Richard Baker

Mr. BAKER

Mr. BAKER. Certainly.

Mr. BAKER. Madam Chair, I share the comments of our Chairman. I know of no opposition on our side, and I accordingly yield back the balance of our time.

Mr. BAKER. Madam Chairman, I offer an amendment.

Mr. BAKER. Madam Chairman, at this time I would yield 3 minutes to the cosponsor of the amendment, Mr. King.

Mr. BAKER. May I inquire as to the time remaining.

Mr. BAKER. I claim the remaining time. I certainly respect the chairman's knowledge and views of these matters and appreciate that on 95 percent of the issues before the committee, we are generally in unanimity. On this particular point, I would like to bring the issue to that of the individual who is trying to rebuild their home in the difficult area of south Louisiana. Materials are short, workmen are hard to find. Do we really want to tell an individual trying to rebuild their personal home, you are going to have to meet a government wage rate in order to build this house or else you cannot build it? This is about government injecting itself into a free market process, all for no apparent reason that is clear to me. It will make the compliance of the rules for the rural and lower income communities much more difficult to achieve. Compliance with the Davis-Bacon provisions is a difficult and cumbersome task. And where we have low-income communities, where resources are greatly limited, we are now going to require additional regulatory burden and a higher wage rate that is artificial to further inhibit the ability of that community rebuild. We wouldn't contemplate having that set of requirements on the individual trying to rebuild their own home, but yet we are going to force that set of standards on communities across this Nation, even where States have no Davis-Bacon provisions at the State level at all. And that I think is the most troublesome aspect of the implementation of the proposal as constructed. Eighteen States have chosen not to require a Davis-Bacon implementation, and yet we here in the Congress by virtue of the State revolving infrastructure fund are going to require those States now to comply with these new standards. I hope Members will carefully consider the consequences of this amendment and vote for the Baker-King amendment.

Mr. BAKER. Madam Chairman, I demand a recorded vote.

Mr. BAKER. Madam Chair, I rise to claim the time in opposition, although I am not in opposition.

Mr. BAKER. Madam Chair, I reserve the balance of my time.

Mr. BAKER. Having no objection to the amendment, I yield back all time.

Mr. BAKER. Madam Chair, I rise to claim the time in opposition, although I am not in opposition and therefore ask for unanimous consent for that purpose.

Mr. BAKER. Madam Chairman, I reserve the balance of my time.

Mr. BAKER. I would be happy to yield the chairman 1 minute.

Mr. BAKER. Madam Chair, I have no further speakers. And having no objection, I yield back the balance of my time.

Mr. BAKER

Mr. BAKER. Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks on this legislation and to insert extraneous material thereon.

Mr. BAKER. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, I urge today that the House do pass H.R. 6325, introduced by the gentleman from New Jersey (Mr. Pallone). It is a relatively simple bill in purpose, to accommodate one single intention, and that is to correct an honest misinterpretation of the law governing the distribution of surcharges on the sales of a commemorative coin that honored America's great inventor, Thomas Edison. Legislation to authorize the coin was approved in 1998, and the coin issued subsequently in 2004. But owing to slightly contradictory information guiding recipients of the surcharges, the recipients did not understand requirements to raise matching funds from private sources, which meant that such funds must be entirely from nongovernmental sources. That misunderstanding now has been resolved, and I would like to introduce into the Record at this time a letter to that effect, and all agree that a short 6-month extension would then be sufficient to cure any pending problem. Mr. Speaker, it was a misunderstanding, clearly not at the fault of any one party, but I believe that this remedy being posed by Mr. Pallone in a bipartisan fashion will cure the defect that we currently face, and I would urge the House to consider the bill and immediately adopt the underlying text. Edison Memorial Tower Corporation, Edison, NJ, November 14, 2006. Chairman Michael Oxley, Committee on Financial Services, Washington, DC. Dear Chairman Oxley, The non-profit Edison Memorial Tower Corporation is requesting a 6-month extension to our deadline to raise $379,000 in private funds in order to secure a $379,000 matching grant from the United States Mint. These funds, available thanks to the sale of a Thomas Alva Edison Commemorative Coin, will greatly assist us with our efforts to restore Thomas Edison's Menlo Park laboratory site where many of his most important inventions were made. Our Board has made good progress in our fundraising efforts and we are confident that the additional 6 months will allow us the necessary time to raise the full required amount. We understand that if this 6-month extension is approved, this will be the only extension allowed for this grant. We therefore commit that we will not ask you to consider a further extension of time. Thank you for your consideration. Sincerely, Nancy L. Zerbe, Chairperson. Mr. Speaker, I reserve the balance of my time.

Mr. BAKER. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 6325) to provide a new effective date for the applicability of certain provisions of law to Public Law 105-331.

Mr. BAKER. Mr. Speaker, I have no further requests for time, and I yield back the balance of my time.

Mr. BAKER

Mr. BAKER. Mr. Speaker, I thank the gentleman for yielding, and wish to express appreciation to my friends on the other side for their work in this arena. It flows from the problems that erupted during the fall of 1998 when the then largest hedge fund in the world, LTCM, pursuant to a Russian currency crisis, found itself unable to meet its financial obligations. When the New York Fed arrived at the meeting location to determine how to best resolve this uncertainty, they were surprised to find the scope and complexity of the financial relationships that LTCM had with significant and large financial institutions, both U.S. and abroad. There was not in place at that time a mechanism where counter-party obligations could be unwound without wreaking havoc and some sort of domino effect, potentially bringing significant adverse financial consequences to large numbers of individuals who had no knowledge of their exposure to the LTCM instability. Further, at the time of LTCM's demise at the end of 1998, they had approximately $1.5 trillion in notional amounts of derivative positions held worldwide. And their leverage ratio exceeded 28 to 1. In other words, this was not a good thing. They were significantly larger in scope than any of the largest commercial banks. And although others enjoyed higher leverage ratios, few had the sophisticated relationships with counter parties that were engaged by LTCM. The provisions of the bill now suggested by the gentleman from North Carolina is the ability to close out what are called netting relationships to prevent the failure of one entity from causing a domino effect of more serious disruption, known as systemic risk. Absent the adoption of these provisions with the growth in size of hedge funds and in number of hedge funds, there is considerable market uncertainty as to how a bankruptcy proceeding would affect market liquidity. The unwinding of these obligations, and let me quickly add that it is in scope much larger than impact just in hedge funds; it does go to the broader financial marketplace, all of which have in common that these transactions are put in place through intermediaries such as stock brokers, smaller financial institutions, securities clearing agencies that often hedge their risk on transactions through securities collateral received pursuant to these obligations. As a result, this will provide a safe and secure mechanism to unwind complex financial relationships, minimizing market instability, providing market liquidity and ensuring that our economic system is not adversely impacted by the demise of a hedge fund. In essence, that is a good thing, and I commend the gentleman for his work product.

Mr. BAKER

Mr. BAKER. Mr. Speaker, I certainly want to start by acknowledging the focused work of our chairman who has worked diligently on many aspects of reform, and the bill now pending is one small piece of a larger puzzle which has been constructed by the committee in an effort to facilitate provision of insurance of all sorts, but particularly focusing on the needs of homeowners. And a word of special appreciation from those of us in Louisiana as a result of the debacles of Katrina and Rita. We are experiencing a similar circumstance to that of our colleagues in the State of Florida. The remedy posed under the pending bill is an important one. In one small area, it enables someone to have direct access to surplus lines policies which currently is not facilitated. Current rules require you to apply to at least three separate companies and be denied coverage before you can approach a surplus lines company to acquire the needed insurance. The proposed reform would enable certain qualifying purchasers of product, whether it be business owners or individuals, to have direct access. And in the case of the Katrina-Rita impact areas, this is of extreme importance in facilitating access to insurance which otherwise would not be made available. I also want to speak to those members of the committee who worked diligently on this subject matter. As the ranking member indicated, this has been a bipartisan effort, and certainly Mr. Moore and Ms. Wasserman Schultz on their side are to be commended for their contributions. Ms. Brown-Waite and Mr. Fitzpatrick and others on our side have worked diligently as well. I think the product we now have pending before the House is a very important step, but should be viewed only as that, a first step. There is much work yet to be done to facilitate regulatory commonsense oversight of the insurance industry, and hopefully provide for enhanced product development and competitiveness in markets where we find in many States people are better served where markets are open, products are available, and prices are competitive. I believe this surplus lines reform proposal will demonstrate that as an effective remedy to the problems we now face in a very expensive insurance market, and, in some cases, a market where a product is not available at all.

Mr. BAKER

Mr. BAKER. Mr. Speaker, I congratulate the chairman on his good work on what is truly an important piece of reform legislation in the world of finance. This has immeasurable impact on any number of businesses and individuals' financial interests. I certainly want to continue to compliment Mr. Fitzpatrick on his good work with H.R. 2990, a previously passed House bill, which in essence is incorporated into the version sent back to us from the Senate with the good additions provided by Senator Sarbanes. So this has been a bipartisan and bicameral effort which I think presents itself before the House today and also provides for exemplary reforms. Credit rating agencies are unique entities. Currently, there is no mechanism by which a corporation may become a credit rating agency. There is little oversight once one is designated; and if they fail to meet their fiduciary duties, there is not clear methodology by which one would be decommissioned. The underlying bill makes strategic and important changes with regard to these provisions establishing a registration process through the SEC. The additions which Mr. Sarbanes suggested be included in the legislation are important, providing additional accounting and financial screens through which a corporation must pass in order to achieve this designation. There is also another important reform not yet mentioned in the debate, and that goes to the previous practice of rating agencies engaging in unsolicited ratings. It is not a bad business model: You simply pick out the company you wish to charge, you rate them, and send them the bill for services later. It presents a corporation with a very difficult dilemma in that, under our securities law, if a corporation chooses to enter the public markets and issue debt, you must have two favorable ratings from credit rating agencies. For these reasons, this bill eliminates those unsolicited ratings, provides stability in the overall rating process, and I believe will serve our capital markets well in good fashion going forward. I again compliment Chairman Oxley and Mr. Fitzpatrick for their leadership and good work.

Mr. BAKER

Mr. BAKER. Mr. Chairman, the road to justice is a difficult journey. It is not a mere step, but rather a lengthy endeavor. The result of the endeavor is to seek out those who have committed wrongdoing and deliver punishment in accord with the offense. All that any may hope, is that through the travail, there will be reflection on the truth. The truth is determined by careful, objective analysis of the facts, as best they can be determined. Facts are what result from examination of the evidence. When evidence show that the accused was not in the state at the time when the offense occurred, there is sufficient reason to find the accused was not a participant in the offense. It is even more explicit that the accused did not participate in the offense when the person was not yet born. Yet, that does not insulate the unfortunate from accusation. Accusation is the understandable action from those affected by wrongdoing. Someone is at fault, and failing clear evidence to establish the responsible party, accusations flow until the evidence and the facts lead all to justice. All of us should find affront in unsubstantiated accusation. Here is where I discover reason for concern in the matter before us. The bill now pending, when enacted, will seek to serve justice. Notwithstanding the evidence, or the facts, for the next twenty five years, all those who follow in the scourged seven states will be branded with the racist label. This follows 25 years application of the previous penalty, which was assessed based on the facts and the evidence of the 1960's. In the case now pending, the decision to condemn will be built upon the evidence now 42 years buried in history. It is not evidence or facts discovered today. The actions of the grandfather will now determine the fate of the grandson. What is it that I ask? I have always found merit in the principle that where action is justified for one, it should be justified for all. Public policy should be applicable to all within jurisdiction of the government. Do we believe that discrimination ends at a county line? Is it really your view that justice is served in 43 other states, while bigotry only survives in a constrained geographic corridor? Where is the evidence? What are your facts? Why is it this legislation will mandate supervision of seven states, and not the whole of our Nation? Many have been incensed even by the thought of this discussion, because they mistakenly view this legislation as all that stands between them and their right to vote. The 15th Amendment to the Constitution apparently is of no consolation, although it ensures the right to vote to every American across the entire Nation. The bill now pending leaves 43 States on a different legislative landscape. There is much in history to regret. We should not forget, or fail to learn from the troubled past. But we must also think about the present. Careful, analytical thought must precede action. Action to condemn or punish should be taken only when the evidence establishes the facts. All should be presumed innocent until proved guilty beyond a reasonable doubt. This principle establishes our freedom from the actions of an otherwise tyrannical government. How do we come to this moment? Am I to believe that my grandchildren, not yet born, are condemned to a life of racial intolerance? How can this be? All reason is to be cast aside? And if, my colleagues, you believe this policy to be well advised and necessary, why is it then ill advised to make it applicable to your constituents? And failing that, would you not examine the evidence, determine the facts, before condemning my constituents? The pending amendment by the gentleman from Georgia, Mr. Norwood, would remedy most of my concern. Failure to adopt that amendment will leave those in Louisiana without an opportunity for fair deliberate consideration. Without the adoption of this provision, I cannot support the underlying bill. For those who demand justice, it is now time to demand justice for all.

Mr. BAKER

Mr. BAKER. I thank the gentlewoman for yielding time. Mr. Speaker, I rise today to express concern about where we are and where we have been with our current credit rating agency methodologies. Many have come to the well today to express concern that we will be sacrificing quality for the sake of quantity. Let us simply go back a few short months, a few short years, and think about the irate comments made on the floor of this House with the disclosures of WorldCom and Enron and Global Crossing; and you make your own list. Guess what, the keepers of the gate were on duty when all that happened. We can go back a little further to the tragic loss of taxpayer resources in the S&L crisis. Guess who was on duty. It is the structure that some stand before the House today to defend and decry that we are going to sacrifice quality. Well, gentlemen, if that is your definition of quality, we have had enough. It is time to make a change. What do we suggest? Just lightly opening the doors and let someone run down the hall and say, now I am an NSRSO, I am qualified? No, you have to be in business for 3 years. That is a pretty long internship to spend money and resources to establish you have the ability to issue credit ratings on which the market invests its confidence. Let us think one more step, Fannie Mae and Freddie Mac. Some may be surprised to know that after a multiyear, multibillion dollar restatement, Fannie Mae cannot issue financials that meet their auditing requirements for the public benefit. Today, they can't. Others may be surprised to learn that 43 percent of America's financial institutions have 100 percent of their tier one capital requirement invested in Fannies and Freddies. Now, some people rush to say, oh, no, it is not all Fannies and Freddies. Oh, great, it is Farm Credit System; that is even better. The point is, we have the financial security of our Nation and our financial system invested for the money in the sock drawer when things go bad, the tier one capital requirement, so if they hit a bump in the road, they can reach in the drawer and pull out a few bucks and pay off the loan. That money is tied up in Fannie and Freddie securities that this enterprise, S&P and Moody's, have said are great, they are fine, notwithstanding the fact that for 5 years corporate executives paid themselves $250 million in bonuses on financials where they cooked the books. Boy, we have got a great system; I am going to fight to the death over preserving this. Look at what it has done for America's taxpayers and American investors. Man, if there ever was a clear-cut case to make a change, why aren't we making the change? If you don't believe me, go to McGraw- Hill's Web page. Go to McGraw-Hill's Web page and look at the income from S&P, which is a subsidiary of McGraw-Hill. In 2005, their operating revenue was 2.4 billion; their operating profit was 1 billion. Now, friends, a 42.5 percent rate of return on your operating expense is a pretty hefty rate of return; it represents 68 percent of McGraw-Hill's entire operating profit. McGraw-Hill is only one of 34 companies to have increased its dividend payments for 33 consecutive years. Put it in perspective. In looking at the first quarter performance in 2005 versus the similar quarter in 2004, McGraw-Hill actually lost money in its educational activities. It had in its information and media arena, down 65 percent; but financial services, which is S&P, it was up $222,512,000. I think I figured out 222 million reasons why this bill is controversial. It is a fight about money. Let's get it right this time.

Mr. BAKER

Mr. BAKER. Mr. Chairman, I thank the gentleman for yielding and wish to compliment him for his leadership in this matter, as well as that of Mr. Fitzpatrick who has put many hours into this subject matter and, I think, has helped to produce legislation worthy of this House's consideration. I wish to enter into the Record the statement of administration policy issued July 12 of this year regarding the passage of H.R. 2990, the relevant portion being: ``This legislation would enable more credit rating agencies to qualify nationally under Securities and Exchange Commission regulation. The bill requires credit rating agencies to disclose their performance records, methodologies and any conflicts of interest. The administration looks forward to working with Congress as we move towards these goals.'' It is clear the administration and the members of the Committee on Financial Services have found H.R. 2990 not only to be good legislation but necessary to be adopted; and why is that so? If one were to ask how could you become a credit rating agency and get a part of this lucrative business today, the process is unclear. It is much like the old adage relative to identifying art, ``I know it when I see it.'' It has been some 30 years since the SEC adopted its current methodology for establishing this recognition, and yet we do not know today how one can successfully become an NRSRO, much less once you are one, who is it that looks over your shoulder, and should they find inappropriate behavior, how is one unregistered or decommissioned. That process is also unclear. What we do know from the record is that very lucrative companies have engaged in a government-granted business operation, have garnered significant profits, and have not on all counts met their professional fiduciary duties. The bill at hand provides for resources to register, oversee and, yes, even unregister, decommission, provide for someone losing their license should they be found not meeting appropriate financial and fiduciary standards. For that reason alone the bill should be adopted. But let me give one more example of past practice which I found troublesome. In the past, a rating agency could select a corporation on which it could engage in its credit analysis and issue an unsolicited credit rating. Unsolicited means the company didn't ask for it, but in some cases the rating agency would forward a bill to the corporation. Now why would the corporation pay that bill? Well, if a corporation, a public operating company, is going to issue public debt, they have to have the rating of at least two independent credit rating agencies. Since two of the credit rating agencies perform about 99 percent of the ratings, it would become pretty evident that you would pay the bill because some time in the future your corporation would need to enter the public debt markets. This bill will provide the authority for the SEC to prohibit such activity in the future, I think a highly appropriate reform. Certainly, there could be other matters brought to the attention of the House on the subject of value, but the underlying essential reforms contained in this bill should be adopted and adopted today. Statement of Administration Policy, July 12, 2006 h.r. 2990--Credit Rating Agency Duopoly Relief Act of 2006 The Administration supports House passage of H.R. 2990, the Credit Rating Agency Duopoly Relief Act of 2006. This legislation would enable more credit rating agencies to qualify nationally under Securities and Exchange Commission (SEC) regulations. In addition, the bill requires credit rating agencies to disclose their performance records, methodologies, and any conflicts of interest. This bill would improve competition and transparency in the credit rating industry, which ultimately would benefit individual investors. The Administration looks forward to working with Congress to accomplish these goals.

Mr. BAKER. Mr. Chairman, I rise to claim the time in opposition to the amendment.