Christopher Dodd

Mr. DODD

Mr. DODD. Mr. President, I ask unanimous consent that when the Senate completes its business today, it adjourn until 9:30 a.m. on Wednesday, May 12; that following the prayer and pledge, the Journal of proceedings be approved to date, the morning hour be deemed expired, the time for the two leaders be reserved for their use later in the day, and the Senate resume consideration of S. 3217, Wall Street reform, as provided for under the previous order.

Mr. DODD

Mr. DODD. Mr. President, I ask unanimous consent that the Senate proceed to the immediate consideration of Calendar No. 370, S. Res. 511.

Mr. DODD

Mr. DODD. I yield the Senator from New Hampshire at least 5 minutes, unless he needs more.

Mr. DODD. I yield myself 10 minutes on my time, if I may, and reserve 5, if the Chair will let me know when that time has expired.

Mr. DODD. I thank my friend and colleague from New Hampshire. He is always thoughtful on these issues. I appreciate the history lesson as well. It is always important that Members understand the genesis and history of necessary decisions, so it is an important contribution this morning to what we are trying to achieve. Also, let me say how much I appreciate the efforts of the Senator from Vermont. Occasionally around here you get to make a historic contribution. I don't want to engage in hyperbole, but this is a historic moment the Senator from Vermont has provided us, to be able to do something we have talked about. I want to tell my colleague from Vermont not only do I think we are going to achieve what he wants with his amendment, but we just had a meeting with the Chairman of the Federal Reserve to kind of brief us on these events in Europe over the weekend, and the Federal Reserve, without legislation but clearly under the influence of this proposed legislation, is going to put up on its Web site as soon as possible the contracts between the Fed and other central banks that occurred over the past weekend. It has also committed the Fed will report weekly on the activity of each of the swaps accounts by the central banks--not in the aggregate, each one of them. The legislation is going to do a lot, but the Senator has already had an influence on the conduct of the Fed in terms of the transparency issues. I appreciate very much the efforts of Senator Sanders. He is not new to the issue. He has raised this repeatedly since he became a Member of this body. I also associate myself with the remarks of the Senator from New Hampshire regarding the Vitter amendment. Again, the central question in many ways is exactly as he has described it, and that is the independence of the central bank, the most important central bank in the world, to be able to operate devoid of the kind of political influences that could ultimately change that Federal Reserve Board from making the kind of decisions that are going to protect the integrity of our currency. The Open Market Committee's functioning absolutely is critical. So this is a well-crafted proposal, in my view, because it goes to the heart of the issue of transparency, including the requirements now mandated by the Sanders amendment. The previous incarnation of this amendment was a request. I think all of us know where requests end up if there is no will on the other side to engage them. But this now mandates, in fact--we could have potential conflict of interest examined as to when these decisions are made. I point out that our bill today includes language, if adopted, that will change how the New York Fed president is chosen. Presently he is chosen by the very institutions that office is designed to regulate. In a sense, we change all of that because that on its face seems to be an inherent conflict. When you get to choose your regulator--one of the complaints we have had, legitimately, about regulatory arbitrage is that institutions picked their regulator of least resistance and that contributed to some of the problems we have run into. Under the present construct, without the changes included in our bill, of course that goes on. Imagine, if you can sit around and choose your own regulator if you are lending institutions, financial institutions. That presently is what happens with regional banks. So the very banks that are the subject of the Federal regulation decide who the regulator will be. Our bill changes that as well, and that goes to the heart of exactly what the Senator from Vermont is talking about. I urge my colleagues to give strong support to the Sanders amendment. I am a cosponsor. I don't cosponsor many amendments for the obvious reason we have a lot of them and I realize some I am supportive of, maybe not as strongly as others. I am a strong supporter of this amendment, and I want my name attached to it, and I appreciate the efforts of my colleague in putting this forward. I am as strongly in opposition to the Vitter amendment because it undermines, in effect, what the Sanders amendment accomplishes. That would be a tragedy, in my view. The fact is we are going to do something that has been needed to be done for years, and that is to get the transparency of what occurs at the Federal Reserve, but not engaging in the kind of damage that could occur--particularly at this moment. We all understand. I think we have made the case over and over again over many days. We are no longer talking about a financial system that is in jeopardy because of what happens in terms of mismanagement of major financial institutions. We now know that events thousands of miles away from our shores, in nation states that have no direct bearing, necessarily, or are directly affected by decisions we make here, can cause the kind of disruptions, economically, around the world. It is that kind of world we live in. I remember a few years ago a very small exchange, relatively small exchange in Shanghai, China, had a decline of about 12 percent one morning. That exchange represented about 5 percent of the volume of the New York Stock Exchange in Shanghai. Yet that action in that relatively small exchange caused, within a matter of hours, all over the globe exchanges to react to it. My point simply being, without going into the details of what occurred there, events that occur in one part of the world can have a huge implication here as well. At this very important moment, to undermine the independence of the Federal Reserve with the Vitter amendment would do great damage to our country. I urge my colleagues to be supportive of the Sanders amendment and then join with Senator Gregg and myself and others in our opposition to the Vitter amendment because it undercuts exactly what, in a sense, we are trying to achieve here with this legislation. I reserve the remainder of my time.

Mr. DODD. Mr. President, I would like to inquire how much time remains?

Mr. DODD. Well, I am kind of done. I don't know if my colleague from Vermont wants to add any words to all of this. I don't even know whether the leaders want to be heard on this amendment or whether other Members want to be heard. So I guess what I will do is propose that there is an absence of a quorum and that the time be equally extracted from all Members who control time. Is there a fixed time for the vote?

Mr. DODD. I suggest the absence of a quorum and ask unanimous consent that the time be equally charged to all three of the Members who control the time at this point.

Mr. DODD. Madam President, let me ask how much time my friend needs?

Mr. DODD. Madam President, how much time remains?

Mr. DODD. Mr. President, I believe there is no more time. Has the time expired for the Senator from Louisiana?

Mr. DODD. We are prepared to yield back time on our side. I gather the Senator from Alabama is prepared to yield back his time. I ask for the yeas and nays on the Sanders amendment.

Mr. DODD. I yield back all our time.

Mr. DODD

Mr. DODD. Mr. President, I move to reconsider the vote, and I move to lay that motion on the table. The motion to lay on the table was agreed to.

Mr. DODD. Technically, there is no time agreement.

Mr. DODD. If a Member on this side somewhere in the midst of this can be heard as well----

Mr. DODD. That was not a sophisticated request.

Mr. DODD. Move along.

Mr. DODD. Mr. President, very briefly, I commend our colleague from Colorado for reaching out on this. The amendment is authored by the Senator from Colorado, and he has attracted good bipartisan support from Senators Tester, Isakson, Klobuchar, Begich, LeMieux, Mark Udall, and Brown of Massachusetts on how this ought to be done. The substance of the amendment is critically important. He worked with Treasury to ensure that we are responsibly winding down the TARP and getting the government out of the business of owning businesses. We can all agree with that, and I commend him for that amendment. It also ensures that unused TARP funds are used to pay down the deficit. We have heard a lot of talk about fiscal responsibility and watching what is happening in Europe and other countries and knowing the fiscal problems of those nations are the root cause of a lot of the problems they are going through today. This amendment actually dedicates these resources to deficit reduction. I think all of us applaud his leadership on it. There are signs our economy is recovering. In the last 3 months of 2010, our economy added roughly 187,000 jobs a month. Last year, it was 290,000 jobs, which is the largest number in over 4 years. Compare that to the first 3 months of 2009 when we were losing 750,000 jobs a month. In the first quarter, the economy grew 3.2 percent, a swing upwards of nearly 10 percent in 1 year, something many economists say is largely due to the Recovery Act. Just over a year ago, the economy was shrinking about 6 percent on an annual basis. This amendment is tremendously valuable to this bill. We have all had discussions about it--our colleague from Georgia, Senator Isakson, Senator LeMieux, and Senator Tester. Because of the leadership of Mike Bennet, he has brought us to this point. I thank him immensely. I thank all of our colleagues. I am prepared to do a voice vote, unless someone objects to a voice vote on the Bennet amendment, so we can move to finalize how we deal with the Corker amendment and the other issues before us.

Mr. DODD. Mr. President, first let me thank my colleague from Oregon and my colleague from Minnesota as well for their contribution. While he has left the floor, I would be remiss if I did not express my gratitude to Bob Corker from Tennessee. Putting aside whatever differences we may have on this amendment, he has been a very valuable member of our committee. This bill that is right here, all 1400 pages of it--substantial parts of this bill can be attributed to the work of Bob Corker of Tennessee. I want my colleagues to know how grateful I am to him, to his staff, and others for some valuable ideas and thoughts. While not every one was included in the bill, he played a consistent role, showing up every time there was a meeting or gathering on this legislation. He spent a lot of hours with our colleague from Virginia, Mark Warner, particularly on titles I and II of this bill. I will say more about Senator Corker's contribution during debate on this bill, but I wanted at least at the outset of this debate and discussion to thank him for his wonderful efforts on this legislation. Let me begin and thank, of course, Senator Merkley and Senator Klobuchar, as well as their other cosponsors of this, for the bipartisan support for their amendment. I will ask to have printed in the Record some correspondence. I have a letter we sent out in 2006. It will give you an idea--it was 4 years ago. It was signed by myself, Wayne Allard, who is no longer with us, of Colorado, Senator Sarbanes, Jim Bunning of Kentucky, Jack Reed of Rhode Island, and Chuck Schumer. The letter was pushing the regulators to establish some underwriting guidance for subprime mortgages. That is in 2006 that we sent that first letter. We were in the minority, we Democrats. In April of 2007 we sent another letter to Chairman Bernanke. Here we said that our committee had held two hearings this year on the problem in subprime mortgage rates. This was in February and March of 2007, 3 years ago. At the hearings, a number of committee members raised concerns that the regulators have not kept pace with deteriorating credit standards on the growth of abusive, unfair and deceptive lending practices. In addition, we are concerned that the Federal Reserve Board has not exercised its obligations under the Home Ownership and Equity Protection Act of 1994 to issue regulations that address the problems of predatory lending. The letter goes on for two or three pages. That was signed by myself, Senator Reed, Senator Schumer, Senator Bayh, Senator Carper, Senator Menendez, Senator Akaka, Senator Sherrod Brown, Senator Bob Casey, and Senator Tester. In December of 2007 we sent another letter to Chairman Bernanke. In light of the deepening crisis in the mortgage markets, a crisis you correctly attribute to abusive practices and lax underwriting standards in the subprime market, we want to reiterate to you the importance of acting forcefully to protect consumers in the rulemaking the Federal Reserve Board is currently undertaking under the Homeowners Equity Protection Act. We go on for two or three pages. Again, I say respectfully, but not a single member of our committee from the other side signed that letter or the one in April of 2007. This letter was signed by myself, Senator Johnson, Senator Reed, Senator Schumer, Senator Bayh, Senator Carper, Senator Menendez, Senator Akaka, Senator Brown, Senator Casey, Senator Tester, and Senator John Kerry of Massachusetts. Those are just three pieces of correspondence going back years ago, trying to get some attention to the predatory lending practices that were going on. Had we acted in 2006 or even in 2007, we would not even be close to the disastrous effects that have occurred with 7 million homes lost, 4 million today underwater in the country--in danger of falling into foreclosure, 250,000. A quarter of a million homes this year have been seized in foreclosure proceedings. Here were three pieces of lengthy correspondence signed, in one case on a bipartisan basis in 2006; in 2007 unfortunately on a partisan basis--not because we didn't seek additional signatures on the letter--to highlight the importance of underwriting standards and the need to step up. I also want to add at this point a letter from the National Association of REALTORS, expressing strong opposition to the Corker- Gregg amendment. In their letter to the Senate--to all Senators, this letter went--they say the following. The Corker-Gregg-Isakson amendment replaces the risk retention provisions . . . of the credit risk retention with a study on a feasibility of risk retention requirements for financial institutions and implements the residential mortgage underwriting standards that include a mandatory 5 percent downpayment for all mortgages. As our Nation continues to recover from the worst economic downturn since the Great Depression, REALTORS are cognizant that lax underwriting standards brought us to this point. It must be curtailed. However we caution that swinging the pendulum too far in the opposite direction may reverse the fragile recovery. Based on data from the National Association of REALTORS, of home buyers and sellers, 11 percent of all home purchasers surveyed had downpayments of 5 percent or less. When considering only first-time home buyers, the percentage utilizing a downpayment of under 5 percent increases to 18 percent of all purchases. Improving underwriting to ensure that the consumer has the ability to pay their obligation is in the best interests of everyone, but eliminating the possibility for some creditworthy customers to buy a home will have significant detrimental ramifications for American families, the housing sector, and those businesses that support it. Let me take a couple of minutes. I know my colleague from Texas is here, and others, but this is important, that people understand what happened. Because 5 percent sounds pretty reasonable. Why not 5 percent? Let me explain why that provision poses some risk to all of us. The Senator's amendment as offered has two parts to it. They almost kind of run into each other in a way. The first half of the amendment strikes the government-imposed risk retention requirements in the underlying bill. These requirements, as explained before, and I will in a second again, would result in strong market-based underwriting standards in the residential mortgage market. Then in the second half of the amendment, the amendment puts in government-dictated, hard-wired underwriting standards that would have very serious consequences, as the National Association of Realtors points out, for first-time home buyers, minority home buyers, and others who are seeking to attain the American dream of home ownership. Like the earlier debates we have had, it does this at a time, as we all know, that the housing markets are just starting to recover, potentially putting that recovery at risk. Let me start by discussing the first part of this amendment. The bill, section 941 of our bill, requires securitizers to retain an economic interest in the material portion of the credit risk for any asset that securitizers transfer, sell, or convey to a third party. What does this mean? Very simply put, it is skin in the game. Skin in the game--a skin-in-the game requirement that creates incentives that encourage sound lending practices, restores investor confidence, and permits securitization markets to resume their important role as a source of credit for households and businesses. Excesses and abuses in the securitization process played a very major role in this crisis under what is called the ``originate to distribute'' model. Loans were made expressly to be sold into the securitization pools, which meant the lenders did not expect to bear the credit risk of borrower default. What does that mean? Well, if you are the broker out cutting the deal, what was the first piece of advice on their Web page to the brokers, the unregulated brokers? The first piece of advice to them was, from their association: Convince the borrower. Convince the borrower you are their financial adviser. Well, of course, they were anything but their financial adviser. Their job was, of course, to get people to sign up and commit to these mortgages, which they knew, in too many cases, could never, ever be met; that is, they, the borrower, would never possibly meet it. If you had some skin in the game if you are the broker, you may be a little more careful about that. But, of course, the broker was acting on behalf of the lending institutions. Now you think, well, the lending institution is going to care about this. You know, when I bought my first home back X numbers of years ago, my mortgage stayed at the Old Stone Bank. I signed those papers. I could go down every day and I could pull out that drawer, wherever it was, and look at my mortgage. It did not leave the Old Stone Bank. It stayed right there. Let me tell you, that fellow at the Old Stone Bank wanted to make darn sure that this young lawyer in Connecticut was going to meet his financial obligations. So they had underwriting standards for me. It did not cost me a lot on a downpayment. I was a new buyer, first-time home buyer. I had just gotten licensed to practice law in Connecticut, so they had a little confidence I might be able to meet my obligations. So they had underwriting standards. Today it is vastly different. That fellow, a young lawyer today, who goes and gets that mortgage, the lending institution frankly could care less whether you have the underwriting standards. Why? Because it is going to sell that mortgage. That is what securitization is: I am going to sell it. On average they hold your mortgage 8 to 10 weeks. Then they sell it. It goes right out the door. So the broker could care less. He got me to sign up with a deal I could not afford. The old bank does not care anymore, because they are selling it, and bundling them together and shipping them out the door, and some unwitting investor may be purchasing these. Because they have been branded by the rating agencies as AAA or AA, they think they are pretty good. So why am I putting skin in the game? Because if you do not have skin in the game, if you do not have a vested interest financially in the outcome, you do not care what happens, unfortunately, in too many cases. You have been paid. You have got out your dollar. You have been compensated as the broker; you have been compensated as the lending institution; you wash your hands of the whole thing. That is what created this domino effect, because there were not people watching and caring what went on. So in my bill I said: Well, why not keep a little skin in the game or drop the skin in the game but write underwriting standards. You make the choice. But if you have got skin in the game, I suspect you are going to be careful about underwriting standards. If you write the underwriting standards, I do not want to take a pound of your flesh from the lending institution, if you are going to meet those obligations. That is exactly what Senator Merkley and our colleague from Minnesota and others are suggesting here: Let's get good underwriting standards here. That is why I support what they are talking about. So I apologize for going into all of that ``originate to distribute,'' but originate the mortgage to distribute it. That is exactly what it means. This led to significant, of course, deterioration in credit and loan underwriting standards, particularly in residential mortgages. With the onset of the crisis, there was widespread uncertainty regarding the true financial condition of holders of asset-backed securities, for obvious reasons, freezing interbank lending, constricting the general flow of credit. Complexity and opacity in the securitization markets prolonged and deepened the crisis, and it made recovery efforts that much more difficult. My proposal in the bill has a measured approach which requires, of course, separate rulemaking requirements for different assets. I will not bother you with all of that. A lot of people support this, by the way, including the Consumer Federation of America, the Investors Working Group, the America Securitization Forum, CalPERS, the Group of 30, even a former Republican Secretary of the Treasury, John Snow. And he says: Because of the lack of participant accountability, the originate-to-distribute model of mortgage finance, with its once great promise of managing risk, became itself a massive generator of risk. A study is not a credible response. I say that respectfully of the amendment of the Senator from Tennessee. He calls for a study in all of this. Our bill provides for comprehensive regulation of securitization markets, to prevent excesses and eliminate a potential source of financial instability. Let me add quickly, I am a strong supporter of securitization. That has provided liquidity, which has made home ownership more available to more people. But you have got to do it carefully. If you are packaging these mortgages with no regard to whether they are available, and sending them out the door to be sold off, then you jeopardize securitization. If you get good underwriting standards, as the Senator from Oregon and Minnesota are requiring, then you are going to build in some safeguards; then securitization, with proper branding of what they are worth, and you are back on track again, and we can start to see housing improve for everybody. The Corker amendment also requires, of course, here a 5-percent downpayment for all loans, no matter what the circumstance. That is a government-mandated requirement in a sense in this amendment. Even with FHA loans, hardwiring in statutes that as a requirement is very ill- considered, I would say. The key cause of the crisis, as I have said many times over the past almost 4 years on the floor of this body, was the unscrupulous mortgage brokers and mortgage lenders who sold unaffordable mortgages to people who could not pay those mortgages. In the majority of the cases, those loans were refinance loans, they were not even original mortgages. It was refinancing. No downpayments are required in refinancing at all. Downpayments did not even come up or come into play for these borrowers. But the mortgages were still outrageous and unaffordable. They still led to the foreclosures and contributed to the economic crisis we are in. Why was this? Well, it was because the brokers and bankers had no skin in the game. So they not only did not pay attention, in too many cases they did not even care whether the borrowers had the ability to pay back those loans. The Merkley-Klobuchar amendment specifically addresses this problem, by specifically requiring that lenders take into account the borrower's ability to pay, and laying out important criteria for determining that. It will end the steering payments that caused so much of the trouble in the first place. And while the 5-percent downpayment may sound reasonable, and in some cases it is, there are many lending programs out there that allow for downpayments that are lower than 5 percent: FHA, which is struggling now, has traditionally allowed for downpayments less than 5 percent. FHA has been a path to home ownership, as we know, for millions of our fellow citizens. Many nonprofits such as Habitat for Humanity, the Enterprise Foundation, church-related housing groups--in fact, I have a letter signed by a number of these nonprofit organizations in opposition to the Corker amendment. I ask unanimous consent that all these letters I have referred to be printed in the Record.

Mr. DODD

Mr. DODD. I realize people want to be heard, but I again urge my colleagues, if we can--every amendment has great value. There are about 60 amendments. At some point we have to draw the line, so I urge people to use as little time as necessary--all the time they think they need, but if we can get to a point where we can vote up or down on these two amendments, I would appreciate it very much.

Mr. DODD

Mr. DODD. Mr. President, I ask unanimous consent that the Committee on Energy and Natural Resources be authorized to meet during the session of the Senate to conduct a hearing on May 11, 2010, at 10 a.m., in room SR-325 of the Russell Senate Office Building.

Mr. DODD. Mr. President, I ask unanimous consent that the Committee on Environment and Public Works be authorized to meet during the session of the Senate on Tuesday, May 11, 2010, at 2:30 p.m. in room 406 of the Dirksen Office Building.

Mr. DODD. Mr. President, I ask unanimous consent that the Committee on Finance be authorized to meet during the session of the Senate on May 11, 2010, at 10 a.m., in room 215 of the Dirksen Senate Office Building, to conduct a hearing entitled ``The President's Proposed Fee on Financial Institutions Regarding TARP: Part 3''.

Mr. DODD

Mr. DODD. Madam President, I ask unanimous consent that S.J. Res. 29 be discharged from the Committee on Foreign Relations and be referred to the Committee on Finance.