Richard Baker

Mr. BAKER

Mr. BAKER. I thank the gentleman for the gracious yielding of time and do appreciate his good leadership in this area, as well as that of the gentleman from New York (Mr. Ackerman) and the gentleman from Pennsylvania (Mr. Kanjorski), and the entire New York delegation, which is understandably focused on the issue of how we best respond as a Federal Government to a tragic event of another terrorist assault on this great Nation. I rise today not to be critical of the product but to say that we have moved far in our considerations. In the first response after 9/11, the first terrorism risk reinsurance proposal was only 3 years in duration, which was then extended for an additional 2-year term, without the inclusion of group life, NBCR, and some of the other modifications now suggested as being appropriate. I would point out that during that 5- to 6-year period after 9/11, contracts were entered into, loans were made by financial institutions and construction proceeded, only to make the point that having an absolute lifelong guarantee by the Federal taxpayer with any risk associated with a terrorist attack is not necessarily inherently a standard of operation which this Congress should consider. Rather, as we go forward, as the chairman has indicated in the hearings of next year, we should strongly consider enabling companies to build up internal reserves specifically to addressing and responding to these types of horrific acts, without accounting consequence or tax liabilities, and enable them to build up appropriate reserves in their eye to meet the insured losses which they potentially could share. There are alternatives to the plan currently in place, and we should reengage and have discussions on all of those alternatives. Some might find my position on this matter unusual, but I would say in facing the losses that we struggle with and continue to struggle with in the Gulf States, Louisiana and Mississippi alike, post Katrina and Rita, I still don't believe we can ask the taxpayers of this great country to pay off all of our losses in the event of a higher loss. We should build higher standards and adjust rates in accordance with the risks identified, and we should be smart in the enterprise, enabling market forces to function. The same should be said with terrorism risk. We should do all we can before we open taxpayers' checkbooks and write those big checks out when market function should be the first and appropriate response to any loss in the insurance world. So I stand in defense of the product, and I believe the 7-year term is more than adequate and echo the comments of my chairman on capital markets. We need to be careful before we move, and we certainly need to understand before we act.

Mr. BAKER

Mr. BAKER. I thank the gentleman for his courtesy. I shall try to be brief. I had hoped at the outset the bill would present a uniform national standard so all those engaged in this practice would have legal certainty as to the behavior that complies with the law, no matter where one might extend credit. Unfortunately, that is not the case in the underlying bill. I had hoped more clarity in the provisions of enforceability. I am troubled by some of the unclear language, the way in which some descriptive phrases have been used, as in, for example, the anti- steering provision, which states that loan products which have predatory characteristics, one cannot be sure what constitutes a predatory characteristic. Third, in contract resolution, we had hoped that we would at least avail ourselves of mandatory arbitration, which is a common business practice to resolve differences without the court being involved. Unfortunately, the bill in its current form prohibits mandatory arbitration, which leads us then to the gentleman's very well-thought-out amendment relative to the safe harbor provision. At least we should have the statement that if you engage in lending practices of a certain type, that there will be legal certainty you will not be sued at some future point for engaging in the honorable profession of extending credit to people trying to buy homes. On that point, let me quickly add that 95 percent or more of the people engaged in this practice are honorable people, doing a public service, extending credit to people who pay their obligations on time. It is a mischaracterization on this floor to represent that all people engaged in the business of extending credit for this honorable purpose are up to no good. In fact, when foreclosures occur, it actually costs the industry business. This is not a helpful environment. We would be legislating with certainty, and the bill in the underlying form does not provide that. The gentleman's amendment is excellent, well-constructed. I hope the House will favorably consider it.

Mr. BAKER

Mr. BAKER. Mr. Chairman, I wish to make clear that my interest in this matter is based on my representation of a portion of coastal Louisiana, so I get the problem. And we are struggling, even today, 2 years after Katrina, in trying to restore our State to what it once used to be. So I do not come to the floor in opposition to this matter in a cavalier manner. The statement that this bill is intended to keep the American taxpayers from being responsible financially for future natural disasters is in direct contravention with the effect of the bill, if it ever does become law. Let's start with the basics. People didn't like the fact that some Louisianans built at the water's edge. How can we be more responsible and elevate structures and build them to a certain code? I support Mr. Roskam's amendment, which provides that the Secretary of the Treasury, before making such a loan, shall certify that the recipient entity in question has such safe and sound building codes. Sounds logical to most taxpayers, I would think. The pending amendment simply says that the recipient entity getting the benefit of the Treasury loan shall have its own money at risk, and shall have suffered some monetary loss. One-in-100 event. Some have suggested this is just a number pulled out of the air. It is a typical actuarial number of risk used by the insurance industry in rating the likelihood of recovery of loss in policies nationwide. It's not something that one can say was simply grabbed out of the air. The risk-based capital provisions in the manager's amendment are completely obliterated for the first 5 years for companies now in existence in the program who would qualify for such loans. And in the event a loan would be made, there's a specific prohibition that the full faith and credit of the State getting the benefit of the credit would not be placed on that note. Translation: they don't have to pay this back. Now, the bigger point is that when you look at the applicability of where NATCAT, national catastrophe funds, would likely be made operational, Florida, yes, California, maybe, and ladies and gentlemen of the Congress, not anywhere else. Our insurance commissioner in our State has carefully evaluated the advantages and possibility of a NATCAT structure being utilized in Louisiana. It will not work. The applicability of this program will be for a narrow, narrow slice of the insurance market at risk on coastal Louisiana. There are much better ways to do this. But do not support this measure on the assumption that the American taxpayer will not be put at risk. In fact, if you really dig into the bill, you find a little provision that says commercial residential may be covered if the Secretary of the Treasury determines that the benefits are appropriate, without any conditions as to the requirement, style, nature or manner of repayment. We're going to be taking care of Hilton and their golf courses. Really, really take a careful look at this. I am troubled to be opposed to a bill that could potentially be beneficial to my own State and my own constituents. But I have arrived at the conclusion that this is not the right way to perform this task. And not enough careful thought from varied interests has been taken into consideration in this matter. I urge you, please adopt the Roskam amendment. I yield back the balance of my time.

Mr. BAKER. Mr. Chairman, I move to strike the last word.

Mr. BAKER. My point here is in speaking, in asking the gentleman the question, is it is absolutely essential, no matter what the government program or service, did you know, that whoever is the beneficiary always makes some contribution to his own well-being or else the program will run amok. There will be no reason to exercise constraint. You are absolutely correct. Premiums charged will never be actuarially sound. The gentleman's amendment, which in my opinion is, by the way, insightful and articulate, has drafted a constructive amendment which I hope others will find beneficial.

Mr. BAKER. I thank the gentleman for yielding. Mr. Chairman, I just want to make sure I am understanding the effect of the gentleman's amendment properly. If I am a homeowner and I am paying a premium for my coverage and I have a loss, there generally is some sort of deductible, maybe $500 or $1,000, depends on what kind of policy I will have to buy. But I am going to have to put my premium money up, and then I am going to have to have a personal loss to get the benefit of the insurance coverage that I bought for my home. What you are suggesting with this amendment is that the States who are going to avail themselves of the advantage of the Treasury extended loan are going to have to have their own money in the game. They can't just call up and say, Mr. Secretary, send me a few billion dollars. I am kind of short right now. They are going to have to have their own State losses in their own insurance pool before they can get access to the United States Treasury extension of credit; is that correct?

Mr. BAKER. Mr. Chairman, I want to make clear my motivations here for the purposes of debate. I certainly am in support of the Roskam amendment, but with or without its adoption, even the underlying bill, without the manager's amendment, is problematic. However, the manager's amendment presents an additional level of concern above those raised at the committee consideration. Insurance is in the business of pricing risk, and I can honestly say as a Louisianan we are really adjusting in a significant way to the new risk now identified for our exposure along our coastal area. Our legislature has responded with the adoption of a building code that really is leading the class in the United States, and to suggest that free markets should not price the risk and provide insurance where they know they will lose money is not a policy that makes a great deal of sense. Hence, the underlying bill will provide a mechanism for the United States Treasury to provide a security backstop to the consortium that now is issuing insurance to Florida residents at a below-market rate. I can recall in great detail the criticisms by many in this House by those of us in Louisiana who are the beneficiaries of a flood insurance program that provides coverage at a governmentally subsidized rate. For the record, I'm for raising those premiums on Louisiana citizens to get that program in actuarial soundness because I know without that the program is eventually doomed. The underlying manager's amendment, although requiring risk-based capital, goes to great steps to avert the requirement, first by exempting companies who now exist from the consortium for the next 5 years. Secondly, there is no full faith and credit of the beneficiary State on the loan that's made by the United States taxpayer and virtually no guarantee of repayment. Let's call this what it is. It is a way to provide stability in the Florida insurance market by accessing taxpayer money without guarantees of repayment. What can we do to improve this? Well, the Roskam amendment now pending is at least the most meager step one should take who is concerned about proprietary action in the insurance world. It does not say the Treasury Secretary will establish the building codes. It merely says the Treasury will examine whether there are even codes in place that are reasonable for the risks that are presented to the occupants of low-lying coastal areas before you extend taxpayer assistance. It's sort of like making sure that you've taken appropriate action to protect your family and that there's not a likelihood of probable loss, and then you're going to sell insurance on the assumption that the risk is low. In this case, rebuilding is taking place in low-lying areas at a rapid pace, and there is an absolute certainty there will be a repeat of significant storms and unquestioned amounts of loss. At least we should say that those who are building in exposures of great risk should exercise the highest level of construction standards before having access to taxpayer money to pay off the loss. Think about your constituents. How many times are we going to ask them to pay for the decisions of others to build in low-lying coastal areas when the coastal area residents themselves are not paying actuarial rates for coverage they are provided. I wish I could say it more clearly, but this is not a balanced approach; and certainly without the Roskam amendment we are opening this Congress and the American taxpayer to enormous financial risk without taking the first meager steps for rational self-protection. I urge the adoption of the Roskam amendment. Mr. Chairman, I yield back my time.

Mr. BAKER. Mr. Chairman, I move to strike the last word.

Mr. BAKER

Mr. BAKER. I thank the gentleman for his courtesy in yielding time. And I certainly want to express appreciation to my chairman of the subcommittee for her good work and her bipartisan work in this and many other subjects, as well as extending our best wishes to Chairman Oberstar and his speedy recovery. I am particularly pleased to have the opportunity to speak on this matter as a Member from Louisiana. In fact, it reminds me of a circumstance where a fellow went to the lumberyard to buy some 2 by 4s, and when the vendor at the lumberyard asked, How long do you need them? The fellow said, Well, I'm going to need them for a long time, I'm building a house. That's the way we feel about the WRDA bill, we've been wanting this for a very, very long time. There are many Members whose handiwork is evident in this bill preceding me, many members of our delegation, but I certainly want to acknowledge the work of Mr. Boustany from southwest Louisiana who has been so adversely impacted by the storm many have forgotten called Rita. He has worked mightily to make sure his constituents' needs are met. I wish to put a different face on the adoption of this bill than perhaps others have characterized. There will be many in the aftermath to say, Well, if you throw pork in front of a Congressman, you know what's going to happen. And that's unfortunate. In the case of Louisiana, this is not a matter of political convenience. Many people who will benefit from the $7 billion or so that is in this bill would never be able to vote for me anyway. The bill provides for construction of 16 different hurricane and coastal reclamation projects which have literally been vetted for over decades. So these have been subject to public discussion, local governments, State government, Corps of Engineers examination, and we have been ready to go for many, many years. This is not about a matter of political convenience or economic development. This is really about preservation of a culture in our country that is so vital in our oil and gas and natural resources development. From the Rockies to the Appalachians, every drop of water runs through the Mississippi system and runs right through the Bayou of Louisiana out into the open waters of the gulf. In order to protect people from the ravages of the river's annual flooding, the Corps constructed enormous levees which throw all that sediment now out into the deep waters of the gulf. The result of man's own engineering is that we are now subject to the ravages of coastal destruction, particularly in the heights of the hurricane season. One storm does more damage in a few hours than a decade long of natural forces. We are at our rope's end. Some estimate we have less than 10 years to act. The bill before us, although merely an authorization, will make available to us a wide scope of projects which will take decades to complete. But I, for one, and I am sure other members of the Louisiana delegation will state to this Congress, we are deeply indebted to this Congress for taking this action. And as to the disagreement with the President, I have had many disagreements with my President. I have had disagreements with other Presidents. That is nothing new for us. This is just a difference of opinion. I am sure we will all have differences of opinion as we move forward through the legislative process. I am glad that in this instance we have found a way to act from committee to floor to the United States Senate in a bipartisan manner and produce a product that is beneficial to the entire country. I hope you will join with me in overriding this veto and sending this important measure on to the Corps of Engineers and to the States for implementation as soon as is practical.

Mr. BAKER

Mr. BAKER. I thank the gentleman for yielding time and certainly want to express appreciation to Chairwoman Norton, as well as Chairman Oberstar, for their continuing attention, courtesy and problem-solving for those of us along coastal States suffering yet from the aftermath of storms Katrina and Rita. Particularly, I want to speak to the great work of Congressman Boustany representing his community. As he expressed here this afternoon, the second storm of the season which followed Katrina, Hurricane Rita, was just as devastating to his community, as was Katrina to coastal portions of eastern Louisiana. He has been the singular outspoken voice for the victims of that disaster in seeking relief and remedies that are appropriate. Madam Speaker, contained in this resolution before us today is a unique resolution, as the Stafford Act never contemplated disasters of the magnitude and scope that affected our State. The duration was unexpected, as well as the intensity of the damage. A few would have thought an inconvenience of a few days for a public facility would be cause for reimbursement from the Stafford Act. But in this case the damage went on not just for days and not just for weeks but literally for months. And income that was planned for many of these facilities was lost, as well as the operational expense to engage in the relief activities. As well, unfortunately, in the damage that occurred to the facilities as a result of this unusual and prolonged use. For example, the Lamar Dixon Center on the southern edge of the City of Baton Rouge acted as the staging point for many law enforcement search and rescue efforts which went on for many days. As a result of the sheriff, police, municipal police and others simply engaging in this activity without seeking preclearance, not having a contract with FEMA in order to save people, Lamar Dixon similarly engaged in the care and feeding of literally thousands of those engaged in daily rescue activities. We were surprised to learn that the Stafford Act provisions would not allow for the reimbursement of these highly appropriate and highly valuable services rendered during the height of the storm. Today, with the adoption of this bill, we cure these deficiencies. And although I hope such need would never arise in any other community in our country, if it does, these changes are meaningful not only to the people who engage in the service but to the communities who likewise support and help in this most dire of recovery circumstances. I join with my colleague, Mr. Boustany, to support this legislation.

Mr. BAKER

Mr. BAKER. I thank the ranking member for yielding his time. I certainly appreciate the good work he has done with Ranking Member Mica on this important rail safety bill. Of course, Chairwoman Brown and Chairman Oberstar have been exemplary in working in a bipartisan way to bring this product to the House floor today, and I certainly hope all Members will find a way to support this legislation. Mr. Chairman, I rise today to speak to only one element of the bill that I had particular interest in, and that is with regard to a new reporting requirement for the rails to disclose on an annual basis to the Surface Transportation Board the amount of money spent out of their capital for improvements to rail, track, locomotives and other related maintenance which will give us, I believe for the first time, critical metrics to analyze what they are doing to preserve the safety of our rail system. Of course, safety is uppermost in our mind today, but our rail system is also the heart of our economy. The ability to move goods and services and people across this great Nation over our rail system is absolutely essential going forward. We must judge based on their actual expenditure whether the rails themselves are engaging in appropriate conduct in spending the necessary funds to make this system safe and sound. I have great concerns that in periods of record profitability, Wall Street analysts have identified these systems as being very undervalued. In fact, there are indications that some hedge fund managers are acquiring large blocks of railroad stock and the consequential reaction has been by the rails to repurchase their own stock and perhaps divert needed resources from necessary and very important infrastructure improvements. I commend the committee leadership for the inclusion of this important provision, as I think going forward it will enable this Congress to take actions that are necessary and proper to preserve this important system.

Mr. BAKER

Mr. BAKER. Well, we have a dispute.

Mr. BAKER. If I may reclaim, I would only make the observation that both flood and wind have access to a line of credit. The line of credit is not conditioned for flood only. Therefore, the taxpayer does have exposure to the limit authorized by statute, which is $20.8 billion.

Mr. BAKER. I yield to the gentleman from Massachusetts.

Mr. BAKER. Mr. Chairman, I thank the gentlewoman for yielding and wish to quickly say as a Louisianan, obviously I am a defender of the flood insurance program. I want to commend Chairman Frank for his willingness to work with us and all affected parties in crafting a flood insurance program reform which I thought was a very good product. It was only with the addition of the wind exposure element to the underlying bill that I began to have any concerns about the legislative direction of the chairman's recommendation. Currently, the notional value of flood insurance in effect, just flood, not to confuse with wind, today is $1,092,932,778,000 as of a June 30 FEMA report. That's the potential exposure of the flood insurance program to claims pursuant to contract. We know that the current flood program with the actuarial system in place cannot repay the debt it currently has. To put into scale what the additional risk brought onto the U.S. Government books will look like, the industry estimate from New England to the gulf coast only is an additional $19 trillion of risk exposure. The limits in the bill that have been described is it's only available where you can buy flood insurance. We sell flood insurance in New Mexico. We sell it in Boulder, Colorado, and we sell flood insurance in Guam, and the entry to the wind program is to buy the flood policy, so that we will, in fact, nationalize wind insurance coverage via the flood program, opening the U.S. taxpayer to a risk and a payment for which there is not an adequate stream. Some say, well, the bill requires actuarial rating. The flood insurance program has actuarial rating, but it's not industry actuarial. It only looks to historical claims data. There's no risk modeling to look forward. Those who have laid claim to the fact that weather cycles are more severe, damages are likely to escalate, that is not data which is incorporated into the flood insurance premium structure. So there will be problems with the implementation of the program as currently drafted. Am I suggesting we do nothing? Absolutely not. Do I think that the current system is adequately taking care of the risk of those who live along coastal areas? Of course it isn't. I have legislation which I am planning to introduce and hoped to have had introduced before consideration of this bill on the floor which will enable the issuance of a privately issued policy, multi-peril; but it would be exempt from State price controls.

Mr. BAKER

Mr. BAKER. Mr. Chairman, I yield 3 minutes to the gentleman from Wisconsin (Mr. Ryan).

Mr. BAKER. I thank the gentleman for yielding and am appreciative of this time. I wish to express my appreciation to committee leadership for attempting to address a most difficult subject matter. I have had some interest in this matter for a period of years, and understand the difficulty of crafting a remedy to which all Members may agree. However, I have been troubled by the characterization that there would be Members, if voting ``no'' on this measure, would be ideologues voting for some unusual reason rather than in the Nation's best interests or in the Nation's recovery effort in the great city of New York. It would be of note, I think, to the body to recall that it was November 29, 2001, at 4:37 p.m., in this august body when the House had a recorded vote 2 months after 9/11 on the adoption of the very first Terrorism Risk Insurance Program. You will find in the Record, which I have a copy of should it be needed for review, Mr. Ackerman, Mr. Clyburn, Mr. Crowley, Mr. Hinchey, Mr. Hoyer, Mr. Israel, Mr. Kanjorski, Mrs. Maloney, Mrs. McCarthy, Ms. Pelosi, Mr. Serrano, Ms. Slaughter, Mr. Weiner, Ms. Waters, Ms. Velazquez, Mr. Meeks, Mr. McNulty, Mr. Engel, Mr. Frank all found it appropriate and the right discharge of duty to vote ``no'' on the terrorism reinsurance proposal adopted two months after 9/11. Now, I have no criticism to be made of those Members for taking that action. They did what they thought best for their constituents in that window of responsibility. I would merely point out that in the bills that we have passed on two occasions in this House under Republican leadership, we looked upon this responsibility as a loan to the industry to help them at a time of serious liquidity crisis to be able to withstand this assault, meet their financial obligations to the insureds, and move forward. But at such time as it was determined the crisis had passed, there was a mandatory obligation to repay the taxpayers of the United States the generosity that was extended in the form of a bridge loan and to give back to the taxpayers their generosity which enabled the industry to survive. This bill does not require mandatory repayment of assistance. It is, in fact, a gift to the industry in a time of crisis, which is appropriate. But in the period of time in which the industry returns to profitability, is it wrong to say, ``Taxpayers, here's your money back. You helped us in a crisis, now it's time for us to repay your generosity''? I think that is a pivotal cornerstone of whatever we do going forward in assisting sectors of our economy which have untoward experiences that we cannot predict, where there is serious economic dislocation. But it is not right to give away the taxpayers' money without accountability. For that reason alone, I suggest Members, who may choose to do so, could oppose this legislation and do so on a philosophical basis that is purely defensible. There are many other reasons why some may have concern. Now, I will be quick to acknowledge that I worked with the gentleman from New York in addressing one serious flaw, and I appreciate the gentleman's willingness to extend that courtesy and fix that one significant difficulty with a legislative proposal. I am appreciative of that, and I look forward to working with him as they go forward through this process. The bill today is flawed, and I would hope you would seriously consider a ``no'' vote.

Mr. BAKER

Mr. BAKER. Mr. Speaker, on behalf of the Port of New Orleans and the economic and business interests throughout the State of Louisiana that rely on the maritime trade and commerce through the Port, I am especially pleased today to commend the conferees on H.R. 1495, the Water Resources Development Act of 2007, WRDA, for their support of the navigation project to improve access to the Port's Napoleon Avenue Container Terminal. Section 1004(a)(7) of the WRDA conference report will allow the Army Corps of Engineers to dredge and maintain a channel leading to the Napoleon Avenue Container Terminal berthing area at a depth not to exceed the authorized channel depth of the Mississippi River Ship Channel. This will ensure that the transportation benefits of the authorized channel depth of the Mississippi River Ship Channel will continue to be realized by the adjacent Port terminal and the larger container and other oceangoing vessels that desire to use that facility. This small navigation enhancement project will create significant economic and business benefits for the Port, and aid in the continuing recovery of the greater New Orleans area. I thank Chairman Jim Oberstar and Ranking Member John Mica of the House Transportation and Infrastructure Committee for their support of this initiative in the vital WRDA legislation.

Mr. BAKER. Mr. Ranking Member, I am humbled by your comments. I thank you for that courtesy, and I am deeply appreciative. I have enjoyed very much the opportunity not only to work with you in this capacity but to work with our chairman, who has deep roots and ties to New Orleans, and the gracious gentlelady from Texas, the chairman of our subcommittee. Mr. Speaker, it has been a terrific team from which there has been a terrific product developed that all Members who have spoken this evening have made clear as to the scope of the projects, the need for the projects, the clarity of the process, which our ranking member insisted on and opening up to public scrutiny the projects which ultimately are contained in this report. I wish to make just one observation as a representative of Louisiana and make clear that the Governor, the congressional delegation and, most importantly, the people of Louisiana recognize what this legislation means to us tonight. It is not merely the elimination of an inconvenience or the restoration of some public service that we would like to have. This bill goes to the point of restoring our culture and our ability to live as people along the coast of the great State of Louisiana. For that, all of us are deeply grateful to the Members who have made this possible and to this Congress. There is one notable development I would like to memorialize in the discussion of the conference report tonight, and that is a problem which had been long-standing for many years with the representatives of the great State of Mississippi, particularly that of Senator Lott, to whom I would like to express deep appreciation. The gentleman has had for many years concerns about the salinity levels of the water off the gulf coast affecting the productivity of his own fisheries. Likewise, we in Louisiana had concerns about some of the proposed remedies which, in our view, would have had an adverse water quality effect on our own fisheries. In the course of the debate with the conferees, I was assigned the duty to work with the Senator and come to some resolution thereon, which will enable both States to seek the benefit they are entitled to. I am pleased that with the coastal area impact program, we have identified a source of funding, we have agreed to the terms of construction for the Violet Canal project, and I tonight want to say tonight, on behalf of the congressional delegation and for those who follow us here, that it is our intent to honor and abide by the terms and agreement that Senator Lott negotiated with us and in good faith ultimately seek closure of this most difficult project, which I understand has led to difficulty and the consideration of prior WRDA legislative efforts. It is important, I believe, for us to recognize the contributions made by that delegation and their willingness to assist us in Louisiana in coming to final agreement. With that, I am just pleased to be a small part this process and to have enabled the ability to participate in a small way getting a vital piece of legislation virtually for every congressional district in this country.

Mr. BAKER

Mr. BAKER. Mr. Chairman, I move to strike the last word. Mr. Chairman, reluctantly, I must speak with concern about the gentleman's underlying proposed amendment. There are more than sufficient reasons for me to express these concerns in my opinion. Going back briefly into the record of the difficulties of Fannie Mae and Freddie Mac of their derivatives portfolio, I bring to the House's attention this OFHEO special report issued in 2003 in which they determined that senior management and the board were quite aware that the skills and systems in corporate accounting were at the least challenged, and that the derivatives group lacked sufficient knowledge and training to administer the risk. Nonetheless, they chose to move forward with an approach to FAS 133 hedging that was complicated requiring huge volume of monthly accounting events as hedges were designated, and chose to structure some very complicated securitization transactions without proper guidance. In looking at the annual shareholder report, under their derivatives disclosure, they state: ``We principally used the following types of derivatives: Euro Interbank offered rate interest rate swaps; LIBOR based options including swaptions; LIBOR exchange traded futures and foreign currency swaps. If we go further and look to the counterparties with which the enterprises now must engage hedging strategies, we find that Deutsche Bank holds $38.952 billion of Freddie's; BNP Paribas, $28.156 billion; Barclays, $22 billion; Dresdner Bank, $4 billion; and please excuse me because my German is poor, Kreditanstalt fur Wiederaufbau holds $2.5 billion. Now in understanding why we should have concern about the restraint of a regulator's authority to analyze the portfolio, the underlying safety and soundness conditions, and the elements of world economy that surround their hedging strategies, one only has to remember for a short moment the days surrounding LTCM when there was a Russian currency liquidity crisis, and people who had no expectation across several different currency transactions and swaps, were called upon to liquidate their positions and make cash available and were unable to do so. It led the Federal Reserve to meet an emergency session in the New York Fed office, and they were surprised to see who was sitting around the table holding these positions, including many commercial banks of whom they had no knowledge were participants. Let me say it this way, if you don't care about any of that, of our insured depository institutions in this country, almost 8,000, of the tier one capital requirement, that is money you have to have by law in your sock drawer. That says if it rains, you have money to mop up the floor. Almost 50 percent of them meet their tier one capital requirement by holding GSE securities. My goodness, if there were to be the slightest of stumble, it goes to the core of our financial depository institution's safety and soundness. There are foreign central banks invested in Fannies and Freddies, and if you don't care about that, at least think about your pensioners. There are billions of dollars of Fannies and Freddies spread across this economic fabric woven together in an extrinsically complicated matter, and we are going to tell this regulator you can only look through the keyhole, you can't look at the room? It makes no sense. Now I know I will probably lose on this position. The home builders are a powerful enterprise. But for the record, I want to be loud and clear, this is a mistake. Mr. Chairman, I would be happy to yield to the gentleman from Massachusetts.

Mr. BAKER. Mr. Chairman, will the gentleman yield?

Mr. BAKER. I certainly appreciate the chairman's comments and his recognition that the posture of the bill, if this amendment is adopted, may need further examination. I look forward to working with him on it. On a broader matter, let me say as to the construction of the bill generally, the chairman has done an extraordinary job of giving the regulator the powers and tools that he needs, save in this one area. I hope in moving forward, we can construct a box that makes appropriate regulatory sense. The Treasury has expressed these concerns to me tonight, and I am expressing those views on their behalf as well.

Mr. BAKER

Mr. BAKER. Mr. Chairman, I move to strike the last word. Mr. Chairman, I wish to compliment the gentleman from New Jersey on his intended goal and merely point out the defects that exist in the current system. I want to make clear, I am a strong advocate of affordable housing and have gone to some trouble to examine the current portfolio of both Freddie Mac and Fannie Mae. The one thing I think is consistent and hopefully will not be objected to is to observe that poor people generally don't have money. And so when you go to a closing of a house, regardless of the price, that's not an issue, you are going to try to get as much of that appraised value financed as possible, maybe come up with the closing costs. In a lot of cases, people are actually financing the closing costs too. So it would make sense, if you looked at an analysis of the GSE's portfolio mortgage holdings and determined the loan-to-value ratio, meaning, if it was a $100,000 house and you were borrowing at least $95,000, or up, 96, 97, 98, 99, maybe 101 because you needed help with the closing costs, that there ought to be a disproportionate amount of those loans in their portfolio as compared to, say, a commercial bank. When you look at Fannie and Freddie's portfolio holdings, you find that Freddie has 1.5 percent of their mortgages in a 95 percent plus range. You find Fannie Mae slightly better at 2.8 95 percent plus. So then you back off and say, my goodness, if only 1 or 2 percent is in those very high-leveraged loans, where are they making their money? And where you find the bulk of their loans is in two wage earners per household who are buying a second, third home because they have 60 to 70 LTV, meaning they are putting down a bunch of money. So even if you are a person buying a modest home of $100,000, that means that you are putting down $30,000 or $40,000 at time of closing. That is not my definition of ``poor person.'' If we really want to get focused, and this is a sincere observation about these corporations, they are driven to make a profit my their shareholders. Nothing wrong with that. But they have been given special privilege by this Congress to accomplish a particular mission, and that is to help low-income first-time home buyers. That is why I am not as affronted by the chairman's concept as some may be. This is a specific requirement to spend $500 million on affordable housing. But to suggest that the gentleman is trying to somehow constrain the target of helping low-income people because they do such a wonderful job now, I have to suggest to you that that is really off the mark. They do a very poor job of helping first-time home buyers and low- income individuals get access to homeownership. They are in the business to make money. They do it quite well. They are the only corporation of their scale that returns double digit rates of return year after year, whether there is a housing crisis or a finance crisis, it's the facts. I would love to work with the other side in focusing these huge corporations into the mission that Congress has described for them to perform. Mr. Chairman, I would be happy to yield to the gentleman from New Jersey.

Mr. BAKER. Will the gentleman yield?

Mr. BAKER. Mr. Chairman, I appreciate your courtesy. I will be very brief. I know your time is limited. I just wish to express to you on behalf of the Louisiana delegation, our appreciation to you, your constituents, the city of Houston, and Texas, for your outstanding generosity and assistance. We hope to continue those feelings by having you leave our money alone.