Phil Gramm

Mr. GRAMM

Mr. GRAMM. Mr. President, I think the Senator from Virginia was here before me.

Mr. GRAMM

Mr. GRAMM. I am happy to yield to the Senator.

Mr. GRAMM

Mr. GRAMM. There are two approaches, it seems to me, that make sense. One is to call on the major agencies--the Fed, the SEC, and the CFTC-- to take a look at the amendment on a truncated basis, say 45 days, and give a comprehensive report and definition. That would be one approach. The other approach would be to try to work out the concerns that the SEC and the Federal Reserve have raised. Those concerns are trying to narrow this down to electricity and natural gas, which is the real concern.

Mr. GRAMM. There were serious negotiations. I think Senator Feinstein made a good effort on her part. Senator Fitzgerald was involved. When it got right down to it, an agreement could not be reached on the narrowing of this to include futures but not swaps and or other derivatives, to focus it just on electricity and natural gas, which is where the concern is. The reason Chairman Greenspan has chosen to speak out on this on three different occasions, the reason he has talked to Members, and when they called him, called them back, is that he is very concerned about unintended consequences. The problem is it is hard to debate unintended consequences.

Mr. GRAMM. Mr. President, might I ask if the Senator will give me about 3 minutes to respond to these points before they get cold in everybody's mind? Would that work for her?

Mr. GRAMM. I think I can do it in 3 minutes.

Mr. GRAMM. This amendment is also opposed by the Securities and Exchange Commission, which has the principal responsibility in the American economy for antifraud and antimanipulation enforcement with regard to securities transactions. If their whole purpose in existing, if their major mandate, is to deal with exactly the problems which the amendment proposes to deal with, why is the SEC adamantly opposed to this amendment? Because of unintended consequences, because the amendment, in fact, does not achieve its stated goals, but it does other things that are potentially very harmful to the economy. The Chairman of the Commodity Futures Trading Commission, the very Commission that would be empowered by this amendment, has come out in very strong opposition to the amendment. This amendment is opposed by the International Swaps and Derivatives Association, the American Bankers Association, the ABA Securities Association, the Financial Services Roundtable, the Futures Industry Association, the Securities Industry Association, and the Chamber of Commerce of the United States. Why would the Chamber of Commerce of the United States be opposed to this amendment? Are they in favor of fraud, manipulation, and the absence of recordkeeping? No. They are concerned that the amendment will have a harmful effect outside the futures area as it relates to natural gas and electricity, and, in the process, will do harm to the entire economy. This amendment is strongly opposed by the National Mining Association. I can understand bringing Enron into the debate as it relates to natural gas and electricity, but why we should bring in mining I do not understand. There will at some point in this debate be an amendment which is part of our disagreement, to focus the provisions of this amendment on natural gas and electricity. If that is the concern, then why not focus the attention on that concern rather than getting into areas such as metals? I have seen no evidence--in fact, I will point out that Chairman Greenspan has seen no evidence--that derivatives trading by Enron, or by anybody else, had anything to do with the energy spike in prices in California. Going back to the beginning, first of all, this is a debate I was pulled into when the 2000 bill was written. The provision relating to energy was written in the House, and the version of those provisions that finally passed in the House and came to the Senate was never changed again. My concern about the bill at the time, that held the bill up for 3 months and almost killed the bill at the end of 2000 in the final session of that Congress, the lameduck session of that Congress, had to do with exactly the issue which is before us, and that is unintended consequences. Nobody in the Senate knows what a derivative is, and I speak for myself in saying that deep down I have a conception of what a derivative is. I might pass a freshman course in finance in college in giving a definition of derivative, but these are very complicated, tailored instruments, each instrument being unique, which is why it has, from the very beginning of its trading, been deregulated. One of the arguments that has been made over again, as the debate on this amendment has started, is that somehow the 2000 legislation exempted these derivatives and swaps from regulation. That is totally false, totally inaccurate. They have never been regulated. In fact, Congress acted in passing the Futures Trading Practice Act in 1992 to give the CFTC specific power to exempt these derivatives and swaps as being inappropriate for regulation under the CFTC, which has the job of regulating futures, not tailored swaps between sophisticated customers. The Congress passed the Futures Trading Practice Act in 1992 that directed the CFTC to grant these exemptions. Those exemptions were granted. The exemption for energy was granted under the Clinton administration with a Democrat Chairman of the CFTC. That issue has never been controversial before. Nor have these swaps and derivatives ever come under Federal regulation in terms of an ongoing regulatory process. In fact, the 2000 Act, far from exempting something which had never been subject to regulation, added to the strength of the CFTC exactly the powers that the proponents of this amendment would like us to believe their amendment does, and they believe their amendment does. There is no bad faith on this amendment. It is simply trying to understand very complicated issues when no Member of the Senate knows what a derivative is. It is very difficult to understand what swaps are, impossible to comprehend a $75 trillion industry. Unless one is directly involved in mining, banking, or securities, it is very difficult for me to comprehend what this whole market is about. All I know is, it has grown to $75 trillion. It is the envy of the world, and Alan Greenspan, who is not the embodiment of God's voice on Earth, when it comes to financial matters in the U.S. economy, speaks with more knowledge and more authority than anybody else when he says that disturbing these markets could have a detrimental impact on the economy and that the resilience of the economy in the face of the recession might very well have been due to the growth of this derivatives market. I say at least let's put a little sign up that says: Danger, high voltage. Do not be fooling around in here if you do not know what you are doing. Let's talk about these issues. As we have listened to these speeches and been moved by them--I have been moved by them to support the intent of the amendment--we are really not far apart, and I will outline where we differ. First of all, let me quote from the 2000 Act that the Congress adopted in the waning days of the session in the year 2000. I will go to page 43 of the Senate companion bill, S. 3283. This is in paragraph (4) of section 2(h) of the Commodity Exchange Act. Paragraph (4)(B) gives the Commodity Futures Trading Commission the power to intervene and enforce any action where fraud is present. In listening to the proponents of this amendment, one would believe there is no power whereby the CFTC can intervene in cases of fraud. Not only does that power exist, but it was strengthened in the 2000 legislation, a provision written in the energy section of the bill in the House of Representatives. In paragraph (4)(C), we have the provision relating to price manipulation, and the Commission is given the power to intervene in cases where price manipulation occurs. As we have listened to this debate, we have heard the question, well, how can you do anything if these markets are conducted with no records? I will read the language of the bill in paragraph (4)(D): . . . such rules and regulations as the Commission may prescribe if necessary to ensure timely dissemination by the electronic trading facility of price, trading volume, and other trading data to the extent appropriate, if the Commission determines that the electronic trading facility performs a significant price discovery function for transactions . . . It then goes on and specifically outlines the power of the Commission. Now, let me make it clear that I am in favor of, and will support, strengthening these provisions. I am in favor of giving the CFTC the power to require that records be kept, to require that they be kept to the level so that you can reconstruct the transaction, to require that the data under the Commodity Exchange Act be kept for 5 years so that you can reconstruct individual transactions. I am willing to support--and so are all the opponents of this bill, as far as I am aware--strengthening antiprice manipulation and strengthening the anti- fraud provisions. The point I want to make is these provisions are already law, and they are in the 2000 Act. To the extent they can be strengthened without affecting other markets that are in no way related to electricity and natural gas so that we can deal with what the proponents of this amendment intend to achieve, I am in favor of it. The problem is the amendment, as now written, does many things that go beyond this. If we can focus it on electricity and natural gas, if we can limit it to these provisions, we would have an agreement, and I assume we would get a unanimous vote. But here are some problems, and let me outline them. First of all, everybody needs to understand that we have a wholesale market for swaps and derivatives, tailor-made products. These are products that are not sold on exchanges. Let me make it clear. I have been chairman of the Banking Committee. I have worked with the exchanges in Chicago and New York. As we say in our business, I have many friends who are associated with the exchanges in Chicago and New York. But when they go to bed every night and they say their prayers, they say: God, please kill the $75 trillion swaps industry and make those people buy these derivatives and swaps on my market and pay me a commission and buy them in thousand-unit lots. If you love me, God, please do this for me. Now, it may hurt the American economy, but it would be so good for me. Now, there is an element of that going on here. There was an element of it going on in the 2000 Act. There has been an element of it going on forever. People try to promote their own interests, we understand that. There is no issue where all the special interests are on one side. There seems to be a conception that we try to perpetrate that there is good and there is evil and there are special interests and public interests and they are competing against each other. The plain truth is normally there are special interests all over the ballpark. And that is not all bad. I will note that I have always felt if you are going to catch hell no matter what you do, even lawmakers will do the right thing. There has been an ongoing effort, since the emergence of derivatives and swaps, to force them on to the futures exchanges. I could give you a long and, in this case, happy history. It will suffice to simply say this: First of all, these swaps have never been sold on market exchanges such as the Chicago Mercantile Exchange, Chicago Board of Trade, the New York Mercantile Exchange. They sell standardized products at both the wholesale and retail level. When we are talking about swaps, we don't have a retail swap industry in America. When the 2000 bill was written--and I was involved in those sections of that legislation that had to do with banking products--we simply allowed the swaps business as it related to wholesale users, namely banks, securities companies, manufacturers, et cetera, to function on an over- the-counter basis. We agreed that the case would be different should a retail market ever occur in these products--that is, a situation where individuals would buy them; your aunt might buy one. I can't imagine, and I would not advise that, I would not do it--but we agreed in the 2000 bill, in the bank products section of the bill that if a retail market ever came into existence, at that point a decision would be made as to who would regulate it and how. Now, these products have never been under regulation, are not sold on exchanges; they are individually negotiated instruments, highly sophisticated and, obviously, they yield great value because people buy and sell them--$75 trillion worth. Alan Greenspan, as I said, said these have now become a mainstay and a stabilizing influence in the American economy. Here are the problems that I see with the amendment as it is written. I will elaborate some on each of them. First of all, it permits the CFTC to regulate contracts regardless of whether they are futures contracts. The CFTC has jurisdiction over futures. It does not have, never has had, and I hope never will have jurisdiction over non-futures derivatives or swaps at the wholesale level. As the amendment is now written, it would impose CFTC regulations on companies operating electronic bulletin boards, where bids and offers are posted for various commodities--facilities such as Blackbird, as one example--even if futures contracts are not traded on those bulletin boards. My view is, if our objective is to provide more information--and I am for more information--why should we be taking action to kill off bulletin boards that are simply providing purchase and sale prices to customers? Another point, this amendment--and I don't quite understand why it does it--would make the use of advanced technology a trigger for CFTC regulation, so that if a bank or an insurance company, or an investment company sets up an electronic computer system whereby people can come together, negotiate, purchase, and sell a swap or a derivative, if they use the computer to do it, they could come under regulation. If they do the same transaction over the phone, they don't come under CFTC regulation. This amendment brings under the Commodity Exchange Act and under the jurisdiction of the CFTC instruments that are not futures. The CFTC is an agency that is trained and has expertise in futures; that is, say that I am contracting to deliver natural gas at the hub in Louisiana on a certain date, and so I sell a future for that delivery, and someone buys it. That is the kind of transaction that the CFTC is chartered to regulate. It is not chartered, nor has it ever been chartered, nor has it ever regulated, these tailored swaps and derivatives. Let me quote Alan Greenspan because he has gone out of his way to make statements on this, and he has been asked questions about this. Since this has been raised in relation to energy and to California, in particular, let me just, if I can, go through some of the things Alan Greenspan has said without wasting everybody's time in reading huge volumes of statements. Chairman Greenspan of the Federal Reserve Board on March 7, 2000, stated before the Senate Banking, Housing, and Urban Affairs Committee that with respect to the existence of a nexus between energy derivatives and Enron's demise: ``I haven't seen any.'' Alan Greenspan said, when questioned before the Banking Committee, that he saw no relationship between derivatives and the demise of Enron. In fact, the derivatives part of Enron has subsequently been sold to another company that is in the process of reinvigorating it, creating 800 jobs, and paying off some of the debt of Enron, including debt to employees. This is a part of Enron that is alive and well, though not under the control of Enron, which as we know is in bankruptcy. Chairman Greenspan stated before the House Banking Committee on the same issue: What I sense happened is that they ran [why Enron failed] into losses which they basically endeavored to obscure. It had nothing to do with derivatives. I could go through the quotes in greater detail, but when asked, Did derivatives have anything to do with the price hike in California? Chairman Greenspan said no. When asked if they had anything to do with the failure of Enron, he said it had nothing to do with derivatives. He also stated before the Senate Banking Committee on March 7: We've got to allow for that system to work because if we step in as government regulators we will remove a considerable amount of caution. In other words, not only did he say he was concerned about us getting into other areas, but he was concerned, if we had more Government regulation of these sophisticated instruments, people would come to rely on the Government and actually might be less cautious in financial matters. I quote the following: I think that act [the 2000 commodity exchange reauthorization] in retrospect was a very sound program, passed by the Congress, and I don't see any particular need to revisit any of the issues that were discussed at length at this time. Let me read what he said in particular in response to a question by Senator Miller of Georgia who asked the following question, and I am reading from the raw transcript. In response to Senator Miller of Georgia who asked whether there is a nexus between energy derivatives, including their regulation and the California energy crisis, here is what Chairman Greenspan said: We don't need to revert to derivatives to get a judgment as to why prices did what they did. My recollection is that 2 years ago or so the sort of capacity buffer that the California electric power system has was the typical 15 percent for its summer back loads, which is what generally a regulated industry has because you respectively guarantee a rate of return on capability which is not being used, but that 15 percent kept prices down. As the years went on, the demand went up in California and no new capacity came on stream. That 15 percent gradually dissolved because there's no way to have inventory of electricity--there are battery systems--but they are just inadequate. You get into a situation where the demand load, if it is running up against a limited capacity and the demand tends to be price inelastic, you can get some huge price spikes. So you don't need derivatives to explain what happened to price. Now, let me try to sum up because I have covered a lot of areas.

Mr. GRAMM. Mr. President, how can a case be more overwhelming than the case of the Senator from California? Who could possibly be in favor of a situation where transactions could be undertaken and no records kept? Who could possibly be in favor of granting a license for fraud and manipulation? The answer is no one. The problem is that each of these points that is outlined has no factual basis in the law. The plain truth is that there is extensive recordkeeping currently required under law. That recordkeeping was strengthened in the 2000 extension of the authorization of the Commodity Exchange Act. I will read from the legislation as we get to it. The 2000 Act provided specific antifraud authority for the CFTC in exactly the areas for which the Senator from California calls. It provided authority to intervene in the case of price manipulation. In fact, everything that the proponents of this amendment claim they are for is part of current law as amended by the 2000 Act. I have offered and we have negotiated--and I thank the Senator from California for the negotiations--to try to work out an agreement so that we can have an amendment go forward with broad support. We have failed to succeed in that effort, and I will outline in a moment why we have failed to do that. Before I do, let me start at the beginning. This amendment has as strong a coalition of opponents as any amendment that has been offered, and not one of them opposes what the proponents of the amendment say they want to do. Not one of them opposes required recordkeeping. Not one of them opposes the granting of antifraud authority. Not one of them opposes granting the ability to intervene in the case of price manipulation. Every opponent of this amendment favors what the proponents of the amendment say that it does, but they oppose what the amendment in fact does. I will read from the list of the opponents: Alan Greenspan, testifying twice before committees of Congress--the Financial Services Committee in the House and the Banking Committee in the Senate. In as strong words as Alan Greenspan ever utters and in as clear a form as he could possibly pronounce it, he opposes this amendment, not because he opposes the intent of the Senator from California, but because he opposes what the amendment, if adopted, would do--the unintended consequences--which is what this debate is about. The Secretary of the Treasury is adamantly opposed to this amendment and has joined Chairman Greenspan in talking about the potential impacts on the American economy of a decision we would make in this proposal that has nothing to do with energy futures but everything to do with a swap industry which is now $75 trillion in annual volume and which has become part of virtually every business in America where that business tries to insure itself against risk. These swaps are tailored transactions between two economic entities that are able, through their transaction, to provide greater certainty in providing jobs, growth, and opportunity for the American economy. In fact, Chairman Greenspan has said that the growth in the derivatives markets may very well be a major factor in the resilience of the American economy today and why we, in fact, did not have a recession. I urge my colleagues to read the letter which the Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve System sent to the two leaders. I ask unanimous consent the letter to which I just referred be printed in the Record.

Mr. GRAMM. I am happy to yield.

Mr. GRAMM. They both have jurisdiction. The Agriculture Committee has jurisdiction as it relates to fundamental commodities. The Banking Committee has jurisdiction as it relates to financial products. You have a problem in that the amendment applies not just to futures but to other derivatives and to swaps, which are under the jurisdiction of the Banking Committee. The problem is, the last time we dealt with this area, we spent 4 months dealing with it in committee. We dealt with it extensively in debate and conference and ended up, in total, taking about 7 months to deal with it.

Mr. GRAMM. Mr. President, first of all, I thank the distinguished Senator for giving me 3 minutes. She did not have to do that. Let me be brief. First of all, if you go back and read the Commodity Exchange Act, as amended, you will find that what I said, in fact, was correct. There are exempt commodities, which have always been exempt, have never been regulated, but they are exempt, except as provided in these paragraphs. Then we go through a reference to anti-fraud, anti-price manipulation, and recordkeeping. So they are exempt from the normal process because these are huge wholesale markets among sophisticated dealers that have never come under regulation. But they are not exempt from anti-fraud, anti-price manipulation, and from recordkeeping. I wanted to be sure that we all knew that was true. The Senator says the working group favored his amendment. There is only one problem with that. Every member of the working group has written a letter opposing the amendment. The Chairman of the Federal Reserve Board, the Secretary of the Treasury, the Chairman of the Commodity Futures Trading Commission, and the Securities and Exchange Commission Chairman are the members of the working group. The Senator takes a sentence from their report that he says bolsters his argument. But every member of the working group who wrote the report, and who is charged with it today, opposes the amendment. I have seen no evidence that anybody who held these positions during the Clinton administration supports the amendment either. Special carve-out? There is no special carve-out. We are getting back to a myth. Let me remind my colleagues that, as I look at the 2000 bill as it was passed, Senator Fitzgerald was an original cosponsor of the bill. What this legislation did was simply clarify to a legal certainty something the President, the Secretary of the Treasury, and the Federal Reserve Board wanted to do, and that was that these sophisticated wholesale products that had never been regulated by anybody in the history of this country--and since we invented them, and nowhere else were they started, that I am aware of--that they were exempt from normal regulation, but they were subject to anti-fraud, anti-price manipulation, and recordkeeping. In terms of buying a stock, that is where all this confusion comes from. The example is a good one, but it has nothing to do with the point. We are not talking about the same product. Every swap is not a future, it is a specific, custom contract. They are not homogeneous. If they are, then they are not exempt. These are individually negotiated contracts. They are not bought by individual, retail investors, such as our colleague from Illinois. They are bought by banks and mining companies and those businesses trying to protect themselves against risk. I thank the Senator from Washington for yielding me this time.

Mr. GRAMM. I am happy to yield for a question.

Mr. GRAMM. No.

Mr. GRAMM. If the Senator will yield, I would respond that, if we had a hearing, I do not think they would be the people we would call on to give us advice. I was thinking of the Chairman of the SEC, perhaps former Chairmen, the Chairman of the Commodity Futures Trading Commission, the Chairman of the Board of Governors of the Federal Reserve System. I might say about Long Term Capital, that they went broke by making bad decisions. They didn't go broke because of the existence of financial instruments. They went broke because they made bad choices in the use of those instruments. You cannot blame the instrument. It is like blaming thermometers--saying I hate thermometers because every time they register above 100 degrees it is hot. It is not the thermometer's fault. So it is clear that we have had people go broke. I guess my feeling is that we simply need to know more about this. As I have said from the beginning, if we can make some simple changes in this I could be for it, and I believe everybody who I quoted here today would be for it. Let me just tell you what the amendments would be. First of all, the focus of this amendment is supposed to be on natural gas and electricity. The problem is, when you get into energy in general, and also into metals, you cast a very wide net. And while the plain truth is--and I believe it--that there is no evidence to substantiate any claim that the price spike in California had anything to do with the existence of derivatives on natural gas and on electricity, under the circumstances and especially given the precedent set in the 2000 law, I am in favor of, and I believe everyone who opposes the amendment is in favor of, strengthening the provisions of law related to antimanipulation, anti-fraud, and recordkeeping. That much we agree to. That part of the amendment is agreed to. But I believe, and all these other groups from the bankers to the Federal Reserve Board, to the SEC, to the CFTC believe, that one of the ways you could improve this--they are all still very nervous about this amendment, even if we made all these changes--but if you could narrow it just to electricity and natural gas they would see that as an improvement. The amendment is about the CFTC, and it ought to be about futures, not about swaps. That is getting into another agenda, and that agenda is basically expanding markets on exchanges. And we should not be getting involved in deciding where a product is bought and sold and who ought to be buying and selling and who should benefit economically and who should not. This whole question of capital is a very important issue. At the risk of just overstating the case and oversimplifying, this is the problem. Many of these mechanisms, whereby trades are sold--or undertaken--just bring buyers and sellers together. They never take ownership of the derivative or the swap. So to make them put up capital based on the transactions, if they don't ever take ownership, how does it make any sense to make them put up some part of $75 trillion when none of their own money is at risk? So that requirement, if you are not very careful, ends up killing off the market for no purpose. If you are not taking ownership, if all you are doing is bringing a bank and an insurance company together, why should you have to put up capital based on the transaction? Then you have the toughest of the issues, and I admit this is a hard one. If you look at it one way, it seems like how can anybody be against it. If you look at it another way, it makes little sense. This is the point. What we have agreed to in this amendment, sitting down--and again I thank the Senator from California for being willing to sit down and try to work it out--what we have agreed to is extensive recordkeeping, under the Commodity Exchange Act. Any of these platforms that bring together buyers and sellers of these instruments would have to keep records for 5 years--which is the same thing that any futures dealer has to do. They would have to keep them at a level where the individual transaction could be reconstructed. They would have to make it available to the CFTC when the CFTC is looking at a potential for fraud and a potential for price manipulation. And they have to provide it in whatever form the CFTC wants: price, trading volume, other trading data to the extent appropriate, which the Commission determines as being appropriate. The question is, Should they have to make it public? This is the question. When you are talking about the prices that you and I see every day when we go to Wal-Mart or when we go to buy a pair of tennis shoes, we are used to dealing in the world we deal in as consumers where people not only want to make prices public, but they pay money to publish them in the newspaper. But Wal-Mart does not make public what it pays for the things it buys. Wholesale transactions in America are proprietary information. So that is part of the reason you have this tremendous opposition from the entire financial structure of the country. Everyone has agreed to the CFTC having the data in whatever form they want, and the ability to intervene. But when you are dealing with wholesale proprietary information as to how people are brought together in these transactions, where if I am a trading floor, or if I am one of these people who is a middle man, bringing buyers and sellers together, and I have a way of doing it, I don't want to share my trade secrets with somebody else. So we are not talking about retail prices. The CFTC has total access if there is fraud, price manipulation--they can intervene. But in terms of these wholesale transactions requiring that these prices be made public, and that these transactions would be made public, it would be like requiring a shoe store to make public what it paid Nike for tennis shoes. That is something we do not do in any industry in America of which I am aware. Granted, if you are choosing which side to be on in the debating club in high school, you want to be on the side of disclosure of wholesale prices. But if you are trying to have efficiency in the running of the greatest economy in the history of the world, you want retail prices to be public, you want the Government to have access to data so, if somebody is engaged in an illegal, fraudulent, or manipulative activity, you can intervene, but to make people make public wholesale prices is something we do not do because that is proprietary information. How people put their business together, what kind of deals they make with Nike--that is private information. So I urge my colleagues, again: Can we focus this down on electricity and natural gas to be sure we do not have these unintended consequences? Second, can we focus it just on futures? Third, can we at least require that capital requirements are not based on the transactions that come through your purview but on any risk you take or ownership you take? Can you imagine if you had some job collecting money and consummating transactions for somebody, and you had to put up capital based not on what you invested or the risk you have, but of your gross and net volume? No company in America that has a huge volume could possibly deal with the problem. When you are dealing with a $75 trillion industry, it becomes even more important. And, finally, any information that Government needs to prevent wrongdoing in wholesale transactions--if there is something we have not agreed to that would make people feel more confident, I am willing to sit down to try to see if we can work it out. But proprietary information on a wholesale level is something that we do not do in other places. So I urge my colleagues, if we can, there are two ways of working this out, it seems to me: One, to do an amendment to send the matter to these three agencies for evaluation on an expedited basis. Let them report back. Let the committees of jurisdiction hold a hearing so we can hear from people who know something about this area, rather than simply talking among ourselves. That is one approach. Another approach is to go back one more time and see if we can deal with these concerns. When the people who have been entrusted by us to make these markets work, and work fairly, and work efficiently--such as Chairman Greenspan--when they and their staff have raised an issue, it seems to me we have an obligation to try to see if we understand it and to see if we can fix the concern. So my guess is we are probably agreed on 90 percent of the things that are in this amendment. But the 10 percent we differ on is very important. Finally--and I will conclude because I see the leader, with the right of prior recognition, in the Chamber--let me say if we could work something out, I think we would serve the public's interest. I think having a series of votes, where we really do not understand what we are doing, is not in the public's interest. You feel uncomfortable as a Senator saying that, but these are complicated issues. Mr. President, I yield the floor.

Mr. GRAMM

Mr. GRAMM. Mr. President, I do not object. I think I have 5 minutes reserved to speak on the amendment.

Mr. GRAMM. Mr. President, first of all, I congratulate my dear colleague from Georgia. I thank him for his leadership on this issue. I say to him I am very happy again to be married up together, promoting the interests of the people who do the work and pay the taxes and pull the wagon in America. If you want to know how far out of touch with reality this Congress is, all you have to do is look at this CAFE standard debate. The American people want to be safe in their cars and trucks, and they have work to do. It is not uncommon in my State for people to get up in Corsicana at 4:30 in the morning, get in their pickup, drive to Dallas, work all day and work that pickup all day until 6 or 7 o'clock at night and then drive that pickup back to Corsicana. Every morning in small towns all over this country, people who work for a living and get their hands dirty in the process use their pickups for transportation and to make a living. There are not good substitutes. Our colleagues tell us: Oh, there are substitutes. We can have a substitute for the pickup. You don't need that big Dodge. You don't need that Chevrolet. You don't need that Ford. You don't need that Toyota pickup. They have an alternative. But they don't live in Mexia. They don't carry around tools. They are not hauling lumber. They are not getting their hands dirty working for a living, and they are totally and absolutely out of touch with the people who do the work in this country. Our amendment simply says: Leave pickup trucks alone. Try as I may to understand people who have a different mindset than I do--and I know many of my views are hopelessly out of fashion--but try as I do to understand it, sometimes I cannot. We will impose billions of dollars of cost on little towns to try to change arsenic standards for drinking water based on a projection of a very small effect on the health and lives of Americans. But, yet, when the National Academy of Sciences, the most prestigious scientific body on the face of the Earth, concludes that the existing CAFE standards may be costing as many as 3,600 lives a year--we are not talking about the new standards, we are talking about the old standards--the people who go absolutely ballistic over these little towns are nowhere to be seen. If Fallon, NV, has arsenic in its drinking water, and if the mayor and his children and grandchildren have been drinking it for years with no appreciable effect or no effect, we have no doubt in our mind about imposing those costs because we are so concerned about an effect on people. Yet, when hundreds of times as many people are killed by these CAFE standards, we act as if that is all right because fuel efficiency is a good goal. I don't know a better goal than to have people drive pickups. I don't know any more reliable Americans than those who drive pickups. I don't know people who more deserve good government than people who drive pickups. So this amendment is critically important. Finally, if anybody cares about the automobile industry, let me remind my colleagues that we are trying to get out of a slowdown, a minor recession. We have just had the administration impose tariffs up to 30 percent on steel and while many Members of Congress support that, I do not. This action means money will be taken right out of the profit margin of American automobile producers because the Germans and the Japanese are not going to pay these higher prices for steel. If we come in now with these new CAFE standards on big-selling items such as pickups, this will further hurt automobile manufacturers and their workers. In my State, pickups are the largest selling vehicles. If you take trucks in general, trucks in general outsell cars in Texas. My guess is that is true in most of your States. I urge my colleagues to vote for this bipartisan effort on behalf of people who drive and use pickups--people who do the work and make America work, and who deserve to be represented on the floor of the Senate. I am proud that Senator Miller has seen the day that they are represented.

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask for the yeas and nays.

Mr. GRAMM. Mr. President, I move to reconsider the vote.

Mr. GRAMM

Mr. GRAMM. I move to reconsider the vote.

Mr. GRAMM. If the Senator will yield, I thought we had something worked out where the Senator from Arizona, Mr. Kyl, would have a sense- of-the-Senate resolution on making the repeal of the death tax permanent and that the Senator from North Dakota, Mr. Conrad, would have a parallel measure with a sense of the Senate about the Social Security trust fund, and that we would have an opportunity to vote on each so it would be technically possible that both could go into the bill. If, on the other hand, the Conrad amendment is a substitute for the Kyl amendment and would, in the process of being adopted, kill it, then what we want is an up-or-down vote on the Kyl amendment. We certainly don't object to an up-or-down vote on the Conrad amendment. We don't think it is relevant because 9 years from now, when this would go into effect, we will have a surplus far larger than the repeal of the death tax. But if we could do it where they are parallel, as I understood we were going to do it, I think we can get a time limit and finish our business. If the Conrad amendment is a substitute so that we are not going to get to vote on a sense of the Senate to repeal the death tax, I don't think we will get an agreement.

Mr. GRAMM. Mr. President, I agree with every word Senator Conrad said. Senator Conrad laments that we are not keeping our promises of not raiding the Social Security trust fund. In fact, in his resolution he talks about not using it for tax cuts or spending. I remind my colleagues, only a few hours ago on rollcall vote No. 25, we waived the Budget Act to steal $2.4 billion out of the Social Security trust fund. If people look at that vote--I voted against it, the Senator from Arizona voted against it--the Senator from North Dakota voted for the budget waiver that did exactly what he laments today. In the same day we talk about not spending the Social Security trust fund on making the death tax repeal permanent, we waive the Budget Act to take $2.4 billion of it to pay subsidies while we continue to talk about the poor versus the rich. Where did the subsidies go? A select group of people, generally very high income people. It is very instructive to note that while the assault on making the repeal of the death tax permanent is an assault that is claimed to be protecting Social Security, this very day those who have launched the assault voted to raid the Social Security trust fund when we have a deficit where we are spending Social Security trust fund money and borrowing money. That did not prevent the Senate from spending another $2.4 billion this very single day. That shows how this whole amendment rings hollow. It does not end there. Let me read this language of the Conrad amendment: Therefore it is the Sense of the Senate that no Social Security surplus funds should be used to pay for making currently scheduled tax cuts permanent or for wasteful spending. Who gets to define ``wasteful''? Does that mean every effort to make the death tax repeal permanent is equivalent to wasteful spending? In fact, was adding $2.4 billion to an already bloated farm bill less or more wasteful than making the death tax repeal permanent so that farmers and ranchers will not lose their farms and ranches when they die? A final point before I turn to the amendment I am for. Senator Conrad acts as if the passage of the Kyl amendment--and we are just doing a sense of the Senate--would spend Social Security trust fund money. Not so. In fact, the Kyl amendment goes into effect 9 years from now. Nine years from now, in the year 2011--in fact, Conrad refers to the administration's estimate. Let me tell you what that estimate is. Nine years from now, when the Kyl amendment would go into effect, by making the tax cut that would be fully implemented permanent, we will have a surplus, according to OMB, of $350 billion. The Social Security surplus will be $290 billion, which is $60 billion less than the surplus we are projected to have. The repeal of the death tax costs $4 billion. So, in fact, if the death tax repeal were made permanent, if we were voting on, not a sense-of-the-Senate resolution but law today--and we are going to get an opportunity to do that, probably on the so-called energy bill--but if we were voting on it today, this permanency goes into effect in 9 years, in 2011, the projected surplus from the administration--contrary to what the sense-of-the-Senate resolution that Senator Conrad is offering says--is $350 billion, the Social Security surplus is $290 billion, giving us an on-budget surplus of $60 billion. Repealing the death tax costs $4.249 billion. So even if we were repealing the death tax and making that repeal permanent, we will not spend a penny of Social Security surplus in the year 2011. Let me also say something about the idea that we are going to have social unrest because we don't make people pay 55 cents out of every dollar they earned in their life to the Government when they die; I think it is stretching someone's conception of social unrest beyond the breaking point. I am opposed to the death tax. None of my people have ever paid a death tax. The only thing I have ever been bequeathed in my life is a cardboard suitcase that my great uncle Bill, my grandmother's brother, left me, full of yellow sports clippings, but I am opposed to the death tax because it is wrong. It is rotten. It is absolutely outrageous that people work a lifetime, they save, skimp, sacrifice, they build up a business, they build up a farm, they build up assets, and then when they die their children have to sell their life's work to give the Government another 55 cents on the dollar tax. I remind my colleagues that the Kyl provision requires people to pay capital gains tax. If you have untaxed income, you are going to have to pay it. But what it does not have is double taxation. I believe the American people understand this issue, and I can honestly say, in speaking in my State and around the country, in white- collar crowds or blue-collar crowds, when I talk about killing the death tax, when I talk about not making people sell their business or sell their farm, people always applaud--whether they expect to pay the tax or not. I think if we view things politically as to who gains and who loses, we often lose in terms of not understanding our own country. This is a question of right and wrong. The death tax is wrong. And the final absurdity is that on the floor of the Senate we claim to be repealing the death tax, Democrats and Republicans voted to repeal it, and yet because of a quirk in the Budget Act we are phasing down the death tax to zero, 9 years from now. So if you die 9 years from now, your children can keep what you have earned, but if you die 10 years from now they have to pay 55 cents out of every dollar of your life's work to the Government. I think that is wrong. I urge my colleagues to vote for this sense- of-the-Senate resolution. We should be making the repeal of the death tax permanent. I don't have any concern about committing ourselves to not spend the Social Security surplus in repealing the death tax. The repeal doesn't go into effect until 2011, at which point we simply make what the tax is on that day permanent. By 2011 we are going to have a surplus that far exceeds the Social Security surplus, unless we do what we did today, which is waive the Budget Act to spend it. I am hopeful that those who vote for the Conrad amendment, tomorrow when we vote on another budget waiver, will vote not to waive the Budget Act. But I hope people will not say to us, ``We are really worried, we are worried we are going to use the Social Security surplus to make tax cuts permanent and to make the repeal of the death tax permanent,'' and at the same time in the same day to take $2.4 billion out of the Social Security trust fund. I do not understand. If you are concerned about the trust fund for repealing the death tax, how come you are not concerned about it when you are spending money on a bloated agriculture bill? I do not think you can have it both ways. I think, in the end, people who vote for this resolution, when we vote on another budget waiver to spend more money, I hope they will say: Look, I voted for the Conrad resolution which said I wouldn't spend Social Security trust funds. So while I would love to spend this money, I cannot vote for the waiver. I bet that many people will vote for this sense-of-the-Senate resolution, then vote not to make the repeal of the death tax permanent, and then the first time we have a vote on busting the budget and spending more Social Security trust fund, they will vote for it. Maybe that sells where you are from. That doesn't sell where I am from. I am for repealing the death tax. I am for making it permanent. The good news is that everyone should know that by doing that we are not raiding the Social Security trust fund. We raided it today when we waived the budget point of order on $2.4 billion. We stole that money right out of the Social Security trust fund, and everybody who voted for that waiver voted to steal that money out of the Social Security trust fund. I am proud I did not. But when we make the death tax repeal permanent, it costs $4 billion in the year 2011, which is when the permanency would kick in. At that point we will have a $60 billion non-Social Security surplus, according to the administration's numbers, if we quit spending money. I urge my colleagues, however you vote on the Conrad amendment, just be sure you read it before you vote and you are ready to live up to it. I am ready to live up to the sense of the Senate to repeal the death tax. I am ready to live up to the sense of the Senate on the Conrad amendment. I would strike out ``wasteful'' because, as we all know, every program you are for is not wasteful. So I thank our dear colleague from Arizona for his leadership. I urge my colleagues to vote for this amendment.

Mr. GRAMM. I send a modification to the desk.

Mr. GRAMM. I move to lay that motion on the table. The motion to lay on the table was agreed to. Amendment No. 2846

Mr. GRAMM. This is a very simple amendment that tries to bring equity to Mexican producers of avocados by collecting the fee in the same way on imported avocados as we do on domestically grown avocados. It also gives the Department of Agriculture an opportunity in 5 years to look at the representation on the board that spends the money to promote avocados. I thank the Senator from California, Mrs. Feinstein, for working with me. I commend it to my colleagues.

Mr. GRAMM

Mr. GRAMM. Mr. President, if the Senator will yield for a moment--I think this is the order in which we appeared on the floor--so we can all make plans, I ask unanimous consent that when the Senator from Texas finishes, I be recognized for 5 minutes, and then the Senator from Georgia be recognized for 5 minutes.