay some very specific 

attention not only to oversight of the implementation of the recovery plan that Congress passed, but also to the need for regulatory 

reform and your mention of the blueprint that Secretary Paulson 

put out. 

As you know, I am one who has been very involved in regulatory 

reform and modernization over the past few years, and I have some 

pretty strong opinions about how we need to approach establishing 

our regulatory system in this country. And I have noted in the testimony of some of the witnesses an explanation and a recognition 

of the fact that our regulatory system, developed decades and decades ago, has not kept up with the state of the economy and the 

types of financial activities and financial products that we are now 

dealing with on a global basis in our economy. And because of that, 

I think there is a true need to address what regulatory structure 

this Nation should have for a whole host of different pieces and aspects of our financial system. I am going to be interested in the 

witnesses’ testimony about that. 

I personally think that we, collectively, the Congress, as we 

struggle with this, will probably end up with some very different 

opinions and points of view about how we should approach that. 

There will be some who want a much more extensive role for the 

regulators than others. But the bottom line is we need to figure out 

how we will move forward, and we need to establish a regulatory 

system that will allow capital to flow in our country and in the 

global economy, really, in a free and an efficient and a safe way. 

And I believe that there is a way for us to achieve that. 

So I appreciate the fact that you have indicated that you are 

going to be paying some very close attention to that even before the 

next Congress starts, and I look forward to working with you in 

that evaluation. 

Chairman DODD. Thank you very much. And, by the way, let me 

thank all of the Members of this Committee. Obviously, not all are 

here for all the obvious reasons. I mentioned that when I became 

Chairman of the Committee in January of 2007, the very first hearing we had were on the foreclosure crisis—in this very room, in 

fact, and Members will recall, because they participated in it, that 

we filled this room with stakeholders on the foreclosure crisis and 

asked them what they were going to do to have a plan of workouts 

for people facing foreclosure. 

Senator Crapo has been a leader for years here on regulatory reform, and he deserves a lot of credit for thinking about it. 

In 2006, in fact, when our friends in the minority today were in 

the majority, it was Senator Bunning and Senator Allard that had 

some of the very first hearings on the foreclosure crisis, and the 

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ator Shelby, the former Chairman of this Committee and now the 

Ranking Republican on the Committee. We never would have been 

able to pass that very important housing bill in July of this year 

without the cooperation of every Member of this Committee. We 

came out of this Committee on a vote of 19–2 on a matter that people did not think you could come together on, including GSE reform 

as well as modernization of FHA and a variety of other points. 

And so I thank all Members of the Committee, and obviously the 

rescue package, Senator Bennett and Senator Corker particularly 

on this Committee were invaluable in helping put together that 

plan as Republican Members, not to in any way detract from the 

tremendous work being done by the majority Members of this Committee as well on that effort. 

So I would like the 73 hearings that this Committee held over 

the last 21 months, almost a hearing a week, over a third of them 

on this subject matter alone that brings us here today, as well as 

the legislative work of the Committee. But I wanted the Members 

to know how much I appreciate the efforts this Committee has 

made over the last 21 months. 

Chairman DODD. With that, let me turn to Senator Akaka for 

any opening comments you may have, and I will ask other Members, and we will turn to our witnesses. 

STATEMENT OF SENATOR DANIEL AKAKA 

Senator AKAKA. Thank you very much, Mr. Chairman. Thank 

you for conducting this hearing today. 

I am hopeful that this hearing will help clear up some misconceptions and help promote a greater understanding of the cause 

of this financial crisis as we work to reform the financial services 

regulatory structure. And I thank you for this opportunity, Mr. 

Chairman. 

I want to express some of my thoughts thus far on what has been 

happening. The uninformed have blamed much of the current financial crisis on the Community Reinvestment Act. That is simply 

not true. The CRA has helped empower individuals in low-income 

communities by promoting access to mainstream financial services 

and investment. Instead of finding excuses to stop Federal efforts 

to expand across to mainstream financial services, we must do 

more. Low- and moderate-income working families are much better 

off utilizing mainstream financial service providers rather than unregulated or fringe financial service providers. Working families 

would have been better off obtaining mortgages from their local financial institutions instead of obtaining mortgages through independent peddlers such as Countrywide. 

The majority of subprime mortgage lending was done by independent mortgage companies that are not subject to CRA requirements and lacked effective consumer protections. I have greatly appreciated the extraordinary leadership and judgment shown by the 

Chairman of the Federal Deposit Insurance Corporation, Sheila 

Bair, during her tenure. I also have highly valued Chairman Bair’s 

efforts to promote financial literacy and address issues so important to working families. Under Chairman Bair’s leadership, the 

FDIC is encouraging the development of affordable, small-dollar 

loans using CRA initiatives. 


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Working families are exploited by predatory lenders who often 

charge triple-digit interest rates. As access to legitimate credit 

tightens, more working families will be susceptible to unscrupulous 

lenders. We must encourage consumers to utilize the credit unions 

and banks for affordable small loans. Banks and credit unions have 

the ability to improve lives of working families by helping them 

save, invest, and borrow at affordable rates. Repealing or weakening the CRA would be a mistake. Low- and moderate-income 

families must have greater access to regulated mainstream financial institutions, not less. 

Critics of the CRA seem to forget that it does not apply to investment banks. Investment banks bought securitized and sold 

subprime mortgages. The CRA does not apply to credit rating agencies. The CRA does not apply to the sale of derivatives or credit default swaps. These products have contributed significantly to the financial situation that we are in now. 

The causes of this crisis are complex and cannot simply be 

blamed on the CRA. Instead of repealing the CRA, we must overhaul and strengthen the regulation of financial services to better 

protect consumers, protect markets ability, and empower the regulators to be more forward-looking. Instead of just reacting to a crisis, regulators must quickly adapt to the financial service innovations. 

I thank the witnesses for appearing here today, and I look forward to their testimony, and thank you very much, Mr. Chairman. 

Chairman DODD. Thank you, Senator. 

Senator Brown. 

STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Mr. Chairman. I really, really appreciate your holding this hearing today and the work you have 

done for much of the last year and a half. I want to thank the witnesses for their public service and their terrific work to explain and 

cajole and do all the things that I know many of you do very well. 

It seems like a lifetime, but it was only about a little over 3 

weeks ago when we heard from Secretary Paulson and Chairman 

Bernanke and others about the need for the Federal Government 

to spend $700 billion to shore up our financial system. The interest 

in that hearing was extraordinary. People were stunned by the 

Paulson proposal, shocked that we had reached that point where 

such massive Government intervention was necessary. More than 

40,000 very angry Ohioans e-mailed me, called me, stopped me on 

the street, sent letters. Five thousand of those simply, Mr. Chairman, asked for hearings, thought that they wanted—people want 

to know who is responsible for this financial mess. Was there simply incompetence and indifference? Or was there criminal activity? 

And people want us to figure out in these hearings leading up to— 

well, through the end of this year, beginning next year, want us to 

figure out a regulatory structure so this does not happen to the 

American people again. 

With the passage of a few weeks, I think it is becoming clear why 

we needed to take action, although by no means was it then or now 

a popular decision. The credit crunch has begun to cost jobs. My 

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ufacturing jobs alone. We cannot afford any more job loss. The impact on middle-class families and their retirement accounts and 

their savings has become clear to everybody who had the nerve to 

open their quarterly statements they got the first week of October. 

The last thing that Toledo’s Joe Wurzelbacher has to worry about 

is the tax rate he might pay if he is lucky to have a quarter-million-dollar profit in his new business. My guess is he needs to 

worry a lot more about how he is going to finance the purchase of 

that plumbing business and what his cash-flow will look like, so 

long as residential and commercial real estate markets are stalled 

the way that they are. 

So while we have a better understanding of the impact of the 

credit crisis, I think the causes are still unclear to so many Americans. In part, this is because there are a number of contributing 

factors that added fuel to the fire of an extended period of time. 

It is also because of a deliberate campaign to mislead the American 

public. Here are three of my favorite examples. 

No. 3, blame the Democrats. Fannie and Freddie were the problem, so the argument goes, and Democrats pushed them to make 

loans to risky people. Really? 

I served in the House of Representatives from 1993 to 2006. I 

can assure everybody the Democrats were not calling the shots 

after 1995. One of the few occasions when there was bipartisan cooperation was in 2005, when my former colleague from Ohio, Representative Mike Oxley, worked with Democrats to pass bipartisan 

legislation to strengthen oversight of Fannie and Freddie, legislation which the Bush White House torpedoes. 

No. 2, it’s Jimmy Carter’s fault. You would think there would be 

some sort of statute of limitations. Maybe after 30 years, we should 

stop blaming past Presidents. But somehow, as Senator Akaka 

mentioned, the Community Reinvestment Act of 1977 is at fault for 

all the underlying current mess. Apparently, it has been laying dormant like a cicada on sleeping pills, waiting, just waiting, to devour 

our financial markets. 

But my No. 1 favorite falsehood is a campaign ad being aired on 

television sets across the country. Among the lies it packs into 30 

seconds are these, and I quote: ‘‘Congressional liberals fought for 

risky subprime loans. Congressional liberals fought against more 

regulation, then the housing market collapsed, costing you billions.’’ 

Now, I know quite a few congressional liberals in both Houses. 

Some are actually friends of mine, Mr. Chairman. And I can tell 

you that these claims simply turn history on its head. Does the 

campaign airing this ad really think the American people are going 

to buy this nonsense? 

I think sowing confusion and cynicism is their real goal. They 

should not be surprised at the harvest. 

Thanks to today’s hearing, no one need take my word for it. The 

witnesses we hear from this morning will give the American people 

a clear picture of who supported efforts to update and enforce our 

laws to protect investors and protect depositors and middle-class 

Americans, and who opposed these efforts. I look forward to their 

testimony. 


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I would be remiss, Mr. Chairman, if I didn’t first thank Treasurer Rokakis of Cuyahoga County, the largest county in my State, 

the Cleveland area, for his efforts dating back many years. He, 

Cleveland Mayor Frank Jackson, and others have been fighting 

against not just predatory lenders in places like Maple Heights and 

Slavic Village and Rocky River, but also fighting State and Federal 

agencies that for most of this period have ranged from indifferent 

to hostile. 

Thank you, Mr. Rokakis, and thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator. 

Senator Casey. 

STATEMENT OF SENATOR ROBERT P. CASEY 

Senator CASEY. Mr. Chairman, thank you, and thanks for calling 

this hearing in the midst of a time period when most people are 

back, most Senators and most House Members are back in their 

States. It is important that we keep a focus on this. 

I want to commend the Chairman and Members of this Committee and others, even those not on this Committee, for the work 

that has already gone into dealing with this horrific financial crisis 

that the country is living through. We are far from resolving it. 

There is still a long way to go, but I think we have seen a lot of 

effective leadership here in both parties, and I think we need more 

of that. And, Mr. Chairman, you were among the leaders of that, 

and we are grateful for that. I do not think anyone will fully appreciate that leadership until maybe many years from now, but we are 

grateful. 

And we are grateful for the witnesses today and the testimony 

you will provide and the guidance you will give us. 

I think that we can get lost in a lot of the detail, but one of the 

reasons we are all here today, maybe the only reason, the main 

reason, is that we are here to talk about the root cause of this problem, and that is, foreclosures, foreclosures, foreclosures. We cannot 

say it enough. And, frankly, there is not enough being done to meet 

the challenge that poses. 

Fortunately, despite the campaign season we are in, despite the 

silly season, some of which Senator Brown just recounted—and, 

unfortunately, some of it is deliberately misleading, not just misleading and erroneous but deliberately so for political reasons. But, 

fortunately, a lot of the work that has been done in the Congress 

the last couple of weeks and months and a lot of the work done by 

this Committee has been free of that, fortunately, and I think that 

is a good sign. This Committee has been an ideologically free zone 

for the most part, and I think that is a good example. 

But I think we have got to be honest about the origin of this. The 

origin of this was bad lending practices and bad lending by, frankly, people in the private market—private players in the marketplace that were often unregulated completely or in many cases not 

regulated enough. 

So that is why we are here, and I am resisting the temptation 

to say more, because it is pretty maddening when you see what 

some people in this political season will say about the root causes 

of this—and I will say it again—deliberately misleading the American people. But I think most people can see through it. 


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I am sending a letter to Secretary Paulson today with some concerns that I have and some suggestions as well that—look, we all 

want to support efforts that have been made by Secretary Paulson 

and others. But I have to say it troubles me that the Treasury Department most recently has talked about committing $250 billion 

to a new effort that has arisen to provide help for banks, but Treasury has provided or suggested that we provide $250 billion without 

modifying a single loan. And I do not believe that is what Congress 

intended. So I think the Treasury Secretary has more work to do 

and a lot more explaining to do. And the story, today I guess it is, 

in the Wall Street Journal about FDIC Chairman Sheila Bair about 

her concerns about the same topic, about the lack of action on 

modifications and foreclosure prevention. 

I think we need to see more urgency when it comes to loan modifications and getting this asset purchase program up and running, 

because I am hearing—and I am sure others are hearing this as 

well—from housing counselors in Pennsylvania that for the past 3 

weeks, lenders who had previously worked with them are now refusing to return telephone calls. They do not know why since no 

one will talk to them anymore, but they suspect, as I do—and I 

think many suspect this—that banks are now holding back on 

modifying loans because they are waiting to see if they can sell 

them to Treasury first. And I think Treasury’s lack of clarity is apparently causing banks and investors to sit and wait—the worst 

thing that could happen right now. 

While we attempt to learn from the mistakes of the past, we 

need to learn from the mistakes of the recent past as well, and 

Treasury needs to move more quickly to fully describe their plan 

to the American people, and especially to players in the marketplace. The Treasury also needs to commit to modifying more mortgages and making banks modify more mortgages as well. 

So we have a long way to go, and this hearing, I think, is a step 

in the right direction. It moves the ball down the field to understanding where we have been, where we are now, and where we 

need to go. But the last thing we need is a lot of blowhards who 

are throwing theories out and charges out in the political silly season to score political points. We do not need that. We do not need 

ideology, and we do not need politics. We need clear-headed thinking, and we need people that are committed to solving the problem 

and not scoring political points to get their base fired up for election day. That is not what we are doing here today, fortunately, but 

outside the walls of this hearing, there is a lot of it going on. We 

should condemn it, we should point it out, and make sure that 

those who are doing it have the bright light of scrutiny applied to 

their misleading tactics. 

Thank you. 

Chairman DODD. Thank you very much, Senator, and I want to 

just mention briefly as well, I think Senator Akaka did it as well. 

Sheila Bair, President Bush’s appointee to be the Chair of the Federal Deposit Insurance Corporation, formerly—I do not know if 

Members are aware of this. She was Bob Dole’s legal counsel for 

years here in the Senate. She has just done a remarkable job, and 

I want to join in the voices commending her and thanking her for 

the work that she has done. 


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I mentioned earlier about the work of this Committee. Senator 

Shelby and I have worked very closely together, as I have with all 

Members, and I try to call all Members of the Committee when we 

are doing things as well. And I want my colleagues to know that 

certainly Senator Shelby and I, even when we have disagreed, stay 

in very close touch with each other. And I want to thank Barney 

Frank on the House side, and Roy Blunt, a Republican. They were 

invaluable during the most recent effort to put together a package 

here of rescue. 

So there are a lot of good people up here working very hard on 

a bipartisan basis to get things done, and too often that gets lost. 

It is not as newsworthy when things like that happen, but it is 

worth noting and mentioning, and I am glad the Senator from 

Pennsylvania did. 

Senator Menendez. 

STATEMENT OF SENATOR ROBERT MENENDEZ 

Senator MENENDEZ. Well, thank you, Mr. Chairman, for holding 

what I think is a very important hearing on the genesis of the current economic crisis. You know, it is said over the mantel of the 

Archives Building, ‘‘What is past is prologue.’’ And I think that unless we come to understand what has happened here, we are destined to relive it again—something that I do not think any one of 

us wants to see. 

So as we navigate through what are treacherous waters, I think 

it is pretty critical to understand how we veered off course and 

ended up in uncharted territory. 

Now, there are some who say we need to close this chapter in 

our history and stop looking back, but to me that is like trying to 

diagnose a patient without looking at the medical records. We need 

to know what went wrong in order to prevent it from happening 

again. 

One of the major things that I personally believe led us to the 

conditions in which we are today is the administration’s repeated 

mantra of regulatory relief, and now relief from that ideology is 

what I think we need. The administration was entranced with a 

mentality that Wall Street can do no wrong, but the inherent flaw 

in this thinking is that Wall Street is run by human beings who, 

like anyone else, are capable of greed and bad decisions. They need 

to be regulated by our regulators. But instead of being the cop on 

the beat, they were asleep at the switch. 

Time and time again, the administration turned an absolute 

blind eye to warning signs. For example, the Federal Reserve sat 

on authority to regulate predatory lending. Then the Securities and 

Exchange Commission took a hands-off approach on supervision. 

That net operating rule decision, one in which they unlocked billions of dollars that were there to cushion against the possibility 

of loans that might default, and then use the computer modeling 

of the banks themselves to determine what was risk and what was 

value is beyond—blows the imagination. This is delegating the regulatory responsibility. This is delegating the responsibility of being 

the cop on the beat to those who you are ultimately supposed to 

supervise. And in my mind, that did no good for the American people and the American taxpayers. 


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In March, Mr. Chairman, of 2007—I have repeated this several 

times because it was a warning sign then. At a hearing that you 

chaired in these very chambers, I said then before the administration witnesses that we were going to have a tsunami of foreclosures. The administration said that was an overexaggeration. I 

wish they had been right and I was wrong. The reality is that we 

have not even fully seen the crest of that tsunami. 

And so the challenges were there early on, and the lack of the 

responsibility of regulators, I think, to regulate was just an incredible abdication of responsibility. And they took action only when 

the house of cards was falling apart. 

So I look forward to our witnesses today, some of them who have 

some extraordinary experience in the fields that the regulators of 

today pursue, but they had those experiences in the past, and I 

look forward to hearing some of their views and commentaries. 

Mr. Chairman, I appreciate your calling this hearing. I hope it 

is one in a series. I am not one to have a great degree of trust in 

an administration who got us into this mess to get us out of it as 

successfully as we all want to see, which means, again, oversight. 

And as we look at the rescue plan, I hope that you will consider 

at the appropriate time making sure that we have some oversight 

of what’s going on in that rescue plan, because, you know, I want 

to make sure that, first of all, this funding that we are infusing 

into banks—which I think is a good idea. However, I also want to 

make sure that that infusion works its way into Main Street and 

does not just stay on Wall Street. 

Mr. Chairman, I think we have not done anywhere near what we 

need to do on the question of foreclosures. I find it ironic that we 

can keep a CEO in their office, but we cannot keep a family in 

their home. And this is the core of the issue—as you have so aptly 

said many times, this is the core of the issue of what has brought 

us to the credit problems that we are having in the country, the 

financial problems we are having. And it seems to me we would 

want to keep families in their homes and make them performing 

assets versus nonperforming assets, and everybody wins at the end 

of the day, as do communities. But we have not done anywhere 

near—I do not get the sense that the Treasury Department has 

any real commitment to trying to keep more families in their 

homes. 

And so I look forward to today’s hearing, to the ones I hope you 

will continue to call in the future. But, above all, I hope that we 

will get in the next administration regulators who understand 

what their duty and obligation is, what their oath is. And at the 

end of the day, that oath is to protect the American people and its 

institutions so that, in fact, there is transparency, so that, in fact, 

there is honesty, so that, in fact, we know what the real value of 

assets are, so that we do not find ourselves in the set of circumstances we find ourselves today. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator. You may have 

just been walking in when I mentioned that our intention is, in 

fact, to have a series of hearings, either formal or informal, on both 

this issue and where we go from here specifically. 


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Second, I am monitoring very carefully, and with designated 

staff, on a daily basis because some of the reporting requirements 

are on a 48-hour basis of the rescue plan. And then, third, looking 

at—and Senator Crapo has talked about it as well for a long time, 

which will require a lot more work, both informally and formally, 

about the structure, the regulatory reform structure that we need 

to put in place, sooner rather than later, obviously, but to begin 

that work even now to be able to offer to the new administration 

coming in some good work being done over these weeks before we 

convene after January 20th. So I thank you for those observations. 

In fairness, too, I should mention that Chairman Bernanke—we 

have spent a lot of time with him over the last couple of years, but 

the Fed finally did, in July, promulgate regulations dealing with 

the 1994 law, and I appreciate him doing that. He also did stuff 

on credit cards, which I appreciate as well. Now, I would do more, 

and I think we ought to codify what they have done by regulation. 

But I would want the record to reflect that we appreciate the fact 

that Chairman Bernanke has moved on these issues. 

As I said earlier, the horse was out of the barn, in effect, when 

this happened, but, nonetheless, they have moved on those two 

fronts. 

With that, let me turn to our panel of witnesses, and I thank 

them immensely. Someone who has dedicated a tremendous 

amount of his life to public service, Arthur Levitt, Arthur, we 

thank you immensely for coming back. You are a familiar figure in 

this room. During your 8 years as Chairman of the SEC, you were 

here on numerous occasions. We worked on a lot of issues over the 

years, so I thank you for coming back. You served as the 25th 

Chair of the Securities and Exchange Commission, the longestserving Chairman of the Commission ever in its history. And I for 

one do not mind editorializing and saying you did a great job, in 

my view, over the years. 

Before joining the Commission, Arthur Levitt served as the 

Chairman of the New York City Economic Development Corporation and Chairman of the American Stock Exchange, among many 

other things, but certainly very visible positions in those posts. 

He is sitting next to another very significant and tremendously 

successful public servant, Gene Ludwig. Gene, we thank you for 

being here this morning. Mr. Ludwig is the Chief Executive Officer 

of the Promontory Financial Group. He is the former Comptroller 

of the Currency where he was responsible for supervising federally 

chartered commercial banks and Federal branches and agencies of 

foreign banks. Prior to founding Promontory, Mr. Ludwig served as 

the Vice Chairman and Senior Control Officer of Bankers Trust 

Corporation/Deutsche Bank. Earlier in his career, Mr. Ludwig was 

a partner in the law firm of Covington and Burling. 

Next we will hear from the Honorable Jim Rokakis, who is 

Treasurer of Cuyahoga County. He has already been introduced in 

a sense by Senator Brown. Mr. Rokakis has served as the County 

Treasurer since 1997, and prior to this position, he served for 19 

years on the Cleveland City Council. He has been recognized for 

his outstanding work in Cuyahoga County. In 2007, he received the 

NeighborWorks America Local Government Service Award, the 

Leadership in Social Justice Award from Greater Cleveland ComVerDate Nov 24 2008 01:16 Apr 14, 2010 Jkt 050415 PO 00000 Frm 00018 Fmt 6633 Sfmt 6602 E:\HR\OC\B415.XXX B415

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munity Shares, and was named the County Leader of the Year by 

American City and County Magazine. We welcome you here this 

morning. 

And a good friend of mine whom I have known for many, many 

years, Marc Morial, who is President and CEO of the National 

Urban League, the Nation’s largest and oldest civil rights and direct services organization. Mr. Morial joined the Urban League in 

2003 where he was focused on a five-point empowerment agenda 

encompassing education and youth, economic empowerment, health 

and quality of civic life, engagement in civil rights and racial justice. Prior to joining the Urban League, Mr. Morial served for two 

terms as the mayor of New Orleans and was President of the U.S. 

Conference of Mayors and was a Louisiana State Senator. Marc, it 

is good to have you here before the Committee as well. 

And, last, we are going to hear from Eric Stein. Eric, you are 

going to join us at one point. You are not walking out on me now, 

Eric? 

Eric Stein serves as President for the Center for Community 

Self-Help and the Chief Operating Officer for Self-Help and its affiliates, Senior Vice President for the Center for Responsible Lending, a nonprofit affiliate of Self-Help dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. Mr. Stein is on the Community Development Advisory Council of the Federal Reserve Bank of Richmond, and prior 

to joining Self-Help, Mr. Stein was Executive Director of CASA, a 

nonprofit housing developer, in addition to working for Congressman David Price and the U.S. Fourth Circuit Court of Appeals 

Judge Sam Ervin III. So you have had a long career as well, and 

we thank you for being with us. 

Arthur, we will begin with you this morning, and, again, thank 

you for being back before this Committee. 

STATEMENT OF ARTHUR LEVITT, JR., SENIOR ADVISOR, THE 

CARLYLE GROUP, AND FORMER CHAIRMAN, SECURITIES 

AND EXCHANGE COMMISSION 

Mr. LEVITT. Thank you, Chairman Dodd and Senator Crapo, for 

the opportunity to appear before the Committee at this momentous 

time in the life of our markets. 

From where we stand at this moment in this deeply serious and 

destructive market crisis, we already know that there is plenty of 

blame to go around, but let me be clear about one point. We are 

here today not because of what happened this year or last, but because of at least two decades of societal and political adherence to 

a deregulatory approach to the explosive growth and expansion of 

America’s major financial institutions. 

Furthermore, it is now readily apparent that our regulatory system failed to adapt to important, dynamic, and potentially lethal 

new financial instruments as the storm clouds gathered. 

The list of failures goes well beyond the Securities and Exchange 

Commission, but today I would like to focus my remarks on that 

agency. 

Right now, the key problem plaguing our markets is a total 

breakdown in trust, in investor confidence, in every institution that 

we have. 


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Since 1934, a strong SEC—staffed by consummate professionals 

and led by independent-minded commissioners—has succeeded in 

maintaining investor confidence and helping to make our markets 

the envy of the world. 

Unhappily, over the past few years, the SEC has not lived up to 

this storied history. 

As the markets grew larger and more complex—in scope and in 

the products that they offered—the Commission simply failed to 

keep pace. As the markets needed more transparency, the SEC allowed opacity to reign. As an overheated market needed a strong 

referee to rein in dangerously risky behavior, the Commission too 

often remained on the sidelines. 

As this Committee examines the record, I believe it will find a 

lack of transparency, a lack of enforcement, and a lack of resources 

all played key roles. Allow me to highlight a few instances of these 

problems. 

After all the markets have undergone the past few weeks, we 

still do not know the full extent of the losses incurred by banks and 

other companies on mortgage-backed securities. A lack of information about where risk resides is keeping investors suspicious and 

out of the markets. 

One of the biggest steps we can take to bring to light a fuller picture of companies’ financial health would be to expand fair value 

accounting to cover all financial instruments—the securities positions and the loan commitments—of all financial institutions. 

Yet in recent weeks, fair value accounting has been used as a 

scapegoat by the banking industry—the financial equivalent of 

shooting the messenger. If financial institutions were accurately 

marking the books, they would have seen the problems they are experiencing months in advance and could have made the necessary 

adjustments, and we might have diminished the current crisis. 

As the markets grew more complex, there was also a failure of 

oversight to keep up with growing and risky parts of it. The recent 

revelations about the CSE program are a glaring example of this 

problem. 

The last area where we have seen a deviation from decades of 

SEC history, tragically, has been the enforcement of the laws on 

the books. 

In part, this is the result of a lack of adequate resources. Budget 

and staffing levels have not kept pace with inflation or financial innovation. And recent procedural changes at the Commission have 

led to a lessening of the imposition of corporate penalties against 

egregious wrongdoers, a reduction in the corporate penalty in 

terms of penalty numbers over the past year and a demoralizing 

of the enforcement staff undermining their efficacy. 

Of course, resources alone will neither reinvigorate the SEC nor 

revive our markets. 

For the past 75 years, the Commission has been the crown jewel 

of the financial regulatory infrastructure and the administrative 

agencies because its leadership from both political parties—Chairmen like Kennedy and Douglas at its founding, and Ruder, 

Breeden, and Donaldson in recent times—understood the importance of public pronouncements and signals sent to the market, sigVerDate Nov 24 2008 01:16 Apr 14, 2010 Jkt 050415 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 E:\HR\OC\B415.XXX B415

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nals that were far more important than any rule that was passed 

or regulation that may have been considered. 

Recently, at critical moments and on critical issues, the SEC has 

been reactive at best or has shown no real willingness to stand up 

for investors. And it is these moments that weaken the power of 

the agency and investors’ faith in the markets. 

Looking forward, restoring trust in our markets will require rejuvenating the SEC. It is the only agency with the history, the experience, and specific mission to be the investor’s advocate—a history 

earned under the chairmanship of individuals from both political 

parties. Losing that legacy would be devastating to our ability to 

regulate the markets and restore investor confidence. 

And let me be clear: A restoration of the SEC to its position from 

before this current slide simply is not enough. At this moment, we 

need a dramatic rethinking of our financial regulatory architecture—the biggest since the New Deal. And the SEC will need to 

undergo changes and evolve to keep pace with a dynamic marketplace. 

As we move forward in the process, we must make sure that 

there is an agency that is independent of the White House, dedicated to mandating transparency with robust law enforcement powers, with the wherewithal and knowledge to oversee and, if necessary, guide risk management, and built around one mission: protecting the interests of investors. 

If we do, investors will know that they have someone in their 

corner, that the markets will be free and fair, and then they will 

invest with confidence. 

Thank you. 

Chairman DODD. Thank you very much, Chairman Levitt. I want 

my colleagues to know as well that I invited both Bill Donaldson 

and former Chairman Breeden to be with us. Both wanted to be 

here this morning, but schedules would not permit it. But they are 

going to come. I am going to ask them back and they would like 

to come back and be here. And the point you made—I wanted both 

of them to come—both were Republican nominees. These issues 

should not necessarily be rooted just in politics, as you pointed out. 

We have had some very good Chairs of the SEC, and Bill Donaldson and Chairman Breeden I think fall into that category. I am 

glad you mentioned both their names. As I pointed out, we tried 

to have them here this morning, but their schedules did not allow 

them to be here, but I am glad you brought their names up. 

Gene Ludwig. 

STATEMENT OF EUGENE A. LUDWIG, CHIEF EXECUTIVE OFFICER, PROMONTORY FINANCIAL GROUP, AND FORMER 

COMPTROLLER OF THE CURRENCY 

Mr. LUDWIG. Mr. Chairman and Members of the Committee, I 

commend you for your leadership in holding these really important 

hearings on the origins and impact of the crisis developing—evolving in the financial services world. Understanding the root causes 

of our predicament will allow us to restore our economy and install 

a regulatory framework that can withstand the challenges of the 

technology-driven 21st century. 


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I am honored to testify before your Committee, Mr. Chairman, 

and to contribute my thoughts and answer any questions you have. 

The increasingly painful and heart-stopping developments in the 

United States and global financial systems are not the result of 

mere happenstance. We are in the midst of a historic sea change, 

particularly in the American financial system, indeed in the direction of the American economy itself. The paradigm of the last decade has been the conviction that un- or underregulated financial 

services sectors would produce more wealth, net-net. If the system 

got sick, the thinking went, it could be made well through massive 

injections of liquidity. This paradigm has not merely shifted—it has 

imploded. 

This paradigm implosion is rooted in fundamental imbalances in 

our economy and financial system, as well as regulatory structures 

and crisis response mechanisms that are outdated, including importantly: 

Consumerism run riot, made worse by domestic fiscal laxity and 

modern financing techniques; 

A deterioration in market conduct, brought on by a short-term 

profitability horizon, aided and abetted by technology and 

globalization; 

A regulatory hodgepodge involving absent or inadequate regulation of the predominant portion of our financial system and 

procyclical policies that have not been well conceived; 

And, finally, a misguided belief that in financial storms we 

should let bare-knuckled, free-market capitalism as opposed to 

compassion and balance rule the day. 

By understanding these root causes of our predicament, we can 

rebuild from the ashes of the current burnout. 

For decades we have looked to the consumer as the key driver 

of our economy. Taken in proportion this is a good thing. However, 

consumerism has been taken to an extreme, propelled by policies 

that have resulted in a negative savings rate of historic proportion. 

Policymakers’ excuses that negative savings were not a problem because home prices were rising only caused the consumer to dig a 

bigger hole for himself. Home and hearth became the consumers’ 

ATM machine as home equity and other consumer loans leveraged 

the American consumer to the hilt. Such excess would inevitably 

lead, as it did, to a financial wildfire. 

The actual sparks that ignited the fire began to fly in the early 

months of 2006. It was at this moment when house prices begin to 

level off and fall while at the same time there was an explosion in 

the use and availability of novel, low-quality mortgage instruments 

designed to ‘‘help’’—and I put ‘‘help’’ in quotes—consumers pump 

every dollar possible out of their homes. 

Our grandparents’ generation would have recognized the ‘‘help’’ 

consumers were getting from financiers and from Government for 

what it was. Consumers were not being helped. They were being 

enticed to mortgage not just their homes but their futures and the 

future of their children on national and personal deficits based on 

thin promises. The notion that home prices would climb forever 

and that we could spend our way to financial and national success 

was accepted unblinkingly. Interest rates held too low for too long, 

excess liquidity, and structural fiscal and trade deficits based on an 


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imbalanced tax regime benefited the sellers at the expense of those 

who really could not afford what they were buying. 

And this excess, this lack of sound standards, was turbo-charged 

by the plentiful oxygen of model-driven, structured financial products. Importantly and unfortunately, these highly leveraged products, based on misunderstood and often inaccurate ratings, were 

distributed throughout the world. Derivatives with even thinner 

capital bases were in turn piled on top of this mountain of structured products. Acronyms for plain old excessive, underregulated 

leverage—SIVs, CDOs, CDOs squared, swaps, swaptions—lulled us 

into a false sense of high-tech financial complacency. 

A second major area of failure that brought on the current conflagration has been a marked deterioration over the last several 

years in market conduct by too many financial services players— 

mostly, but not only, the un- and underregulated financial intermediaries. So mortgage brokers sold consumers mortgages that 

were too often inappropriate for their circumstances in exchange 

for outsized fees. More heavily regulated financial institutions 

sliced, diced, and bundled the inappropriate mortgages, selling 

them off to other intermediaries or end purchasers, feeling no compunction because they held no principal risk. 

This turn away from traditional relationship finance based on 

customer care and high integrity standards has been facilitated in 

part by the increasing financial use of technology and by 

globalization. Through increasing speed and scale, the face-to-face 

linkage to the consumer has been attenuated. This has made rules 

fashioned for a bygone era harder to apply. 

Finance is in many ways an information business, and the technological revolution we have been living through has been essentially an information technology revolution. The computer has allowed global connectivity, mathematical/financial modeling, and 

savings to scale that have created entirely new financial products, 

and allowed, if not driven, rapid and extraordinary consolidations 

and concentrations on a global scale unthinkable a decade ago. It 

has also placed financial firms further away from the end-use consumer. 

In a sense, technology, plus globalization, plus finance has created something quite new, often called ‘‘financial technology.’’ Its 

emergence is a bit like the discovery of fire—productive and transforming when used with care, but enormously destructive when 

mishandled. 

Like anything new and dangerous, we should have handled this 

financial technological fire with great care, with appropriately cautious regulation, with concerns about those—particularly low- and 

moderate-income Americans—who were touched by it in numerous 

ways but by no means understood it. But instead of more cautious 

regulations in this new more dangerous era, we took the regulatory 

lid off. 

Over approximately the last decade, the country has been in the 

thrall of a deregulatory viewpoint which has left us with too few 

financial regulatory firefighters too far away from where the fire 

started and where it has burned the hottest. We have allowed a 

huge portion of our financial system—perhaps as much as 80 percent—to go un- or underregulated. Indeed, going into this crisis, ofVerDate Nov 24 2008 01:16 Apr 14, 2010 Jkt 050415 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 E:\HR\OC\B415.XXX B415

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ficial Washington not only did not know where all the pockets of 

mortgage-related risk were; they did not know the magnitude of 

the risk itself. 

At the same time, the regulated portion of the system has been 

unevenly regulated. Some aspects of bank regulation—for example, 

in the anti-money-laundering area—have been very heavily regulated with tens of millions of dollars of fines and enforcement actions being piled on enforcement action. Other aspects of finance— 

for example, credit standards, securitizations, suitability of products for customer usage—have been markedly less strictly regulated. 

To add insult to injury, as a result of history and not logic, we 

have a bank and securities regulatory system that has been 

unflatteringly referred to as the ‘‘alphabet soup’’ of regulators. This 

alphabet soup of regulators has exacerbated the problem of overregulation in some areas and created gaping holes in other areas. 

For example, the ‘‘special investment vehicles,’’ the SIVs, which 

were a great portion of the bank subprime mortgage risk, were offbalance-sheet bank holding company constructs that were essentially completely unregulated. 

As if this were not enough, over the past decade we have allowed 

a number of procyclical and largely untested policies to grow up 

that are wholly inappropriate and way too rigid. What I mean by 

procyclical is that regulatory, accounting, and policy standards and 

practices tend to move in the same direction as the broader economy. The result is a sort of amplifier effect, in which both good 

times and the bad times are reinforced as their effects are rapidly 

transmitted through the economy. And one way to think about it 

is that the failure of our regulatory, accounting, and policy standards and practices to exert a moderating influence at all times is 

what makes the highs so high and the lows so low; that is to say, 

this procyclicality that we have built in now to our accounting and 

other regulatory systems actually exacerbates these swings in the 

cycle which we are living through right now. 

Now, while procyclicality bias sounds rather abstract, it is a real 

weakness of our financial system with which policymakers must 

grapple. Some countries already have, as a matter of fact. 

Now, how does procyclical bias present itself in clinical terms? 

We see it in our accounting rules. The concepts around mark-tomarket accounting and the relatively recent reliance upon accounting formulas instead of judgments in establishing loan loss reserves 

clearly added to the financial catastrophe. Mark-to-market accounting by definition cannot work when markets cease to operate correctly. Likewise, we have relied on rigid new accounting rules and 

models to set loan loss reserves with a mark-to-market methodology that has left the reserves too thin to do their job in difficult 

times. 

More subtle, but of even greater importance, is the accounting 

governance mechanism that disconnects accounting rulemaking 

from business and economic reality, as well as from the public policymaking framework. This has resulted in some rules that run 

contrary to the time-honored principle that accounting should reflect, not drive, economic reality. 


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Now, every bit as important, perhaps more important even than 

our off-kilter accounting rules and rulemaking, is that our regulators have allowed short-term pressures to rule our financial institutions. Compensation schemes, too, have rewarded executives for 

short-term results. All of this has forced our financial institutions, 

their senior executives, and their boards to ‘‘keep dancing’’ when 

times were good even though they knew in their hearts that the 

music would stop with a thud. 

Further, Basel II capital standards, though less of an obvious 

cause, are certainly not a help in these troubled times. Basel II Pillar 1 is itself too new, too procyclical, too complicated and modeldriven. There is no evidence that it in any way has helped in the 

crisis, and there is evidence that it was overly procyclical. 

To summarize, gobs of liquidity, consumers on a binge, new highly combustible financial tools, and little effective and overly 

procyclical regulation has resulted in a financial firestorm. It is as 

if the modern tools of finance were used to create their magical 

new fire of finance in the center of our living rooms, filled with 

highly combustible furniture, and not in a properly regulated fireplace. 

Too little, too late. To add insult to injury, the response to the 

rising heat of the fire was a series of too little, too late steps based 

on an ideology that the market could take care of itself. Bureaucracies proved less flexible than was necessary. Our responses to the 

conflagration were typically taken after the next fire broke out, not 

before. 

The capstone of this initial phase of the effort was the decision 

to allow Lehman Brothers to fail. To my mind this is what started 

the financial panic, egged on by the failure to support the preferred 

stockholders in the Fannie and Freddie nationalizations and the 

decision to treat AIG so differently from Lehman Brothers. 

And the panic got out of control because we have allowed short 

sellers and rumor mongers to roil instead of calm the markets on 

the one hand and have not had sufficiently flexible circuit breakers 

to give the markets a bit of a time out on the other. 

The TARP, the liquidity facilities being created by the Federal 

Reserve, and the nationalization of parts of the financial system 

will ultimately get the economy under control. Ultimately. The key 

is for the Fed and the Treasury to act vigorously and liberally now 

with the use of these facilities to remove the much discussed stigma of seeking Government support and move these facilities forward. And I still worry that there is a disconnect between policy 

and bureaucracy, one that can and should be bridged with great 

haste at this time. 

It is clear that the deregulatory mantra of the last decade is 

dead. The real question is how far do we go in terms of regulating 

the financial system. Do we in essence nationalize it, making banking all but a public utility? I fervently hope not. But we have to 

massively change how we have been regulating and supervising. 

We have to take better control of the revolutions in technology and 

globalization. We have to get the fire back in the fireplace. 

In order for America to enjoy the benefits of a modern financial 

system that can allow it to move readily to help rebuild our factories, hospitals, schools, and homes, we need a new regulatory 


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framework, one suited to a technology-driven financial system of 

the 21st century. Let me quickly go through what I think are the 

nine key points we need. 

One, sound finance must start with fair treatment of the consumer and much higher standards of market conduct. I think this 

is the No. 1 heart of the problem. We must have a financial system 

that starts with the consumer and with higher standards of market 

conduct. We cannot allow any American to be knowingly sold inappropriate financial products as has just taken place too often in respect of subprime and Alt-A mortgage products. For all the good we 

are doing to bolster the financial system, we will have won the battle and lost the war if we fail to redouble our commitment to keeping homeowners now in their homes. 

No. 2, all financial enterprises should be regulated within a unified framework. In other words, financial enterprises engaged in 

roughly the same activities that provide roughly the same products 

should be regulated in roughly the same way. The same logic must 

apply to institutions of roughly the same size. They should be 

under roughly the same regulatory regime. Just because an institution chooses one charter or one name does not mean it should be 

able to manipulate the system and find a lower standard of regulation. 

Three—and I appreciate your patience—the U.S. must abandon 

our alphabet soup of regulators and create a more coherent regulatory service. We have a system that is rooted in a proud history, 

that includes exceptionally fine and dedicated public servants, and 

that in many ways has served us well in the past. But it is now 

beyond debate that a banking regulatory framework with its roots 

in agrarian 18th century America is in urgent need of a radical 

21st century change in our global economy. However, the secret to 

effective regulation is not how we move around the boxes. Mashing 

the alphabet noodles into one incoherent glob will not make the 

concoction taste any better. What we need is a much more effective 

regulatory mechanism. We have to take the whole effort up a 

notch. We have to put the time and energy into determining both 

what regulations are effective and what regulations place pure 

counterproductive and bureaucratic burdens on institutions. 

We need to professionalize financial services regulations. We 

have college degrees for everything from carpentry to desktop publishing to commercial fishing, yet we do not have full courses of 

studies, degrees, or chairs at major universities in supervision and 

regulation. America is, in fact, blessed with many talented and 

dedicated examiners and supervisors, almost despite our system, 

not because of it. 

We need to deleverage the financial system—this is a very important point—deleverage the financial system and country as a whole 

and restrain excess liquidity buildup. In this regard, we have to encourage savings, eliminate the structural Federal budget deficit, 

and contain asset price bubbles before they get so large that pricking them brings down the economy. 

We must reverse the tendency of the last decade to have 

procyclical regulatory and accounting policies. Mark-to-market accounting is clearly flawed and must be materially reworked. 


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Finally, we need to align financial rewards for executives with 

the well-being of their companies and the stakeholders they serve. 

Clearly, financial institution governance is off kilter. And to give a 

king’s ransom to traders and other financial executives who have 

in essence beggared their companies and then walked away from 

a shipwreck to a comfortable retirement is pernicious. At the same 

time, executives who take the wheel, stay with the vessel, and 

steer it through stormy seas deserve to be fairly compensated. 

These are but a few elements of what must be a greatly changed 

financial services system. I have also submitted for the record a 

lecture I was asked to deliver on this topic recently before the 

International Conference of Banking Supervisors, which provides a 

more detailed description of my thoughts on this matter. For America to continue to be a leader in the world and for finance to serve 

the needs of our people, we cannot wait. We must start now to 

learn from our mistakes and move forward and rebuild. 

Thank you very much. 

Chairman DODD. Thank you very much, Mr. Ludwig. I appreciate it. 

Mr. Rokakis. 

STATEMENT OF HONORABLE JIM ROKAKIS, TREASURER, 

CUYAHOGA COUNTY, OHIO 

Mr. ROKAKIS. Thank you, Mr. Chairman and Members of the 

committee, for the opportunity to speak to you today. I am the 

Treasurer of Cuyahoga County, Ohio, the State’s largest county, 

representing Cleveland and 59 cities, villages, and townships. 

While the events of the past several months have focused the attention of the entire financial world on the practices of the 

subprime lending industry, we have suffered the consequences of 

reckless and irresponsible lending for many years. Since the late 

1990’s, Ohio and Cuyahoga County have consistently led the Nation in this sad statistic of foreclosure filings. 

Consider these numbers. In 1995, 3,300 private mortgage foreclosures were filed in Cuyahoga County and about 16,000 in the 

State of Ohio. By 2000, the number in Cuyahoga County had more 

than doubled to over 7,500 private mortgage foreclosures and over 

35,000 in Ohio—better than double the number for 5 years earlier. 

In 2006, there were 13,000 foreclosures—13,600, actually, filed in 

Cuyahoga County; 15,000 filed in Cuyahoga County in 2007. And, 

sadly, we are on pace to foreclose on an additional 15,000 properties in Cuyahoga County in 2008. 

I am accompanied here today by Professor Howard Katz, a professor of law from Elon University, who was our Director of Strategic Planning in Cuyahoga County back in 2000. Professor Katz 

and I approached the Federal Reserve Bank of Cleveland in the fall 

of 2000 to ask for their help in controlling the reckless lending 

practices that were doing real harm to Cleveland neighborhoods, 

harm I describe in detail in an article I wrote for the Post entitled 

‘‘Shadow of Debt.’’ We knew the Fed had the authority to act under 

HOEPA, the Home Ownership Equity Protection Act, and under 

the truth-in-lending laws. Our hope was that the Fed would step 

up once they knew the extent of the problem. That was our hope. 

The Fed cosponsored a 1-day conference in March of 2001 entitled 


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‘‘Predatory Lending in Ohio’’ where we discussed potential solutions, Federal, State, and local. Our keynote speaker, Mr. Chairman, was Ed Gramlich, the late Fed Governor who passed away in 

2007. We had contacts from the Fed that said that late Governor 

Gramlich understood the nature of the problem. As we all know 

now, he had warned Fed Chairman Greenspan about the need to 

regulate these practices. Nothing of substance came from this conference. In frustration, local ordinances were passed later that year 

in Cleveland, Dayton, and Toledo to try to slow down the practices 

of the mortgage bankers and brokers. Within 90 days of these ordinances passing, the Ohio Legislature passed a law pre-empting the 

right of Ohio cities to regulate in this area. 

In early 2005, I approached the U.S. Attorney of the Northeast 

District of Ohio, U.S. Attorney Greg White, and requested a meeting of Federal and local officials to deal with these practices from 

the enforcement side. We knew we were the victims of fraud on an 

industrial scale. This meeting included U.S. Attorney White, other 

Assistant U.S. Attorneys, FBI agents, and postal inspectors where 

we begged that Federal authorities make this enforcement issue a 

high priority. 

I still remember one Assistant U.S. Attorney making the point 

that they had received not a single complaint from any of the mortgage banks involved in these loans. He asked me, and I remember, 

‘‘If they aren’t complaining, who are the victims?’’ Well, Mr. Chairman, the victim was the homeowner who lived on a stable street 

and woke up 1 day and found that there was a vacant house next 

to him, and a month later one across the street, and a year later 

three more on that street. That entire neighborhood was victimized 

by this, and as we have come to learn now, Mr. Chairman, the victim is the entire world. 

For the record, a very limited number of prosecutions came as a 

result of these meetings. The only significant prosecutions in our 

community have been by the county prosecutor’s office. We tried, 

Mr. Chairman and Members of the Committee, we did try. We 

were ignored. There were others who tried to warn the Federal 

Government about this problem, the Fed, but we were no match for 

Wall Street. 

Mr. Chairman, I would like to take my remaining time to discuss 

the attempts, as you have and others here, to pin this entire crisis 

on the Community Reinvestment Act of 1977. You all know what 

the CRA is, what it does. I do not need to get into the details. But 

if you really want to understand how silly this allegation is, all you 

need to do is look at the lending data for the city of Cleveland. 

The peak year for home purchase mortgage origination in Cleveland was 2005. A local nonprofit research organization, the Housing Research and Advocacy Center, has analyzed the HMDA data 

for that year. They found that of the top ten mortgage originators 

in the city that year, only four were affiliated in any way with local 

depository banks, and those four accounted for less than 15 percent 

of the total mortgages originated. 

Of the 7,100 Cleveland mortgages reported in HMDA data that 

year, 1,258—almost 18 percent—were originated by the now 

defunct subprime lender Argent Mortgage. Argent was never covered by the CRA. 


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The second largest Cleveland lender that year was New Century 

Mortgage, also now defunct, with about 5 percent of the total. 

The third largest lender, also accounting for about 5 percent, was 

Third Federal Savings, which I have to say, Mr. Chairman, there 

are some heroes in this crisis. Third Federal Savings and Loan has 

been one of the few really good guys in this industry, at least in 

our community. They have done an outstanding job. They did not 

make these kinds of loans. 

Numbers 4, 5, and 6 and others on that list, again, were companies like Aegis, Long Beach Mortgage, and others, which were not 

covered by CRA. 

Finally, way down that list, we get to banks like Charter One, 

National City, and Fifth Third, but they each only had about 3 percent of the market, adding up to about 648 loans. Did they make 

these loans to help their parent institutions’ CRA ratings look better? Possibly. Did these 648 loans play a major role in the city’s default and foreclosure crisis? Hardly. 

I realize I am out of time, but I would like to just point to one 

bit of statistic. As dangerous as mortgages, Mr. Chairman and 

Members of the Committee, were the home refis. If you look at the 

home refi data, you will find that they, first of all, equaled the 

number of home purchase mortgages. Refis have been very destructive in our community, have resulted in many foreclosures. And if 

you look at the refi data, Mr. Chairman, only 7 percent of those 

loans were made by CRA-affiliated institutions. 

The foreclosure crisis in Cleveland for the last 6 years has not 

been driven by CRA-covered depository banks, even though some of 

them—notably National City—were minor players. The problem 

has been driven by Argent, New Century, Aegis, Countrywide, 

Long Beach, and others, dozens of other subprime and high-cost 

loan peddlers with no local depository services and no CRA obligations in our community. 

Thanks for the chance to be on this distinguished panel. 

Chairman DODD. Thank you very, very much. I appreciate your 

testimony. 

Marc. 

STATEMENT OF HONORABLE MARC H. MORIAL, PRESIDENT 

AND CHIEF EXECUTIVE OFFICER, NATIONAL URBAN LEAGUE 

Mr. MORIAL. Thank you very much. It is almost afternoon, but 

good morning. 

Let me, first of all, say that I am proud to be here on behalf of 

the National Urban League, its 100 affiliates who exist in all of the 

States and cities represented by Members of the Committee. I am 

also here representing the Black Leadership Forum, an umbrella 

organization of some 30-plus African American-focused organizations from coast to coast. I serve this year as its Chair. 

I come today to set the record straight about what I call the ‘‘financial weapon of mass deception,’’ the ugly, insidious, and concerted effort to blame minority borrowers for the Nation’s current 

economic straits. This financial weapon of mass deception, as false 

and outrageous as it is, has taken hold, thanks to constant and organized repetition and dissemination through the media, political 

circles, newspapers, and the Internet. 


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It is not a harmless lie. It is a stretching of the truth for fleeting 

political advantage. It is an enormously damaging and far-reaching 

smear designed to shift the blame for this crisis from Wall Street 

and Washington, where it belongs, onto middle-class families on 

Main Streets throughout this Nation. 

For years, the National Urban League and others have raised the 

flag and urged Congress and the administration to address the 

predatory lending practices that were plaguing our communities. 

For example, in March of 2007, I issued the Homebuyers Bill of 

Rights in which I called upon the Government to clamp down on 

predatory lending and other practices that were undermining the 

minority homebuyer and homebuyers of all races. Unfortunately, 

not only did our call go unheeded, but also we spent time right 

here in this Congress fighting back efforts to preempt the ability 

of States to regulate predatory practices. Now disaster has struck. 

Many of those who caused it are trying now to blame communities of color and urban communities and those measures that 

helped clear the way for qualified people to purchase homes—most 

notably the Community Reinvestment Act. In fact, it was the failure of regulatory policy and oversight that led to this debacle that 

has been completely expressed by every one of the three witnesses 

that have gone before me. 

But I want for the record to share with you some plain and simple facts, stubborn facts, Senator Dodd. It was Wall Street investors—not Fannie Mae and Freddie Mac—who were the major purchasers/investors of subprime loans between 2004 and 2007, and 

we have a chart that demonstrates this very clearly that we will 

make a part of the record. 

No. 2, while minorities and low-income borrowers received a disproportionate share of subprime loans, the vast majority of 

subprime loans—the vast majority—went to white middle- and 

upper-income borrowers. The true racial dimensions of the housing 

crisis have been reported in places like the New York Times, and 

that is expressed by another chart. 

Third, African Americans and Latinos were given subprime loans 

disproportionately compared to whites, according to 

ComplianceTech, a leading expert in lending to financial services 

companies, researcher to financial services companies. Also, African 

American borrowers were more than twice as likely to be scared 

into a subprime loan as white borrowers. 

In each year from 2004 to 2007, non-Hispanic whites had more 

subprime rate loans than all minorities combined. 

In 2007, 37 percent of African American borrowers were given 

subprime loans, versus 14.21 percent of whites, according to 

ComplianceTech. More than 53 percent of African American borrowers were given subprime loans compared versus 14 percent of 

whites, according to ComplianceTech. 

The vast majority of subprime rate loans were originated in 

largely white census tracts. 

The volume of subprime rate loans made to non-Hispanic whites 

dwarfs the volume of subprime rate loans made to minorities. 

In each year, the white proportion of subprime rate loans was 

lower than all minorities, except Asians. 


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I want to point out that while the majority of subprime loans did 

go to white Americans, African Americans and Hispanics were disproportionately steered into subprime loans. At the end of the day, 

this is a problem that affects Americans of all races, and I urge 

this Committee to strongly and publicly not only affirm that but to 

challenge the false assumptions being peddled by the agents of 

mass deception. 

Upper-income borrowers—upper-income borrowers—had the 

highest share of subprime rate loans during each year except 2004, 

where middle-income borrowers had the highest share. The misconception is that lending to low- and moderate-income Latinos and 

African Americans caused this problem. The stubborn facts, not 

hidden but in the Mortgage Disclosure Act, clearly affirm this 

point. 

It is clear that a large number of people who ended up with 

subprime loans could have qualified for a prime loan, and the incentive system set up for brokers and originators which 

incentivized steering people into higher-rate loans was one of the 

causes of this. 

Non-CRA, as the Treasurer mentioned, financial services companies—non-CRA financial services companies were the major originators of subprime loans between 2004 and 2007. 

These facts are unequivocal. They are clear. And they are indisputable. There have been commentators, some who hold a great 

deal of respect, who write and broadcast, some members of the 

other side of this Congress, who for some reason have peddled this 

story of mass deception as though they were reading off a set of 

political talking points. 

As we have seen in numerous Internet blogs, highly trafficked 

sites, this baseless blame game has turned into vicious attacks on 

the Internet directed at African Americans, Latinos, Jews, gays, 

and lesbians. 

In the last few weeks, I have undertaken an aggressive campaign 

directed at the Nation’s financial leaders to dispel this myth. I have 

written to Treasury Secretary Paulson and Federal Reserve Chairman Bernanke and asked that they publicly refute claims by these 

pundits and politicians that most of the defaulted subprime loans 

at the root cause of the crisis were made to African Americans, 

Hispanics, and other so-called ‘‘unproductive borrowers.’’ 

On the basis of hearsay, on the basis of rumors, on the basis of 

statements made by respected commentators, the seeds of division 

around this financial crisis are being sown in this Nation. History 

tells us too many times that the consequences of singling out only 

certain segments of the population as culprits for the Nation’s woes 

for us not to do all within our power to stop these attacks, to end 

this smear campaign in its tracks, requires—and I would ask and 

urge that this Committee join us in the strongest possible terms 

available to stand up to this lie, to stand up to these agents of 

mass deception, to stop the waste of discussion and time being 

spent on blaming victims and force, as this Committee seeks to do, 

a healthy debate on what must be done to curb too much Wall 

Street greed and too little Washington oversight. This hearing is an 

important start toward that. 


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So I urge you to stay focused and take strong and positive steps 

to strengthen our communities and this Nation’s financial foundation through regulatory reform. 

Finally, with respect to regulation, I want to encourage the Congress not to leave it to the rulemaking authority of the Federal Reserve to regulate anti-predatory lending. I urge this Congress, I 

urge this Committee to take the lead, as you suggested, Senator 

Dodd, to codify the boundaries going forward for the type of loan 

products that financial services companies are going to be able to 

offer to the American people. 

No. 2, an area of failed oversight and regulation not mentioned 

thus far has been the failure to enforce fair lending laws. Both the 

Department of Justice and the Department of Housing and Urban 

Development ought to be called to account, ought to be called to be 

transparent, on where they were as this crisis has fomented, because they, too, have a very important responsibility in enforcing 

laws on the books. 

No. 3, the Community Reinvestment Act is a very important vehicle that has yielded great benefits for this Nation. The idea that 

it has been assigned responsibility and blame for this crisis is so 

far-fetched, so imaginary as to almost not merit a response. But we 

know that there are those who for years have held it close on their 

legislative agenda to try to water down, to try to eliminate, to try 

to undercut the Community Reinvestment Act. I would suggest 

that at a time when the taxpayers of this Nation have been asked 

to take an unprecedented move—that is, to authorize the Treasury 

to invest taxpayer dollars in the preferred stock of financial services corporations—then the direction that the Congress should take 

in exchange and in return is not a weakening of the Community 

Reinvestment Act, but a strengthening of the Community Reinvestment Act and its enforcement mechanisms. 

So, Senator Dodd, I thank you for your leadership. I urge the 

Committee to take a very strong stand, and I thank you for your 

time today. 

Chairman DODD. Thank you very, very much, Mayor. And let me 

just on that point, before turning to Mr. Stein, I am somewhat reluctant to quote the Wall Street Journal on this point, but the Wall 

Street Journal noted that between 60 and 65 percent of subprime 

borrowers actually would have qualified for conventional mortgages; 60 to 65 percent of those borrowers would have qualified for 

less costly mortgages. 

As you may recall, for those who were here, we had the first 

hearings and had the representatives from the Brokers Association. 

We put up the Web page, and the first instruction to brokers from 

their association was, ‘‘Convince the borrower that you are their financial adviser.’’ The most deceptive of practices. They were anything but the financial adviser to the borrower. And as a result, literally thousands and thousands of people ended up with mortgages 

vastly more expensive than ones they qualified for. That is criminal, in my view. 

And to make your point, let me just quote on the last point—or 

the first point you made in your testimony, just to make your point, 

this is a commentator that wrote an article called ‘‘They Gave Your 


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Mortgage to a Less Qualified Minority.’’ And let me quote, if there 

is any doubt about what you just said. Listen to this quote: 

‘‘Instead of looking at outdated criteria, such as the mortgage applicant’s credit history and ability to make a downpayment, banks 

were encouraged to consider non-traditional measures of creditworthiness, such as having a good jump shot or having a missing 

child named Caylee.’’ The article goes on to say that, and I quote, 

‘‘Ultimately, the housing bubble burst and, as predicted, food 

stamp-backed mortgages collapsed.’’ The article goes on and refers 

to this kind of mortgage crisis ‘‘as an affirmative action time bomb 

that has gone off.’’ 

If there is any doubt about what Mayor Morial just said, that is 

the kind of articles that are appearing all across the country, and 

the data is, of course, entirely the opposite. The facts are entirely 

the opposite. And so I appreciate immensely you testifying this 

morning about this theory that is being promulgated. 

I remember Paul Sarbanes, who chaired this Committee—he is 

a great friend of mine, a great Chairman of this Committee. Chuck 

Schumer and I—he was a House member in those days, in 1999, 

we sat up all night on that 1999 law to fight those on this Committee and elsewhere who did everything in their power to get rid 

of the Community Reinvestment Act, and we prevailed. I think, 

Bob, you may have been in the House that year, maybe on the 

Banking Committee. But I will never forget staying up until 5 and 

6 o’clock in the morning to fight to keep the CRA. And so I appreciate very much your testimony. 

Mr. MORIAL. Thank you, Mr. Chairman. 

Chairman DODD. Mr. Stein, welcome. 

STATEMENT OF ERIC STEIN, SENIOR VICE PRESIDENT, 

CENTER FOR RESPONSIBLE LENDING 

Mr. STEIN. Good afternoon. Chairman Dodd and Members of the 

Committee, thank you for the opportunity to testify. 

In the middle part of this decade, Wall Street demand led to literally trillions of dollars of subprime and Alt-A loans to be originated. What was interesting about it was that Wall Street paid 

more the more dangerous the loan was. For example, in 2004, 

Countrywide, if they gave a borrower a fixed-rate conventional 

mortgage, they received 1 percent. If they put that exact same borrower in a subprime loan, they received 3.5 percent. 

It is not a surprise that they paid their originators more if they 

put that borrower in the more expensive loan, the one that statistically has been shown more likely to cause a foreclosure. 

Wall Street then bundled these mortgages into mortgage-backed 

securities, and credit rating agencies, paid by the issuers only 

when they are issued, found many too many of them to be AAA 

quality. And then they were sold around the world. In 2006, the top five investment banks earned $1.7 billion in revenues structuring and packaging these subprime mortgage-backed 

securities. These are the loans that helped cause the housing bubble, and what they have in common, the subprime and the Alt-A 

loans, are that they start at what seems like an affordable level, 

but built into the structure of the loan is unsustainability. They 

start cheaper, but then they get more expensive. There is no free 


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lunch in a mortgage. And that is what they have in common, and 

that helped build the housing bubble because people were put in 

a larger loan than they could actually afford, and on the flip side, 

once the bubble burst, it caused the massive foreclosures that we 

have now because when the housing bubble was going up, that 

unsustainability was masked. Once people could not afford the 

mortgage, they could refinance or they could sell. When the bubble 

comes back down, they no longer have those options, and that is 

why we have the foreclosure crisis that we have today. This leaves 

the question: This is what Wall Street was doing. Where were the 

regulators? I will not repeat what has been said. I will just identify 

a couple, and my testimony goes into more regulatory failings. 

The first is the Federal Reserve. Back in 2000, my boss testified, 

and Chairman Leach, I remember him saying that the Federal Reserve is AWOL because they received the authority to prevent abusive lending in 1994 and had not used it. 

The second one that I would like to mention is the Office of 

Thrift Supervision. They allowed Washington Mutual and IndyMac 

to push abusive mortgages until they failed and did not even put 

them on the watchlist until right before they failed, so the FDIC 

could not clean them up sooner. 

It is clear now that a lack of common-sense rules, like how about 

only making a loan if the borrower can afford it, actually impeded 

the flow of credit beyond anybody’s wildest dreams. Many of us 

who were trying to get the regulators to crack down on predatory 

lending abuses were fighting a defensive action in Congress, saying 

don’t preempt the State laws that are there, since the proposed 

bills would have made the situation worse. And the regulators 

would always say, ‘‘We cannot stop the free flow of credit,’’ and we 

can see the results today. 

Since the problem is rooted in excessive foreclosures, the solutions must start there. I would like to identify five very briefly. 

The first is that Congress should lift the ban on judicial loan 

modifications, which would allow hundreds of thousands of families 

to have their loans restructured and stay in their homes at no cost 

to taxpayers. We are spending $700 billion when we can do something that is free. 

In Chapter 13 bankruptcy, the only secure debt that cannot be 

modified is the home on the principal residence, whereas loans on 

a yacht or investment property can be modified now. I would like 

to illustrate that point for a second. 

If you consider Candace Weaver, who is a school teacher from 

Wilmington, North Carolina, in 2005 her husband had a heart attack, and she refinanced her mortgage with a lender called BMC. 

She received what seemed like a reasonable rate, a little bit high, 

8.9 percent. Two years later, it turns out—she was not told this— 

it was an exploding 2–28 subprime mortgage. The rate goes up to 

11.9 percent, which she just could not afford. She was diagnosed 

with kidney cancer and had surgery scheduled. She called the 

servicer and said, ‘‘I cannot make my July payment. This payment 

is too high. I can barely make it. But I cannot make the July payment because of surgery.’’ The servicer said, ‘‘I am sorry. I cannot 

even talk to you until you are delinquent.’’ 


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She had the surgery, became delinquent because she could not 

keep it up, called again, and they said, ‘‘We cannot talk to you until 

you are in foreclosure.’’ 

Then she can’t keep up, she actually goes into foreclosure, calls 

again, and they say, ‘‘OK, we will give you a repayment plan. Make 

your current payments of 11.9 percent, and on top of that catch up 

the past payments that you did not make,’’ which she could not do. 

The bankruptcy judge cannot help her even though she could afford 

a market rate mortgage. 

Consider, on the other hand, Lehman Brothers. They were 

among the biggest purchasers and securitizers of subprime loans, 

earning hundreds of millions of dollars. They were a huge investor 

in these mortgages at 30:1 leverage, which caused their failure, 

and hurt everybody. Finally, they owned a mortgage lender named 

BMC, the exact same lender that is potentially costing Ms. Weaver 

her home—hopefully not because she has representation now. 

The Wall Street Journal investigated BMC Mortgage and found 

widespread falsification of tax forms, cutting and pasting documents, forging signatures, ignoring underwriter warnings. Lehman 

Brothers last month, as everybody knows, went to bankruptcy 

court. They can have their debts restructured, but Ms. Weaver cannot. 

The second thing I would focus on is for Treasury under the 

TARP program to maximize loan modifications, as some of the Senators have mentioned. Whenever Treasury buys equity in a bank, 

buys securities from a bank, buys a whole loan or controls a whole 

loan, they should do the streamlined modification program that 

Sheila Bair is doing at FDIC. What she does is target an affordable 

payment, first by reducing the interest rate, then by extending the 

term, then by reducing principal if you need to. And they should 

focus on a 34-percent debt-to-income ratio, which is the target in 

the Attorney General settlement with Bank of America over Countrywide. 

The other thing that they should do, which I think you had 

something to do with, Senator Dodd, is to guarantee modified mortgages, which would be cost-effective, but you need to make sure 

that the mortgage is modified well. But that could be a powerful 

tool. 

The third thing I would suggest is go ahead and merge OTS into 

OCC. They have not proven up to the challenge. 

Fourth, the Federal Reserve should extend their HOEPA rules to 

cover yield-spread premiums, broker upselling, and, second, extend 

the subprime protections to nontraditional mortgages. Those are 

problematic now, too. 

And, finally, Congress should pass the Homeownership Preservation and Protection Act—two things to mention there—that Senator Dodd sponsored and many Members of the Committee co-sponsored. This would stop abuses. First, no preemption. If there is preemption, there should not be a bill because the States are doing all 

they can. And, second, if anything is clear by now, it is that Wall 

Street will pay best money for mortgages and loans that help their 

short-term profits and that originators will supply those if they are 

paid well for it. But that is not necessarily the same thing as a 

long-term sustainable mortgage for the homebuyer. Purchasers 


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need a continuing financial incentive to ensure good lending 

through the imposition of strong assignee liability. 

Thank you very much. 

Chairman DODD. Well, thank you very, very much, and just on 

your last point, my intention is if we have a lame-duck session, 

which we are apt to have after the elections, and if there is a package that may move forward, a stimulus package, my intention is 

to take the predatory lending bill which we craft in this Committee, along with the credit card legislation, along with a moratorium on foreclosures—and there is one other item—the bankruptcy 

provisions that would deal with that single home that people have, 

in a package then and ask our colleagues to support those measures. We have done a lot here for the financial sector of our economy. We have not done anything yet, in my view, very significantly, for the consumer side. And so in November my hope is we 

can package that together, make it part of that stimulus package 

that may be forthcoming, and give our colleagues a chance to do 

something before the Christmas holidays. It might provide some relief for people. Ten thousand a day. Every day that goes by—every 

day that goes by, imagine. And as you point out so accurately, 

when you get into the court proceeding, as people told me in my 

own State yesterday, once you are in that court proceeding, too 

often the lender says, ‘‘I would like to help you, but I am instructed 

I cannot do anything now. We have to complete the legal process.’’ 

And I am getting a thousand a week of those in Connecticut, and 

I know other States are going through many more as well. 

Well, let me raise some questions here, and I will put up a brief 

clock because you have been very patient, all of you. 

We have talked a lot about CRA, and I think that is important. 

But also, the second theory—and, again, I thank my colleagues 

here and I thank Barney Frank and his colleagues in the House— 

that after many years of debating and discussing what to do about 

the GSEs, we actually did it this year. And as pointed out, I think 

by Sherrod Brown, or others, in 2005—Mike Oxley deserves a lot 

of credit. He and Barney Frank put together a bill, and it had 331 

supporters in the House, 90 opponents. Then came in Senator Sarbanes, offered that proposal, slightly modified, to appeal to people 

over here, and it went down on a party-line vote. That was the bipartisan bill that would have done something in 2005. But what 

this Committee finally did this year is make those modifications 

and corrections. 

But there is this story going around, this was all about a Fannie 

and Freddie problem, and I wonder, Mr. Stein, if you might address that issue. To what extent is there accuracy in that? Is there 

a legitimacy in that argument? Or is it overstated, in your view? 

And I will ask anyone else on the Committee who wants to comment on this your own thoughts. What is the true answer to that 

question? 

Mr. STEIN. I think it is substantially overstated. I think Fannie 

and Freddie followed the market. They did not lead the market. 

They did purchase the senior tranches of AAA subprime securities, 

and that was a bad idea because they are supporting a bad market, 

and they end up not to be very good loans. But these were the marketable AAA tranches that others would have purchased, and as 


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someone mentioned earlier, those percentages declined as the 

subprime market went way up. 

The problem is that people conflate the subprime securities with 

what caused Fannie and Freddie to have financial problems, but 

actually, those were the Alt-A mortgages talked about earlier that 

did not document income. Those are the higher-income borrowers. 

Those actually diluted their affordable housing goals. Ten percent 

of their mortgages are Alt-A mortgages; 50 percent of both Fannie’s 

and Freddie’s losses are Alt-A losses. 

The critique that if Fannie and Freddie had not purchased those 

securities that subprime abuses wouldn’t have happened is ridiculous because they were originated by Wall Street, Wall Street packaged and promoted the products, the originators were making those 

loans, and often the people saying Fannie and Freddie are to blame 

do not want any sort of regulation on the people that actually made 

the mortgages and made them happen. So I think it is a pretty 

weak argument. 

Chairman DODD. Any other comments? 

Mr. MORIAL. I wanted to add one other point. When Fannie and 

Freddie sort of followed the market, they relaxed a critical underwriting rule that they had followed for years, and that was the rule 

that they would purchase mortgages where the homebuyer had 

been through pre-purchase counseling as a mandatory requirement. And my understanding is that that rule got relaxed to some 

extent because they had pressure from the sellers who said, ‘‘I can 

sell to somebody else now. I do not need to sell to you, and all of 

your sort of requirements are too burdensome for the type of business that we want to do.’’ 

So it is an affirmation of what this Committee has strongly supported twice in the last year, and that is, an increase in investment 

in homeownership counseling. I think any view toward a new system, if you will, for housing finance in this country ought to place 

heavy emphasis on pre-purchase homeownership counseling. I believe the data will show that the default rates and the foreclosure 

rates are less where purchasers have had the benefit of homebuyer 

education prior to purchase. 

Chairman DODD. I agree. 

Gene or Arthur, do you have any comment on this issue that has 

been raised, the Fannie and Freddie argument? 

Mr. LUDWIG. We really need to rethink how Fannie and 

Freddie—— 

Chairman DODD. Do you want to turn your microphone on? 

Mr. LUDWIG. We have to really rethink, Mr. Chairman, how 

Fannie and Freddie fit in our financial system. 

Chairman DODD. I agree with that totally. 

Mr. LUDWIG. They have been really beat on in the last 8 years 

as orphans that do not need to exist, and that may or may not be 

true, but we have not had an architecture of how they really fit. 

My own belief is that they are very important props and should 

have been key factors in solving the current crisis. But they frankly 

were so constrained earlier in the decade that they were not in a 

position to be able to help. 

Chairman DODD. Arthur, any thoughts on that subject matter? 


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Mr. LEVITT. I think with adequate supervision and adequate regulation, they are an important part of our market. 

Chairman DODD. Let me, if I can, I wanted to get Gene Ludwig, 

if I could, to pick up on this. And, again, we heard the comments 

on CRA, and, of course, you had dealt directly with this issue when 

you served as Comptroller of the Currency, and you have some insight into the experience with CRA. 

At the time you were Comptroller, OCC worked with other banking agencies to overhaul CRA regulations, and you have had experience supervising CRA lending and investment by banks. I wonder 

if you could tell us about whether CRA helped to fuel the current 

economic crisis in your view. And on the topic of CRA, I would like 

to—well, I read that comment earlier. I wonder if you could just 

pick up on those thoughts as well about the pernicious argument 

being posed by those who suggest the CRA was a part of this or 

a major cause of this problem. 

Mr. LUDWIG. Mr. Chairman, I commend you for focusing on this 

very important matter, and I share the views expressed by the 

other members of the panel today. CRA is about our better instincts, it is about a better world. I have done a study for the Boston Federal Reserve and the San Francisco Federal Reserve which 

will be published in January at their request on this very topic. 

And the notion that CRA has caused this problem is a pernicious 

thought. It goes to your comment that this is just not—these are 

not truthful statements. And my panelists have covered it very accurately. This just is not the case. CRA has helped to create a better and sounder world for finance, not the opposite. 

Chairman DODD. Well, thank you. 

Mr. LEVITT. I think a market that has to be believed in by public 

investors has to be fair and open. And I must say the testimony 

we heard before was absolutely inspiring because it has not been 

fair and open. It has been loaded with innuendo and statements 

that, as Americans, we should all find appalling. 

Chairman DODD. Arthur, let me ask you, if I can, about something you have raised already in your opening statement, but I 

want to pursue it a little further with you, and it will be my last 

question before I turn to my colleagues. 

SEC Chairman Cox testified before this Committee on September 

23rd of this year about, and I quote, ‘‘a regulatory hole that must 

be immediately addressed, the $58 trillion national market in credit default swaps, which,’’ he noted, ‘‘is regulated by no one. Neither 

the SEC nor the regulator has authority over the CDS market even 

to require minimal disclosure to the market.’’ And he asked Congress for the authority to regulate. 

What role did the absence of such authority, in your view, have 

in the current crisis? And which specific authorizations would you 

recommend be given to the SEC to regulate over-the-counter swaps 

and other credit derivatives? 

Mr. LEVITT. This is an issue that came up in 1998 when the 

President’s Working Group was confronted with a recommendation 

by the Chairman of the CFTC to regulate swaps. Chairman Greenspan felt that this would cast trillions of dollars of outstanding contracts into a situation of what he called ‘‘legal uncertainty.’’ All 20 


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or so members of the working committee, with the exception of 

Brooksley Born, supported Chairman Greenspan, as did I. 

We also called for a clearinghouse to be established to give greater transparency. Unfortunately, we did not mandate that clearing 

facility. As I reflect back upon that period, I wish that I had probed 

further. I wish that I had asked for swaps and derivatives to be 

given the transparency which has led to many of the problems that 

we face today. 

What do we do now? I think no longer can we assume that these 

are instruments used by sophisticated investors, and the fact that 

they are unregulated, listed on no exchange, and have permeated 

our markets at every level no longer allows that condition to continue. 

I believe that an SEC, CFTC, a merged entity, should have oversight of the whole derivatives market, should have oversight in a 

way that is reasonable and practical and cost-effective. If I could 

wave a magic wand and do away with derivatives, I would not do 

it. They have been a valuable, important, essential, liquefying factor and risk-protecting factor in our markets. However, as I believe 

Gene said before, improperly used, their impact can be devastating. 

We are entering what I believe will be a decade of transparency. 

In that connection, I think derivatives must be more transparent. 

I think the agencies to do that are the CFTC and SEC. I do not 

believe that that should be—that our regulation should be Fed-centric, as outlined in the Secretary’s blueprint. I think that blueprint 

marginalizes many other agencies, including the SEC. And I think 

in terms of investor protection that would be a tragic mistake. 

Chairman DODD. One other quick question on this. Can you 

make the correlation between what you have just said and the crisis? People talk about these derivatives, and I do not know if it has 

been clearly explained about why those instruments, as they have 

been working, actually have affected the very crisis we are in, connecting the dots between the two. I do not think that has been well 

done. 

Could you do that for us? 

Mr. LEVITT. Well, what derivatives essentially are, they represent leverage on leverage, having narrowed the margin of error. 

If you traded stocks or bonds or mortgages in the past, and a mistake was made, you had time to correct that mistake. With derivatives it is a millisecond. And the problem is that we are talking 

about trillions of dollars without a clearing facility to be able to tell 

us whether Customer A can complete a transaction with Customer 

B. And I dare say that a lot of these contracts without a clearinghouse simply do not have counterparties to account for them. 

We will find out more about that as the Lehman Brothers bankruptcy winds its way through the courts. The key issue here is a 

clearinghouse. The ultimate failure that we talk about in terms of 

systemic failure in the United States in my judgment is a clearance 

failure. We have clearinghouses with respect to stocks and bonds 

and options. It is unthinkable that we have yet to have a clearing 

facility for these derivatives. 

Chairman DODD. And a lot of these instruments, of course, we 

are talking about some of the subprime mortgages. 

Mr. LEVITT. Yes. They were packaged—— 


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Chairman DODD. That is my point. So that is the point. These 

were these things moving through with the subprime. That is the 

piece that I think is missing in this. 

Yes, Gene, do you want to comment? 

Mr. LUDWIG. Yes, Mr. Chairman, I agree with what Arthur said. 

They are one part of what has become a faceless, high-technology 

liquification. It is as if you sort of have huge amounts of liquid 

pouring into homeowners’ living rooms, opportunities to borrow, 

new opportunities to mortgage themselves. It is one piece of a 

chain that is faceless, where people who are part of it are not connected in any way to the end-use customer. And getting this right 

has to start with making sure that the end-use customer, the product is safe for that person’s use, and making sure that up the chain 

people have a sense of responsibility for the risks they are taking 

on, which has not been part of it. The derivatives tend to explode 

this because they tend to be highly leveraged, but it is one part of 

a bigger puzzle, sir. 

Chairman DODD. I thank you both very much. 

Mr. MORIAL. Senator Dodd, I am going to have to excuse myself. 

I want to thank you and—— 

Chairman DODD. Let me turn to my colleagues here and see if 

they have a question for you before you walk out of the room. 

Senator BROWN. I do not, Mr. Chairman. 

Chairman DODD. Thank you, Mayor, very much. 

Senator BROWN. Thank you, Mayor. 

Mr. MORIAL. Thank you very much. Thank you. 

Chairman DODD. Senator Brown. 

Senator BROWN. Thank you, and thank you, Mayor Morial, for 

your public service and—— 

Chairman DODD. Thank you, Mayor, very much. 

Senator BROWN. Mr. Rokakis, I will start with you. I have several questions. Secretary Paulson testified before our Committee on 

the need for intervention 3 weeks ago to shore up financial markets. As you know, while he originally sought authority to purchase 

troubled assets, he now appears to be heading in a direction that 

some of us preferred, which is buying a stake in troubled companies. 

All along, one of the things that I know troubled you and troubled a lot of us on this Committee is the ineffectiveness of either 

of these approaches in addressing the underlying problems in the 

housing market. 

One suggestion that has recently been made is to buy up all the 

troubled mortgages at face value. While I am sympathetic to the 

goal of helping homeowners, this proposal strikes me as pretty generous to the people who got us in this mess in the first place. 

I understand that in the home you lived in growing up, the vast 

difference between the mortgage value versus the actual value that 

you have talked about publicly and privately. Give me your 

thoughts on that. 

Mr. ROKAKIS. Thank you, Senator Brown. If you buy these at 

face value, you are going to guarantee billions and billions of dollars of losses for the U.S. Government. I have testified before Senator Schumer’s Committee in particular about Argent Mortgage. 

Argent was a wholly owned subsidiary of Ameriquest, now out of 


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business. Argent Mortgage did not make a single loan in Cuyahoga 

County in 2002. By 2003, they led in two categories: mortgages 

issued and foreclosures. They led in that category in 2004, 2005, 

and 2006. The negative equity of the Argent loans in Cuyahoga 

County is probably somewhere in the nature of $300 to $350 million. I used this when I came to the earlier Committee. Maybe we 

showed the color-coded graph. Virtually all of these loans were 

made for at least 150 to 175 to 200 percent of the auditor’s value. 

If you buy those—first of all, that was then, but this is now. We 

are talking about many thousands of foreclosures later. Those properties may have been worth that much when the mortgage was 

issued, that much less, but they are worth even less now. Many of 

them are empty. They have been gutted. They are in communities 

where there are a lot of additional properties that are empty as a 

result of this foreclosure crisis. 

If you buy them at face value, Mr. Chairman, Members of the 

Committee, you are guaranteeing yourself, I believe, tens of billions 

of dollars of losses. I cannot speak for other markets. I can only 

speak for what I have seen in Ohio and particularly Cleveland. 

Senator BROWN. Thank you, Mr. Rokakis. 

Mr. Levitt, it seems like among all the other things we have 

outsourced is the enforcement of investor and consumer protections 

over the past few years. Whether it is the mayor of Cleveland 

forced to sue lenders or the New York Attorney General stepping 

in on repeated occasions, it does not seem like these days the SEC 

has particularly done its job. Some at the SEC might argue it lacks 

authority. 

My question is: Is that true, it lacks authority? And if so, didn’t 

the leadership of the SEC have an obligation a long time ago to ask 

for greater authority? 

Mr. LEVITT. I do not believe the SEC does lack authority. I think 

the SEC is starved for resources. They have not been given—as a 

matter of fact, they rejected additional funds that were offered to 

them by appropriating committees. 

Senator BROWN. When was that, Mr. Chairman? 

Mr. LEVITT. I beg your pardon? 

Senator BROWN. When was that that they rejected—— 

Mr. LEVITT. Sometime over the course of the past 2 years, 3 

years. I will get back to you with the specific time of that. But so 

much of what the SEC does, as I said in my statement, is the sending of signals, the speeches given, not the rules that are passed. 

And those signals simply have not been sent. 

Shareholder access to the proxy, a terribly important issue. It 

has been bubbling around for 10 years now, and the Commission 

failed to act. A non-binding shareholder vote on executive pay, 

again, bubbling around for some years. The Commission did not 

act. 

Over and over and over again, the message was sent that this 

Commission is not an investor-friendly Commission. I do not think 

this is a question of authority except with respect to such issues 

as derivatives. There clearly we are in an unregulated area, and a 

lot of us were responsible for not calling attention to this early on. 

There is more I could have done while I was there, and the condition grew worse and worse and worse. 


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I do not believe this is a question of giving the SEC authority 

that they lack. I think it is a question of the SEC properly utilizing 

that authority, reinvigorating their Enforcement Division, which 

has been demoralized by a variety of factors. Giving them more 

cops on the beat, allowing them to send a message which only they 

can send that they truly are the investor’s protector. 

Senator BROWN. Thank you, Mr. Levitt. One last question, Mr. 

Chairman, if I could. 

The 40,000 angry e-mails and letters and calls I received told 

me—and they have said it repeatedly—that this is not a natural 

disaster, this is a man-made one. I would guess, I would say likely, 

that most of the 40,000 believe that some of this behavior was illegal. There seems to be certainly no self-imposed accountability. 

Mr. Ludwig, while we do not really know the facts yet, do you 

think the architects of this disaster might be held accountable by 

the law? 

Mr. LUDWIG. There clearly are victims here, and there clearly are 

violations of the law without question. That is a big part of it. It 

is not the whole part of it. We are at a time in history, Senator, 

where the entire system needs to be radically remade in this country. There are parts of it that simply will not function if not markedly changed. But it starts with the consumer. There clearly were 

elements here where people were cheated badly, and they were victims, and there needs to be accountability. 

Mr. LEVITT. I agree with that totally. I think there are so many 

areas in corporate America in recent years of bad behavior that has 

disillusioned the public. The pre-dated stock options, the misdeeds 

in San Diego of the custodians of the pension fund—these are all 

areas that could have been front-page headlines with regulators 

doing the right thing. 

Regulators cannot capture every bit of wrongdoing, but they can 

bring and promote signal cases to deter practices of that kind. And 

we need much more of that than we have had. 

Senator BROWN. Mr. Stein, any thoughts you have on potential 

criminal activity, without, again, knowing all the facts? And I do 

not ask you to be more specific than you can—— 

Mr. STEIN. We have a little litigation arm that represents borrowers such as Ms. Weaver that I mentioned. The converse of victims were fooled is people doing the fooling, and I do not know anything worse than stealing somebody’s home and ruining somebody’s 

neighborhood, ruining an economy. So I think there should be accountability. I think there should be. 

Senator BROWN. Thank you. 

Thanks, Mr. Chairman. 

Chairman DODD. Thank you very much. 

Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. Thank you all for 

your testimony. It has been very elucidating and I appreciate it. 

Chairman Levitt, let me ask you, you know, I appreciate your responses to the Chairman on the whole question of credit derivatives is a market that grew to over $62 trillion in value and only 

$6 trillion in loans, so it gives you an example of the need for the 

transparency there. But isn’t there even a greater need for transparency across the system? You know, right now we have a lot of 


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calls to undo the mark-to-market system. And we do not even know 

the full extent of the losses of the risky investments. To this date, 

we still do not know. And there is a lack of information of what 

that risk is that is posing one of the most significant underlying 

problems here. 

What do you say to those who say let’s undo mark-to-market? 

Mr. LEVITT. I think we are entering a decade of transparency. 

Everything that we do, every rule that is made, every regulation 

that is considered for the next 10 years will be viewed in terms of 

is it transparent. 

In that connection, I cannot possibly accept a notion of saying 

that the banks can take a product that may well be worth what 

they paid for it at the end of a certain period of time and consider 

that it is worth it right now. I believe in mark-to-the-market. I 

think the U.S. and global economies do have cycles. They did before 

we had mark-to-the-market accounting, and I think they will afterward. But it is not mark-to-the-market anything that created or 

made worse the cycles, including the present crisis. It was created 

by lenders making bad loans they could not collect on, thereby taking capital out of the system. Accounting has only informed the 

public of what those losses were. As loans began to reset after 

these unconscionable gimmicky loans were created and then 

securitized, as foreclosures grew more homes came into the market, 

and eventually supply overtook demand, depressing home prices at 

a faster rate. As losses got worse, as more homes went into foreclosure, accounting only informed the public that, in fact, it was 

getting worse. 

So I understand the problem of valuing instruments that are so 

difficult to value, and there are no absolutes here. I think we have 

got to look to some way to deal with this, but I feel very strongly 

that mark-to-the-market is a principle that is so much part of an 

era of transparency. 

Mr. LUDWIG. Senator, I agree with much of what the Chairman 

said, that is, Chairman Levitt. But there is clearly a problem here 

with mark-to-market accounting that has to be fixed, and the best 

way I could describe the problem is that if any of us had to sell 

our house in 24 hours and in this market we said, OK, I have got 

to sell my house in 24 hours, whatever it costs, somebody might 

offer you 10 percent of what your house is worth. To say that that 

house, your own house, which you may have paid $200,000 for, is 

now worth $10,000 because you had only 24 hours to sell it in a 

very bad market is not, in common-sense terms, the true value of 

that house. 

Mark-to-market accounting by its term presupposes there is a 

functioning market. And the problem we have had over this really 

once-in-a-hundred-year cycle is that there has not been a market. 

So there clearly has to be honesty and transparency in our accounting principles, but what we cannot do is what you cannot do when 

there is no market. 

One method that has been suggested in these kinds of circumstances that can be used is to cash-flow. If the loan is 

cashflowing, if you are getting payments on time, it is clearly not 

worth zero. It is worth more than that. 


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So this is an area, I think, that deserves some considerable 

study. We, of course, do not want to just throw the baby out with 

the bath water. But mark-to-market accounting when there is no 

market has not served wholly well. 

Senator MENENDEZ. I understand that, and I—— 

Mr. LEVITT. It is not a simple matter, but my only thought here 

is that I think it would be a dreadful mistake for Congress to get 

involved in the standard-setting process. It is such—— 

Chairman DODD. I promise you we will not do that. I have fought 

that for years up here. 

Mr. LEVITT. It is like base closings. 

Chairman DODD. Don’t go down that road. 

Senator MENENDEZ. Well, I understand what you said, Mr. Ludwig. I am concerned—and maybe there is not a market at present, 

but those who advocate for its elimination are not talking about a 

temporary suspension or an adjustment. And that is the core principle. At the end of the day, part of what we have here was listening to the credit rating agencies and the lack of what they needed 

to do and the chain of the responsibility to investors here. And so 

in my mind, if you now cannot value—if you do not have a transparency as it relates to valuation, how do you ever make the right 

judgments, whether you are an investor, whether you are a regulator at the end of the day. And so there has to be some reasonable 

valuations that are real, not in the desired world but in the real 

world, because, otherwise, I think that is such a slippery slope that 

leaves the door open to revisit this set of circumstances again. 

Mr. LUDWIG. I agree with you, Senator, and I agree with the 

Chairman that the Congress is very difficult to make accounting 

rules. That is why I said in my testimony I think we really need 

to look at the governance mechanism for how those rules are made. 

That I think is a very big issue. And right now the governance 

mechanism is not really closely tied to the policy-setting mechanism in Washington, and that is something I think ought to be considered. 

Senator MENENDEZ. Let me ask one last question here. We saw 

a lot of efforts at self-regulation. You know, I mentioned in my 

opening statement the net operating rule, and then unlocking billions of dollars that were meant as cushions against loans that ultimately might go back. And then the cushion was gone, and then 

you had the set of circumstances where you used the banks’ own 

computer models to determine risk instead of independently determining that risk and exercising the appropriate oversight as a regulator on behalf of investors and our whole financial market. 

Shouldn’t that be rejected as a potential form of regulation, selfregulation? 

Mr. LUDWIG. I think that you have hit on something very important, Senator. There is a fox-in-the-henhouse issue that you are focusing on that just common sense, we all know that it has got to 

be monitored. And we have seen it evolve, and whether it is—it is 

in all kinds of self-regulatory proposals. 

It is fine to have industry groupings and self-regulatory efforts. 

That is a fine thing. But you always have to have the referee, the 

cop on the beat, the independent party, the regulator that really 

controls at the end of the day the playing field. That is essential. 


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And, accordingly, something like Basel II has to, I think—the capital standard rule for banks—be looked at very, very cautiously as 

we move forward. So it really is the Government, the referee, that 

sets the standards with a bright line the people can rely on and 

industry can participate in that but should not be controlling it. 

Senator MENENDEZ. I will just close. I cannot fathom for the life 

of me how if I have the responsibility—this is like the cop on the 

beat. You know, the reason we have police officers in our society 

is we expect everybody to obey the law. But the reality is not everybody does. And by the same token, it is a deterrent. We are maybe 

stopped at that red light, and we are very late for a meeting, and 

we are late for a meeting, and we are tempted to take it, but we 

do not because, No. 1, it would be violating the law; No. 2, you 

know, there may very well be a cop on the beat that is going to 

stop us. But if there is no cop on the beat to enforce the law, at 

the end of the day there will be people who will take the red light. 

This is exactly what—in my mind, I do not know how you delegate the responsibility, the authority, and the oath to be a regulator and then to delegate that responsibility to the very industry 

that you are regulating. It is fine for them to have it as high standards internally for them to pursue. But in my mind, it is not right 

for the regulators to go ahead and delegate their authority at the 

end of the day. 

Mr. LEVITT. I would agree that total delegation would be a mistake, but I do not know of any regulatory agency in Government 

that has the means to totally regulate their industries. And in a 

number of instances, many instances, self-regulation as an adjunct 

to the process of oversight, if there is appropriate oversight, is the 

very best way of doing it. The SEC could not possibly do the job 

that they do without the mechanisms of the NASD and the various 

stock exchanges. They have to be fast to crack down on them if 

they blow it, which they do periodically. But they are a useful adjunct, and I would not do away with—— 

Senator MENENDEZ. Would you have supported the net operating 

rule decision as it was pursued? 

Mr. LEVITT. No, I would not have. 

Senator MENENDEZ. Thank you. 

Mr. STEIN. Senator, can I make one follow-up comment on that? 

I fully agree with that last comment that the regulators, even if 

they are empowered and even if they are motivated, which they 

have not been recently, are not enough to stop the abuses, which 

is why I mentioned the assignee liability in my oral statement, that 

they cannot do it alone. There are millions of transactions going on 

there. And what we know is that investment banks will not act 

against their financial interest if it would provide a sustainable 

loan for borrowers, and so we need the marketplace to police itself 

by putting incentives on the purchasers of loans as well. 

Chairman DODD. That is a very good point. 

I am going to leave the record—I have two or three quick questions. I wanted to point out, Senator Menendez asked a very good 

question and one that we have spent a lot of time talking about, 

and that is the mark-to-market or any changes in that. I presume 

people are aware of the SEC Office of the Chief Accountant and 

FASB, of course, which is the Accounting Standards Board, staffs 


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on September 30th issued guidance to provide more flexibility on 

valuation under fair value accounting or mark-to-market. 

For example, it said—and I am just quoting this here: ‘‘When an 

active market for a security does not exist’’—as Gene Ludwig pointed out—‘‘the use of management estimates that incorporate current 

market participant expectations of future cash-flows’’—which you 

have also talked about—‘‘and include appropriate risk premiums is 

acceptable.’’ 

Let me tell you, having worked on this Committee, I know in the 

past we had some very critical moments when people wanted to 

legislate accounting standards, and Congress has certain capacities. That is not one of them. And do I have rigorously opposed 

over the years to have Congress get involved in this. But certainly 

we ought to get involved if there is a standard here that is going 

in the wrong direction. 

How do you quickly react to the guidance issue? 

Mr. LEVITT. I think the guidance is an appropriate responsiveness on the part of the SEC to a very difficult problem. I do not 

dismiss the notion of the fact that at this time of opaqueness in our 

markets, where we are getting a surprise a day, a restatement a 

day, the signal being sent that we are suddenly giving up something as transparent as mark-to-the-market would be a mistake. 

Chairman DODD. I agree. All right. That would be a total mistake in my view, and I agree with you on that completely. 

Let me ask three quick questions and ask you to be brief if you 

could on them. Gene, you mentioned one thing earlier in your opening statement that I just wanted to pursue, and that is consumer 

protection issues. As I pointed out in my opening statement, in the 

past they have been sort of treated as nuisances from time to time, 

to put it mildly, and they have failed, I think, historically. And we 

have failed up here as well, I might add, in making the inextricable 

link between safety and soundness of our markets and consumer 

protection. We have treated them as if they were kind of separate 

things. One was sort of important, the other far less important. 

I wonder if you might just comment on that nexus between consumer protection and the safety and soundness of our systems. 

Mr. LUDWIG. Mr. Chairman, that comment is very wise, and I 

could not agree with it more. There is clear linkage between safety 

and soundness and consumer protection. After all, you could have 

called the standard in bank regulation ‘‘safety and safety,’’ but they 

did not. They called it ‘‘safety and soundness.’’ And what did soundness really mean when our forefathers put that word in? They 

meant something of high integrity, of probity. It was in the concept 

to begin with. It got lost. And in today’s day and age, it is even 

more important that concepts of probity, of integrity, of compliance, 

of consumer protection be inextricably linked with supervision. And 

why? Because in a global environment where the consumer is more 

and more disassociated with this long chain of funding and of huge 

combines of institutions, faceless institutions, that consumer, that 

linkage, which is at the heart of a financial transaction, must be 

protected and must be part of the way the system thinks of a financial transaction. Because unless we do that at our regulatory mechanisms, these global huge enterprises will forget it. 


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So you are absolutely right. We have to make this linkage much 

tighter than we ever have before, and for the own safety of the financial institution. If you have a financial institution—take some 

of the ones that have been beat up in the press, say Lehman Brothers, and they are views as disreputable because they are selling 

disreputable products, it affects their base safety and soundness in 

a palpable way that has never been true before. So I could not 

agree with you, Mr. Chairman, more. 

Chairman DODD. Let me ask quickly Mr. Stein and Mr. Rokakis 

this question. I raised in my opening statement, again, the issue 

of the HOEPA legislation in 1994 that required—it was not a request; it was a requirement—that there be regulations promulgated to protect against deceptive and fraudulent practices in the 

residential mortgage market, and nothing happened for 14 years. 

Let’s assume nothing had happened for 10. If 4 or 5 years ago regulations had been promulgated—and look at the ones that came out 

this July. Let’s just assume that is what sort of emerged. We will 

not try to pretend they are a higher standard, just the ones the 

present Fed has put out. Could we have avoided this mess we are 

in today? 

Mr. ROKAKIS. Mr. Chairman, if you look at what happened in 

July, just look at the rules that were promulgated—prohibiting 

loans without regard to making good on that loan; the repayment 

of the loan; requiring creditors to verify income; banning prepayment penalties in the first 4 years of an ARM was involved; rules 

against the pressuring, against the coercion of appraisers—if those 

rules had been put into effect back when they went to the Fed, let’s 

say 2001 or even 2002 or 2003, the outrageous lending practices 

that accelerated between 2003, 2004, 2005, and 2006 I think would 

have been prevented, or certainly slowed down, and I think we 

would be in a different position here today. 

Chairman DODD. Mr. Stein. 

Mr. STEIN. I agree. About half of all foreclosures now are due to 

subprime loans, which is about 11 percent of mortgages originated. 

And the problem with those loans is that people cannot afford 

them. Half of them were undocumented income. They had prepayment penalties that statistically increased foreclosure. 

So, I agree, had those rules been promulgated even 4 years ago, 

a lot of the subprime foreclosures that we have seen—I would say 

the significant majority—would not have happened. It would not 

have addressed the Alt-A loans, which is kind of the second wave. 

We have a chart in our testimony of the resets. The subprime 

resets come first, and the Alt-A resets come after. That is why it 

is important for them to extend it to Alt-A, the protections to AltA, and the protections would not have helped that unless it 

changed the culture of originations. 

Chairman DODD. Thank you for that. Let me jump quickly to one 

more subject matter. 

Today’s Wall Street Journal reports that, ‘‘Even after receiving 

an emergency loan that gave the Government an 80-percent ownership stake, American International Group, AIG, is spending money 

to lobby States to soften new controls on the mortgage industry.’’ 

The Journal goes on to report that State regulators say that, 

‘‘AIG is currently working to ease some provisions in a new Federal 


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law’’—the one we passed this summer, in July—’’establishing strict 

oversight of mortgage originators.’’ 

I assume that the provision referred to here is the mortgage 

originator licensing requirements, which I wrote into the Housing 

and Economic Recovery Act. And, by the way, Senator Mel Martinez, of Florida, a Republican member of this Committee, and 

Dianne Feinstein, the Senator from California, were the two who 

really argued very strongly—they deserve the credit, in my view, 

for pushing very hard for this provision to be included in the law. 

And so I want to recognize that. 

Would any of you care to comment, first, on the appropriateness 

of a company whose very existence is dependent upon Federal largesse lobbying against a Federal consumer protection statute; and, 

second, whether mortgage brokers should be properly licensed, in 

your opinion? 

Mr. LEVITT. I have difficulty with any company receiving Federal 

funds lobbying for any purpose. 

Chairman DODD. Gene. 

Mr. LUDWIG. This mortgage broker situation is really pernicious, 

Mr. Chairman, and what the Congress has done under your leadership is very important. It is one step in bringing back a regulatory 

framework for our entire financial system. The fact that we have 

parts of the financial system that have been un- and underregulated, that can drive the whole system—in good times they have 

extra benefits in capital, extra benefits in cost savings, because 

they do not have the regulatory safety net. But it drives the whole 

market in the wrong direction. 

So you are to be commended, sir, for what has been done here, 

and anything to cut back on that is a very bad thing. 

Chairman DODD. The other two of you? 

Mr. ROKAKIS. Mr. Chairman, the destruction of the agency relationship, if you look at, I think, the three principal causes of this 

entire crisis, clearly deregulation at the top of the list, reliance on 

these complex, mathematical constructs that nobody really understands, yet Wall Street relied upon. But if you look at the destruction of the agency relationship, the fact that that broker sitting 

across from you is not working for you but is working against you, 

Mayor Morial talked about some of the other statistics. I think it 

is absolutely critical that we move in that area of regulation. 

I also know that when there was talk about eliminating the 

yield-spread premium, this Congress was bombarded by, I believe, 

hundreds of thousands of calls and letters arguing against that. 

But I think it is that yield-spread—— 

Chairman DODD. It is not in those regulations that came out in 

July either. 

Mr. ROKAKIS. No, it is not. 

Chairman DODD. I feel very strongly about the yield-spread premium, and we are going to have that in our bill. 

Mr. ROKAKIS. And I commend you for that. 

If I might, Senator Dodd, there is just one thing, Mr. Chairman, 

and that is that I promised the housing counselors back home, the 

foreclosure counselors, that I would raise this point. 

Chairman DODD. Yes. 


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Mr. ROKAKIS. Senator Casey touched on it, and I think it is so 

important, and we are going to look to you for leadership on this. 

We are being told now that we do not know what this format will 

look like when these mortgages get bought back, but we are being 

led to believe—we have been told that we cannot expect any additional leveraging or negotiating power once the Government steps 

in and buys these mortgages back because of the complex way in 

which these mortgages were held and sliced and because of the 

trust agreements in place and need to get cooperation from all the 

other bondholders. And I just have to ask you, if I could, Mr. Chairman, to please look more closely at this, because what Senator 

Casey has said is, in fact, true. We are getting a sense that the negotiations, which are so difficult—difficult? I run a program. We 

have done 4,000 mortgage saves since March of 2006. It is difficult 

as it is. It is often hand to hand combat. But the fact that we will 

have no additional leverage once these mortgages are purchased 

makes us very concerned. 

Chairman DODD. Well, I agree. And, again, going back almost 2 

years ago, as I pointed out earlier today in this hearing, in this 

very room, where around in the back of the room a large table was 

set up with all of the stakeholders on this issue, including most of 

these major institutions, many of which are not around today, unfortunately, but were holding an awful lot of these mortgages. 

Again, this gets into the weeds a little bit. But most of these mortgage-backed securities are contracts. And as I read and went back 

and really probed this very hard, the language allows for a lot of 

flexibility in working out those mortgages. 

When they are trust agreements, it is much more difficult, and 

that will require maybe some legislation. But the good news is not 

many of them are trust arrangements. Most of them are contracts. 

And so I believe we have the authority under existing law for us 

to modify those mortgages. And it sounds confusing. It is not that 

confusing, and I think we do a disservice by suggesting this cannot 

be done. Somehow it can be. And certainly my intent would be— 

I would be furious to discover that we are going to make a strong 

effort here acquiring these mortgages, if you will, these instruments, and then not be in a position to do exactly what the legislation we drafted this summer is designed to do and which we set 

up for October 1 to begin the process, and that is to make it possible for people to get through the insurance. 

So, look, you heard John McCain and Barack Obama debate this 

last evening, and that is the question of whether or not we do what 

they did in the 1930s, and that is where the Government actually 

purchased the mortgages. That idea had some appeal to me early 

on, and that is what they did in the 1930s. The difference is today 

we have the FHA. You can insure this. You do not have to go that 

route. And you can get a much better deal through this process at 

less cost. So while it is an appealing notion, I actually think the 

idea of actually buying these, as suggested, is not as attractive as 

the insurance idea is that we have included in the legislation this 

summer. But I am certainly going to insist that as we do this, we 

make sure that we have the ability to work those out. 

Any other comments? Yes. 


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Mr. STEIN. Just to piggyback on that comment, when the Government buys some mortgage-backed securities, I do think that it is 

right to limit it compared to other investors in terms of requiring 

a modification, but the guarantee ability is there, and the other investors should like that. 

And just on your question about AIG, I do think they should not 

be lobbying on that. My understanding of what they are trying to 

do is to say their brokers should be not licensed, they should be 

called an employee, even though they are really a broker. They are 

not a principal. And that just is kind of a ridiculous argument. 

Chairman DODD. Yes. Well, listen, I wanted to ask and leave the 

record open. I know Members may have some questions, and I have 

some additional ones I will submit to you, and if you get a chance 

sometime in the next week or two to maybe respond to ones that 

you think you would have something to comment on, I would appreciate that very, very much. 

Chairman DODD. We are going to have additional hearings, not 

just on what we have done here. As I said, I would have very much 

liked to have had Bill Donaldson and Chairman Breeden, who I 

have great respect for as Republican appointees to head up the 

SEC, did a very, very good job, in my view, and have had some 

very worthwhile comments to make over recent days on a lot of 

what we are talking about, more in the case of Mr. Breeden than 

Bill Donaldson. But it is important to hear from them as well. 

What I said earlier to Mike Crapo, Senator Crapo, who has done 

an awful lot of work on regulatory reform, and I have a lot of respect for Senator Crapo, what he cares about, we are going to really look at that. That is going to require a lot of work, but I want 

to begin that process. 

Then, also, what we need to be doing, and some good suggestions 

here today already, the things that we can do to minimize this kind 

of occurrence happening again. We will get out of this, and my 

hope is that what we have done already is pointing us in that direction. And even though the markets do not reflect that from day 

to day, there are a lot of other things occurring that I think are 

still causing people to be very skittish and frightened about getting 

back into the market. 

But I think we are on the right path, and I believe very strongly 

that investors and the American consumer can have far more hope 

and confidence we are going to get there than they certainly have 

felt over the last several weeks. You may not see it today, and it 

is not going to blossom all at once. But we are on the road to getting this right again, in my view. And so I do not want a hearing 

like this to end without having some sense of hope and opportunity 

and confidence. 

As Franklin Roosevelt said so eloquently more than 80 years ago, 

it is fear, and that fearing fear is what has, I think, had an awful 

lot to do with the lack of confidence in our country, and we need 

to get our confidence back. And I think we are on the road to 


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doing that, and your testimony here today has helped us, I think, 

get rid of some of the myths and talk about the real problems we 

need to address, and I am very grateful to all of you. 

The Committee will stand adjourned. 

[Whereupon, at 1:15 p.m., the hearing was adjourned.] 

[Prepared statements supplied for the record follow:] 


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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 232 here 50415A.113
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 233 here 50415A.114
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 234 here 50415A.115
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 235 here 50415A.116
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 236 here 50415A.117
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 237 here 50415A.118
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 238 here 50415A.119
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 239 here 50415A.120
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 240 here 50415A.121
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 241 here 50415A.122
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 244 here 50415A.125
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 245 here 50415A.126
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 248 here 50415A.129
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 249 here 50415A.130
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 250 here 50415A.131
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 251 here 50415A.132
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 252 here 50415A.133
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 253 here 50415A.134
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 254 here 50415A.135
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 255 here 50415A.136
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tjames on DSKG8SOYB1PROD with HEARINGInsert offset folio 256/400 here 50415A.137