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[Congressional Record Volume 154, Number 175 (Monday, November 17, 2008)]
[Senate]
[Pages S10542-S10544]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

                            FINANCIAL CRISIS

  Mr. DORGAN. Mr. President, I think it is obvious to all Americans 
that we face a very severe and difficult financial crisis. We have had 
an election. The American people have voted for change. We now face 
significant challenges. I was thinking, as I was walking over to the 
floor of the Senate, about a visit I had recently at a nursing home in 
North Dakota.
  This financial crisis is probably the most significant financial 
crisis since the Great Depression. We don't know where this will go. We 
don't know how many will ultimately be unemployed. We don't know how 
long it will last. This is a recession. We hope it is not 
extraordinarily deep. We hope we can find the menu to overcome it and 
the kinds of policies to try to make certain we move from this position 
to a position of economic strength and economic growth, once again.
  But I went to a nursing home in North Dakota because North Dakota's 
oldest citizen was there. She had a birthday. She is a 110-year-old 
woman; very lucid, very conversational. We talked about the Great 
Depression, as a matter of fact. We talked about the tough times in her 
life. She was born in 1898. By the way, her niece was there at the 
nursing home who had put on a birthday party for her in August. Her 
niece is 103 years old and her son, who is still farming, is 80 years 
old.
  I had a chance to talk to them all about what life was like from 1898 
to 2008. One of the significant things she remembered was the 
difficulty of the Great Depression in the 1930s, when it was hard to 
find jobs and people had soup lines in the major cities and people were 
struggling to try to make ends meet.
  Well, I think a lot of folks from the 1930s forward felt we would 
never again see these days because we put in place economic stabilizers 
and we put in place provisions in law that prohibited the kind of 
activities in the roaring 1920s that led us to the 1930s and the 
excess, the unbelievable debt, the greed that resulted in the economic 
collapse of the 1930s. So we put in place things such as the Glass-
Steagall Act and other provisions that prevented banks from being 
engaged in real estate and securities and things that were inherently 
risky that caused major problems and collapse in the 1930s.
  It is easy to forget lessons. The Congress over the years, Presidents 
over the years, and certainly the financial services industry moved 
ahead. I harken back to 1999, when something called the Financial 
Modernization Act was passed by the Congress. I said then it was a 
terrible thing to have done. It stripped apart the Glass-Steagall Act 
and essentially said you can create big bank holding companies, you can 
put firewalls in, you can merge real estate and securities with 
banking; it will all be fine. That was in 1999.
  In fact, here is what I said during that debate on the floor of the 
Senate: I say, to people who own banks, if you want to gamble, go to 
Las Vegas. If you want to trade in derivatives, God bless you. Do it 
with your own money. Don't do it through deposits that are guaranteed 
by the American people.
  When we passed the Financial Modernization Act--and I was one of 
eight Senators to vote no, I said this during debate: The bill will, in 
my judgment, raise the likelihood of future massive taxpayer bailouts. 
It will fuel the consolidation and mergers in the banking and financial 
services industry at the expense of customers, farm businesses, and 
others.
  I regret I was right. Massive taxpayer bailouts. It didn't take quite 
a decade. It took 9 years. Now we see the largest proposed bailouts in 
the history of our country.
  It was a time of self-regulation. Alan Greenspan, the head of the 
Federal Reserve Board, said the financial services industry will 
regulate itself. Well, not quite. Here is what Alan Greenspan said last 
month:

       I made a mistake in presuming that self interests of 
     organizations, specifically banks and others, were best 
     capable of protecting their own shareholders and their equity 
     in the firms.

  What an unbelievable mistake. Regulators that were willfully blind 
saying: You know what. We will pass the Financial Modernization Act 
allowing real estate, securities, and banking to come back together, 
forgetting the lessons of the Great Depression. Then, those who were 
hired to regulate decided self-regulation will work. We don't have to 
regulate. We will be willfully blind. So what happened? Well, the 
subprime loan scandal happened. The subprime loan scandal, of course, 
is at the root of this because it is most evident of the greed that 
exists in our economy in recent years. It resulted in bad mortgages 
spread all around this country and around the world. They were put into 
securities and sold up

[[Page S10543]]

through banks into hedge funds, into investment banks, and then all of 
a sudden it all turned sour.
  Here is what the subprime loan scandal is all about. The biggest 
mortgage bank in America, just to show you what they were saying: Do 
you have less than perfect credit?

       Do you have less than perfect credit? Do you have late 
     mortgage payments? If you have been denied by other lenders, 
     well, call us.

  It is a new business model, apparently.

       Are you a bad credit risk? Call us.

  Countrywide said that. The CEO of Countrywide was given the Horatio 
Alger award--until it all collapsed.
  Millennium Mortgage said:

       Twelve months, no mortgage payments. That's right, we'll 
     give you the money to make your first 12 payments if you call 
     us in the next 7 days. We pay it for you. Our loan program 
     will reduce your current monthly payment by 50 percent and 
     allow you no payments for the first 12 months.

  Zoom Credit, another mortgage company, said this:

       Credit approval is just seconds away. Get on the fast track 
     at Zoom Credit. At the speed of light, Zoom Credit will 
     preapprove you for a car loan, a home loan, or a credit card. 
     Even if your credit is in the tank, Zoom Credit is like money 
     in the bank. Zoom Credit specializes in credit repair and 
     debt consolidation, too. Bankruptcy, slow credit, no credit--
     who cares?

  That is the bottomless pit of greed that resulted in massive numbers 
of mortgages being put out there in this country. Then the brokers were 
making an enormous amount of money. The mortgage bankers were making 
money and business fees, and then they securitized it, like they put 
sawdust in sausage in the old days--good loans and bad loans. They 
wrapped them into securities and chopped them up and sold them 
upstream. By the way, what they did, when they locked people into that 
kind of credit, those loans, they put in resets of higher interest 
rates in 3 years, where they would have known the homeowner wasn't 
going to be able to pay the monthly mortgage, and they put in 
prepayment penalties so they could not pay it off if they wanted to. 
That is how they made these attractive investments with high rates of 
return.
  So the subprime loan scandal made everybody rich, like hogs in a 
trough grunting and shoving and making lots of money. Then one day it 
collapsed like a house of cards. The hedge funds that were investing in 
these--the credit default swaps that surrounded them with massive 
amounts of leverage, it all collapsed. When you create a house of 
cards, it is destined to collapse.
  I mentioned hedge funds. Some of you may have seen the hearing held 
in the House a few days ago. The highest income earner in the hedge 
fund industry last year earned $3.7 billion.
  So we create this crisis, get rid of the protections that existed 
from the Great Depression, abolish Glass-Steagall, and create a 
Financial Modernization Act, and say everything will be great. Then the 
regulators turn into willfully blind public servants, and the Chairman 
of the Federal Reserve says let them regulate themselves, and it all 
turns sour and the house of cards collapses.
  What is happening now is, the Treasury Secretary came to the Congress 
and said: We face very serious problems. I must have $700 billion in 3 
days and, if not, I believe there is going to be a financial 
catastrophe of sorts. So the Congress didn't do it in 3 days, or with a 
three-page bill, as the Treasury Secretary suggested. But the Congress 
passed a $700 billion bailout proposal. The Treasury Secretary said he 
wanted to do that because he wanted to purchase toxic assets from the 
balance sheets of the firms that invested in all of this. So he got the 
$700 billion. Then he said: I have changed my mind. That is not what I 
am going to do with the $700 billion. I want to purchase capital from 
banks to extend their credit or lending opportunities because the 
credit markets are frozen. He took $125 billion of the $700 billion and 
gave it to nine banks, some of whom didn't want it. But he gave it to 
them with no strings attached, no requirement that they expand lending 
or not use it to pay substantial bonuses. We have seen examples of 
bonuses, with $33 billion in bonuses on Wall Street in 1 year. So no-
strings-attached money was given to nine banks with no requirement to 
expand lending, no requirement to cut back on dividends, and no 
requirement that they not provide hefty bonuses.
  So the question is, is that going to inspire confidence out there 
someplace? Now we discover there has been no expansion of credit as a 
result of $125 billion of taxpayer money being put into those nine 
banks because it was no strings attached.
  So the next piece that occurs is unemployment. We hear constantly--
nearly 24 hours a day--about the financial sector. I agree the 
financial sector is unbelievably important to an economy such as ours, 
no question about that. How about the manufacturing sector, the working 
folks? Is that important?
  About a week ago there was almost an apoplectic seizure over the 
notion that consumption was down. Consumers weren't consuming. It is 
not a surprise when there are more people out of work and people have 
less money that they are going to consume less. Does it concern anybody 
out there as they listen to Mr. Paulson say the $700 billion that 
Congress gave him is destined only to be used for the financial 
industry? Does it concern anybody out there that the consumers losing 
their jobs are not going to be able to consume? That is part of this 
economy as well.
  Here is what we see on unemployment. The U.S. employment ranks have 
shrunk by 1.2 million in the first 10 months of this year--more than 
half of those jobs lost in the past 3 months alone. Last month, 240,000 
jobs gone. About 800,000 workers exhausted their extended unemployment 
benefits, and more than 350,000 will exhaust theirs in November and 
December.
  This chart shows what is happening in the industry in 2008. 
Manufacturing, down nearly a half million jobs. Construction, nearly 
400,000 jobs. Business services, 361,000 jobs gone, vanished. These are 
hundreds of thousands. Behind every one is somebody coming home at 
night to his or her family and saying: Honey, I have lost my job. I 
don't know why. I did a good job. I worked there for 10 years, but I 
was told the job doesn't exist anymore.
  This is about heartache by a lot of families. We experienced this 
before. Will Rogers, one of the interesting commentators on American 
life in the Great Depression, said:

       The unemployed here ain't eating regular, but we'll get 
     around to them as soon as everybody else gets fixed up OK.

  I wanted to visit a moment about these issues and ask the question, 
is there going to be a laser-like focus on working people just as there 
has been on the financial services sector? There are a good many in the 
financial services sector that caused this wreck. They are the ones who 
steered this country into the ditch with all kinds of financial 
engineering and exotic new products that turned out to create a house 
of cards.
  It seems to me that one of the things we ought to look at is creating 
protection with respect to these new exotic financial products that 
turned out to be enormously risky and dangerous to our economy. Some 
have talked about creating a financial products safety commission. We 
have a Consumer Product Safety Commission to worry about unsafe 
products. That turned out to have been a commission without much teeth 
because of the person who currently runs it. Perhaps we can have a 
financial products safety commission that would take a look at 
derivatives, credit default swaps, and the kind of sophisticated 
engineering going on on Wall Street which might produce a lot of money 
for some in the short term but pose a great deal of danger for this 
economy in the intermediate and long term. That all makes a lot of 
sense.
  I just described the Treasury Secretary talking about the $700 
billion he has now been provided, and that it is going to go to the 
financial service industry exclusively, he says. So it is not available 
to those who might be creating jobs out there or trying to avoid losing 
jobs. At the same time, the Treasury Secretary is saying: I have this 
pot of money, and we are going to use it to try to unfreeze the credit 
markets. The Treasury Department is saying they favor new bank mergers, 
which is exactly the last thing this country needs. We already have big 
banks that are too big to fail, which means if they are set to fail, we 
have to rescue them. Now the Treasury Department says the solution is 
bigger banks; let's have more mergers.

  It is unbelievable to me that the Treasury Department would not have

[[Page S10544]]

learned a lesson. Instead, they are out there promoting more mergers. I 
guess those mergers will be promoted with the very money appropriated 
by the Congress.
  Mr. President, the action we have to take now, it seems to me, is to 
try to find ways to establish some confidence in this country. I have 
said often that I used to teach a bit of economics in college, briefly. 
I was able to overcome it. Economics is not a science; it is psychology 
pumped up with helium, and you can call yourself an economist, but 
nobody really knows.
  The economy in this country is not about dials, gauges, knobs, 
levers, and all of the things like investment tax credit, depreciation, 
M-1B, and all those things economists study. It is about confidence. 
When people are confident in the future, they do things that manifest 
that confidence. They buy a car, buy a new suit of clothes, take a 
trip, or maybe buy a house. They do the things that you do when you are 
confident about your future and your job. That is called economic 
expansion. It is not sophisticated. It is about how people view the 
future.
  When they view the future with great alarm and less confidence, they 
do exactly the opposite. They defer the purchase or decide not to buy 
that suit of clothes or buy that car until next year, or we will not 
move into that other home or take that trip. That is the way an economy 
contracts. It is all about confidence.
  The question is, what can provide that confidence now? One of the 
concerns I had about the original bailout was that it did nothing to 
provide a set of regulations that stops the very behavior that caused 
all of this. You have to learn from it. It seems to me you have to 
provide the regulation and say to the American people that we will not 
let this happen ever again.
  So there are a number of things we have to do. Any recovery plan--and 
I think we need a recovery plan, and some call it a stimulus. I think 
we need a recovery plan that gives people a sense that we care about 
whether they have a job. For example, there is discussion about the 
automobile industry. I don't view this as three companies or one 
industry. I view it in the context of what do we do to deal with this 
economy, especially as it relates to jobs. We are told that industry 
relates to about 3 million to 5 million jobs. That is the connector all 
the way through the industry. If that is the case, what would it mean 
if 3 million to 5 million jobs are lost in the next few months, coming 
from America's manufacturing base? It seems to me it would be 
devastating to an economy already at great risk.
  So the question is, when will we also ask whether we will be willing 
to support, through a recovery program, the kinds of jobs that we need 
in this country and willing to support a world-class manufacturing base 
without seeing that base decimated as the economy gets weaker? I don't 
think you will long remain a world economic power unless you have 
world-class manufacturing capabilities.
  When we look at those sectors of the economy that have that 
capability and then decide, as some suggest, that it doesn't matter who 
loses their job or gets laid off, well, it sure does matter. It matters 
to me. If there is all this concern about the financial sector, what 
about the concern about the job-creating sector in the manufacturing 
area? I think we need to do a number of things. No. 1, I think we need 
a stimulus or a recovery plan that would make significant investments. 
I don't think you do that by just giving people checks. That is not the 
way forward, in my judgment. I think you do it by putting people to 
work on public works projects, by investing in roads, bridges, schools, 
and libraries--the infrastructure needs that have been so long deferred 
in this country.
  All of those projects are ready across this country to be done. It 
will put people back to work, and give people confidence about the 
future.
  Second, we ought to take action this week so that we say to the 
Treasury Secretary: If you are going to continue to move money out of 
that $700 billion pot, you have to put conditions on it. We don't want 
the American people to have to read that they are anteing up money so 
the Treasury Secretary can move it to Wall Street and Wall Street can 
then pay bonuses in December and January and they can use that in any 
way they want without conditions that require them to expand lending or 
any other conditions that ought to be attached to that money. We ought 
to insist those conditions exist.
  Third, we ought to require regulations be put in place as soon as 
possible to prevent the kind of things that we have seen happen that 
caused this financial wreck in the first place. Those regulations do 
not now exist. I know the former Fed Chairman Greenspan said he 
believed in self-regulation. He sure got a bellyful of self-regulation, 
and it completely collapsed this economy. We need to put in place a 
regulatory approach that gives people confidence that this kind of 
thing is not going to happen again.
  We also ought to say to the Treasury Department: Stop the nonsense 
about more bank mergers. It is the last thing we need. Nor should we 
want the public money to be used to accommodate more bank mergers. I 
know some have celebrated the news of bank mergers. Not me. I think it 
weakens this country, not strengthen it.
  I also believe we ought to create immediately an investigative task 
force of sorts that will begin to investigate and prosecute, if 
necessary, criminal behavior that was engaged in some of the practices 
that I described earlier.
  All of that, I think, is necessary. I believe if and when we begin 
doing those kinds of things, we will give, once again, the American 
people the confidence about the future that they must have in order for 
this economy to get back on track.
  There is, I know, a lot of discussion about what went wrong, and some 
might say: You know what, that is pretty irrelevant. It is not 
irrelevant at all. We are destined to repeat mistakes unless we 
understand the mistakes we have made. The route out of this 
circumstance where there is great economic peril to this country and 
its future, the route ahead, in my judgment, must be an active, 
aggressive set of actions by the Congress, working with this President 
and the new President, to understand the urgency of the things I have 
described.
  Mr. President, I yield the floor. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. INHOFE. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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