Chuck Grassley

Mr. GRASSLEY

Mr. GRASSLEY. Madam President, pursuant to a public letter to Secretary Sebelius dated September 24, 2009, there is a pending objection to unanimous consent requests for the following nominees: Jim Esquea, nominated for HHS Assistant Secretary for Legislation, and Richard Sorian, nominated for HHS Assistant Secretary for Public Affairs. I ask unanimous consent that a public letter dated September 24, 2009, be printed in the Record.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, today, our body starts debate on expiring tax and health provisions. Around this Capitol building, the nickname of these items is called extenders. I wish to make a couple of points on the process before I get into the substance of the substitute. My first point will reflect on how much the Democratic leadership has avoided a simpler, clearer, bipartisan approach. My second point will consider all of the other time-sensitive, unfinished tax legislation that appears to be abandoned with only a few weeks left in this session. My first point deals with a conscious decision to use a partisan process for bipartisan issues. What I find surprising is that we are taking up a package that, like the HIRE Act jobs bill of a few weeks ago, absolutely belongs to the bicameral House and Senate Democratic leadership. It was negotiated between House and Senate Democratic leaders, with some input from their tax-writing committees and staff. These discussions occurred entirely behind closed doors. As far as I know, it was a Democrats-only discussion. It is not a conference agreement, where things are worked out in a sophisticated conference committee made up of people from the House and Senate. Then, in addition, at the very last minute, the compromise took on the properties of an amoeba. In that amoeba fashion, the House Rules Committee split the bill into two pieces, one dealing with the so- called Medicare doctor fix and the rest of the bill dealing with the balance of that package. Then, under the magic of the House Rules Committee, this amoeba-like bill was reconstituted into one legislative product, and that is the underlying bill Leader Reid has brought before the Senate this very day. I am relieved to see that it appears the Senate will process extenders in a way that is different from the way the HIRE Act jobs bill was handled. It looks as though we Senators will have a chance to represent our constituents and shape this bill, because Leader Reid has not filled the amendment tree or filed cloture at the start of debate. That is a real relief around this body, where amendment trees have been filled and cloture has been filed. Back home, folks wonder why it is taking Congress so long to deal with these routine extenders. As an example: As I left church Sunday in Cedar Falls, IA, a person who has investment in a biodiesel plant wants to know when we are going to pass the biodiesel tax credit bill. Most of the tax provisions expired almost a half a year ago, on December 31, 2009. Folks are angry that Congress seems to be dithering, among other things, on the 71 tax provisions. In my State, it is a biodiesel tax credit that always comes up, but people are wondering about the dithering generally. And, of course, we even have physicians across the country being frustrated that this Congress has allowed a 21-percent cut in payments to go into effect again this year. Payment cuts of this magnitude severely impact physicians and health care providers and practitioners throughout the country, and they significantly threaten beneficiary access to care. Medicare beneficiaries' access to physicians and other needed medical care has been jeopardized this year as never before because Senate Democratic leadership has once again failed to pass an essential physician update in a timely manner. We could have wrapped up this time-sensitive legislative business 4 months ago. We could have taken up a bipartisan package that I put together with my friend, Finance Committee Chairman Baucus of Montana. To be sure, some of the structure in this package reflects the agreement that my friend and I reached. But this package, in terms of the impact on the deficit, is likely several times the size of the package we agreed upon. Virtually all of the additional cost is due to proposals I would not have agreed to in representing my Republican Conference. I was under the impression that the Senate Democratic leadership was genuine in its desire to work on a bipartisan basis, but clearly I was mistaken. Although the Senate Democratic leadership was highly involved in the development of a bipartisan bill, they arbitrarily decided to replace it with a bill that skews toward their liberal wing. That is why we are where we are this very day. There is a liberal agenda that exalts open-ended deficit hiking, spending, and tax increases, and doing it above everything else. Angry vocal members with that view seem to have dominated the decisionmaking of the Democratic leadership in resolving routine items. The actions in the House a couple of weeks ago go on to further prove my point. The Senate Republican leaders backed the Baucus-Grassley compromise of last February. To them, it seemed to be a balanced package. It was largely offset, it was leaner than most Democrats wanted, but it was thicker than most Republicans wanted. Republicans preferred a fully offset package using spending cuts; Democrats resisted most spending cut offsets and wanted many multiples of the level of spending with which Republicans were comfortable. So it is ideal, because this is the way it works most of the time between Senator Baucus and me. The Baucus-Grassley compromise was a genuine middle ground. But for the liberal core of the Democratic caucus, it was their way or the highway. Leader Reid responded to that pressure and scuttled the Baucus-Grassley compromise. Ironically, almost 4 months later, it looks as though the Democratic caucus is moving closer to the structure of the Baucus-Grassley compromise of last February. The Senate Republican Conference, seeing the alarming growth in deficits and debt in the intervening 4 months, will press hard for a fully offset package. For those in my conference, several fiscal events--and these all occurring in the intervening 4 months since the Baucus-Grassley bill was scuttled--have been compelling on my side of the aisle viewing this legislation a little bit differently. The first event is the second opinions we are receiving on the fiscal impact of the health care bill. The Congressional Budget Office has revised the official spending upward. Mr. President, I ask unanimous consent to have printed in the Record a copy of the CBO's May 11 letter to Congressman Jerry Lewis. The letter is accompanied by two tables that identify explicit authorizations of discretionary funding. These tables are available along with the full text of the letter on the CBO's website at www.cbo.gov.

Mr. GRASSLEY. That letter documents CBO's projections that health reform will result in at least $115 billion in additional spending beyond what was previously included in the total of last March. In addition, Douglas Elmendorf, Director of the Congressional Budget Office, recently indicated that the landmark health care reform bill would not accomplish its primary fiscal objective of reducing Federal health expenditures. Dr. Elmendorf made this point in a presentation to the Institute of Medicine on May 26, of this year. The presentation is titled ``Health Costs and the Federal Budget'' and is available on the CBO website as well. The second event is the record buildup of public debt. Last week, the Federal public debt passed $13 trillion. On that monstrous number, $1 trillion was added in the last year all by itself. The third event is the continuous mounting of the cost of the stimulus bill. Recent Congressional Budget Office scoring shows that policy, instead of being roughly $800 billion, is now exceeding $1 trillion. The fourth event is the fiscal troubles in the country of Greece. Too much spending and public debt has put Greek public finance in a state of distress. The fifth event is the troubling developments in States with large open-ended social spending programs and already very high income taxes. The people who send us here are also reading these reports and they are rightfully worried about these fiscal troubles. They are sending one message to Washington, and it is as clear as any bell. They are saying: Reverse course on deficits and debt. They say we in Congress ought to restrain ourselves and our policies; pull back on extra spending. Republicans heard that message a while ago, and it looks to me as though Democrats are hearing the same thing. To sum up at this point, on the first point I have been speaking about--on process--the Democratic leadership, by avoiding a genuine bipartisan compromise, is continuing to take a very long path to resolving this overdue unfinished business. The bipartisan path to succeed was set forth almost 4 months ago--early February--and that was the Baucus-Grassley compromise. Unfortunately, the tax offsets--largely noncontroversial--were lifted from that compromise and used for something totally unrelated, but to cover the bloated spending in the health care bill. To retain the spirit of that compromise, those offsets would need to be replaced by restraints on spending. Republicans, in our alternative, will show the way to achieve those savings. As has been the case for the last year and a half, those who pay income tax and those who receive government checks aren't treated similarly. Even with those revisions, keep in mind on net, the taxpayer is paying at least $40 billion more in this bill. Spending constituents receive almost $100 billion in new spending. My second process point goes to time-sensitive legislative business that is yet unfinished in terms of revenue and taxpayers affected. The other unfinished tax legislative business dwarfs the measures in this bill now before the Senate. There are three major policy areas that need to be addressed. I do not know when they are going to be addressed. These three issues are the death tax, the current alternative minimum tax fix--that is an annual process we go through--and, three, the bipartisan 2001 and 2003 tax relief plans. So I want to go into these in some detail. I have a chart that shows the status of these three policy issues. Let's start with the death tax, or the estate tax, whatever you want to call it. Since the first of the year there has been no death tax. If you died, up to this point, presumably, your estate is going to be tax free. At the end of this year, the death tax then reappears, and not in a very friendly way. After failing to act for almost 3 years in the majority, the House Democratic leadership put a death tax reform measure before the House last year at the same time it should have been discussed in the Senate. But the Senate has not acted on the House bill. I might suggest to you that we had to act on that health care bill because it takes effect in 2014, but tax extenders and the estate tax that had to be settled in December were not even discussed. In Iowa I can tell you that confusion and the anxiety over the uncertain state of the death tax comes up in my town meetings all the time. I would be surprised if other Senators are not hearing the same thing. I got a letter signed by 750 lawyers and accountants in my State saying: How do we advise our clients? What is the estate tax going to be for the future? It is not a case of just what the tax law is, it is the case of millions of people wanting to plan estates and cannot do it. I refer again to my friend, Chairman Baucus, who was working on a compromise proposal with Senators Lincoln, Kyl, and myself. Unfortunately, the liberal core of the Senate Democratic caucus seems to prefer no action at all. My friend, the junior Senator from Vermont, has been transparent about his desire to leave the law as it is; in other words, next year only have a million-dollar exemption. Others feel just as strongly, but perhaps are not as transparent as the junior Senator from Vermont. In any event, the effect of failing to reform current law will be to raise the number of people hit by the death tax by a factor of 10 times. What I am saying is, stalling out a bipartisan reform, which seems to be the liberal core's objective, will likely mean 10 times as many family farmers and small businesses will be hit with the death tax. A reform like the one envisioned by Senators Lincoln and Kyl will mean only the richest 10 percent of dead peoples' estate will face the death tax. Now I would like to turn to a second major area of unfinished business; that is, the alternative minimum tax fix. This is one of those yearly or biannual things the Congress goes through so that middle-class Americans will not pay a tax that was meant just for the very wealthy. So we are talking about this year's tax fix already. The law says 30 million Americans, or maybe more accurately 24 million Americans, ought to be paying this income tax right now. The trouble is they do not file until next year, so it gives us a chance to do something about it. But for those filing quarterly, if they are not taking that into consideration they are violating the law. In the next week, on June 15, the second installment of this year's estimated income tax is due. Last year, 24 million middle-income families were spared from the unfair hit of the alternative minimum tax. The fix meant $2,300 per family. This year those figures are going to go up. If the law is not changed, all those families will have to pay at least $2,300 more per family. In my State of Iowa, it means at least 124,000 middle-income families will be paying additional income tax that was only meant for the very wealthy. No bill has been marked up or passed in the House that deals with this problem. Under current law, some of these millions of families should be paying estimated tax next week, June 15. Finally, let's take a look at the third major area of unfinished tax business. Here we have a chart, and I am referring to the widely applicable rate cuts in family tax relief from the 2001 and 2003 bipartisan tax relief plans. Virtually every American who pays income tax, and millions more who do not under current law, will have a higher tax bill if we do not extend the 2001 and 2003 bipartisan tax relief bills. For years I have referred to the sunset of these plans as a tax wall. Middle-income families will run right into a very firm wall of tax increases. For a family of four with an income of $50,000, that tax wall is $2,300. For a single mom with two kids earning $30,000, that tax wall is $1,100. No bill has been marked up or passed in the House that deals with this problem. You may hear some on the other side say: Too bad about the sunset. They argue that the bipartisan group wrote the tax relief plans with a sunset. The sunset, therefore, is the responsibility of the bipartisan authors of these plans. If that argument is advanced by members of the current majority, keeping in mind they have had control of Congress for 3\1/2\ years, I wait for that as an opportunity to quickly respond. My response will be to provide a citation of all of the filibusters led by the Democratic leadership on Republican attempts to make all three of these areas of bipartisan tax relief permanent law. The bill before us has very timely and important measures. In nearly all instances, the expiring tax provisions are treated the same way as they were treated under the Baucus-Grassley agreement of almost 4 months ago, going back to early February. I thank my friend, the chairman of the committee, Senator Baucus, and the Democratic leadership for holding on to those pieces of the Baucus- Grassley agreement. Especially important is an extension of the biodiesel tax credit because we have thousands of workers--and I have seen the figure of 23,000--who have been idled throughout 44 States of the United States as they have shut down the plants. So if you really want a jobs bill, reinstate the biodiesel tax credit and you will put thousands of workers in Iowa back to work, and about 23,000 nationally. Likewise, Iowa companies, such as Rockwell Collins in Cedar Rapids, IA, have taken charges to earnings as the research and development credit has lapsed. Unfortunately, there are some notable deviations from the Baucus-Grassley agreement of last February. Two pieces of the Midwestern disaster relief package were dropped from the Baucus- Grassley agreement in the Senate bill. The alternative fuels credit was altered to remove coal-to-liquids and other promising cutting edge technologies. The bill before us actually also leaves out some very important provisions of rural health care. These rural health care provisions where included in the Baucus-Grassley agreement of last February but have since been dropped by the Democratic leadership. Here again we will have a Republican alternative that will show the way on including these important items and having them offset; in other words, they will be paid for. These important rural health care provisions would keep ambulances running in rural areas and improve Medicare payments for both urban and rural hospitals so they are able to keep their doors open. There is also an important provision left off the bill that ensures that physicians in rural areas are paid fairly relative to urban States. Is that such a hard thing to figure, that if you are under Medicare, a national program, you ought to be treated the same in rural areas as urban America? The bill before us also fails to protect beneficiaries from having their physical and occupational therapy cut off. It also fails to extend the add-on payment for Medicare mental health services furnished by psychologists and mental health counselors. This add-on has been critical in improving access to mental health care services for Medicare beneficiaries and even military personnel suffering from stress and other mental health issues. Again, the Republican alternative will afford these protections and offset the costs; in other words, it will be paid for. The bill before us also fails to extend the Q-I program, which provides assistance to low-income beneficiaries. The Q-I program covers the Part B premium and out-of-pocket costs for seniors. Without it, many low-income seniors will be forced to decide between getting needed medical care and basic necessities such as food. The bill before us misses the opportunity to fix the incredibly short-sighted policy in the health reform bill that created a Medicaid payment cliff for primary care providers. Have we not learned anything from our Medicare provider payment problems? The Republican alternative converts the 2-years of additional payments to Medicare providers to a grant program to get States to increase payments to providers. The same dollars, but we do not end up having a cliff where there will have to be a lot of money made up at some future time. On the offsets side, as I indicated above, revenue raisers that were noncontroversial were lifted, and these were, in a sense, transferred for yet more spending in that bloated health care reform bill that passed in March. This meant the bicameral Democratic leadership had to yet scrape deeper to this offset barrel. They pulled out a House-passed change on carried interest. They raided the international tax policy area. They moved revenue-raising ideas out of that area and used them to offset proposals like yet another expansion of the Build America Bonds. That is a program I have questioned in the past. This transaction cannot bode well for efforts to reform our outdated and uncompetitive international tax titles. It follows the destruction of the bipartisan tax policy reform of the worldwide interest allocation rules. The losers are U.S.-based companies and their workers. The net tax cost of doing business globally will rise for American-based firms. We already have a noncompetitive corporate tax system. Why would we want to make it more uncompetitive? Why would we want to transfer more jobs overseas? This won't rise for competing firms based in other countries. So Japan, the UK, Germany--name any country--those competing firms will have a leg up because of the tax policy in this bill. Some characterized these generic tax increases as ending a tax incentive for shipping jobs overseas. As I have indicated, the opposite will occur. The embedded higher taxes burden only U.S.-based companies. In a globally competitive environment, with much of the growth in sales overseas, the impact of those taxes will have to be absorbed here in the United States. The after-tax rate of return on those U.S.-based business activities will decline. The costs will have to be cut elsewhere to pull the rate of return back up to a competitive level because, in this global economy, we have to compete. U.S.-based labor and other expenses will, as we might not be surprised, be cut. As with the health care bill, the American people are sending a message to those of us representing them in the Congress. The message is this: Finish these time-sensitive matters and do it in a fiscally responsible manner. Of course, that is a message that has been ignored for several months. Now we get to these tax extenders. They have been attacked as fat-cat tax breaks one week. Then a week later the same critics have labeled them as job incentives. They have been hijacked and manipulated for partisan purposes. That is why, 4 months after scuttling a bipartisan compromise on bipartisan policy, the Senate finds itself struggling to complete this bill. It could have been done so easily in February. This is somehow routine, unfinished business the American people rightly expect us to complete. I yield the floor.

Mr. GRASSLEY

Mr. GRASSLEY. As the majority struggles in an attempt to pass another massive deficit spending bill through Congress, biodiesel plants in Iowa and 42 other States continue to lay off workers because the Democratic-controlled Congress has not extended the biodiesel tax credit. This is a simple and noncontroversial tax extension that will likely reinstate more than 20,000 jobs nationwide and about 2,000 jobs in my State of Iowa alone. These jobs have fallen victim to a tactic used by the Democratic leadership to hold this popular and noncontroversial tax provision hostage to out-of-control deficit spending here in Washington. This past February I worked out a bipartisan compromise with Chairman Baucus to extend the expired tax provisions, including the biodiesel tax credit. However, the Senate majority leader decided to put partisanship ahead of job security for thousands of workers, and that compromise did not move ahead. So I am here again to try to put thousands of Americans back to work producing a very clean and renewable fuel. Therefore, I ask unanimous consent to proceed to H.R. 4853; that my substitute, which contains a 1-year extension of the biodiesel and renewable diesel tax credits for all of the year 2010, be agreed to, and the bill, as amended, be read a third time and passed.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I find myself agreeing with the Senator from South Carolina. I find myself agreeing--I am glad my colleague Senator Wyden also agrees. I raise this point, and I raise it for a point of discussion and consideration, not to challenge the purpose of the Senator from South Carolina. It seems to me that if we all agree the Wyden-Grassley amendment is a good approach and at least Senator Wyden and I and Senator McCaskill and Senator Coburn and Senator DeMint believe the McCaskill-Coburn measure is a good measure, why would you want to hold up the Grassley- Wyden amendment? Is there a feeling that maybe the McCaskill-Coburn measure cannot rise and fall on its own? Then I think you might leave the impression that there is some subterfuge to see that the Wyden- Grassley bill does not get adopted. Since there is a consensus on all these points, I think we ought to be able to move forward in a separate way and not use one good idea to leverage another good idea because if they are both good ideas, they can stand on their own. In the process, we do not have to then raise any questions about the legitimacy of the second idea, which would be the McCaskill-Coburn idea on reading legislation and making sure we have a score and making sure it is brought up in an environment where there is not secrecy. Again, what I said about secrecy in this body, it should only affect national security and people's personal privacy. Everything else ought to be the public's business. It is the public's business, and it ought to be public. I raise the point that each item ought to stand by itself and that the five of us--and there are more than five of us, but at least on the Wyden-Grassley amendment, there seem to be at least three people in this body speaking this morning who think it ought to move forward, and there are at least three in this body, plus two others who are not here, McCaskill and Coburn, who feel the other idea ought to move forward. We ought to move forward separately with the help of everybody involved. I yield the floor.

Mr. GRASSLEY. Mr. President, I thank my colleague from Oregon for keeping up the fight. We have been at it for a long period of time. There has been a dry spell recently when this has not been a major issue. So we didn't feel, when there wasn't an interest in getting rid of secrecy within the Senate, like bringing this up. But now there is all this concern about what is going on with so many holds in the Senate--either bills or nominations--and that it is influencing the productivity of the Senate. There has been a lot of discussion on the floor of the Senate about this issue, so the opportunity is ripe once again. This is the fourth or fifth time in the last couple weeks we have been at it. I thank my colleague from Oregon for keeping up the fight. I am glad to work with him as a Republican, and a lot of other Republicans who support this effort of making the public's business more public, the Senate's business more public. Senator Wyden went into the details of the legislation, so I am not going to repeat that. But I want people to know that, from my side of the aisle, he has given an accurate representation, through his explanation, of the intent of our amendment. Without repeating that, I have made it a practice for a long period of time--I don't know, it has been 10 or 12 years--that when I put a hold on a bill or put a hold on a nomination, I have put a statement in the public record so that they know the Senator from Iowa has done this and my reason for doing it. I want to tell my colleagues who think we ought to maintain the adjective before the word ``hold,'' it hasn't done any harm to me. There has been no retribution because of it. It has given people on a different side of the fence on the issue that I am--with my having a hold on--the opportunity to know it is me, and they can come to me for whatever reasons they want, and see whatever arrangements we can make, or whatever compromises were necessary to move things along; and they knew it was this Senator from Iowa and my rationale behind it. It gives us an opportunity to work out differences. That is what the Senate, being a deliberative body, is all about. On the other hand, when this Senator from Iowa finds that somebody puts a hold on a nominee or a bill I have an interest in, and it is secret, then this Senator can't go to the other Senator and say, what is the problem? What can we do to work out our differences? Then that impedes the deliberative work of the Senate. We feel there is nothing wrong with the process of a hold, except for the adjective ``secret,'' which can legitimately be put in front of the word ``hold.'' We want to preserve the deliberative aspect of the Senate. We don't want anybody to pull a quick one on anybody. The hold prevents that from happening. But we ought to know who you are and why you are doing it. This legislation the Senator from Oregon and I have put forth will do exactly that. It is all about transparency and, with transparency, I think you get accountability. That is what representative government is all about--accountability. The public ought to have a right to know where Senators take a stand. This legislation will permit that. In the final analysis, if you are a Senator who has guts enough to put a hold on a bill, you ought to have guts enough to let us know who you are. I hope that from now on the word ``secret'' is never anything that is used in the Senate except on things dealing with privacy or national security. Beyond that, the other 99.5 percent of the Senate's business ought to be totally open to the public. I yield the floor.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. GRASSLEY

Mr. GRASSLEY. Madam President, I am pleased to join my colleagues, Senator Casey and Senator Kohl, in submitting a resolution to designate May 24, 2010 as the ``Prescription Drug Disposal Awareness Day.'' The abuse of prescription narcotics such as pain relievers, tranquilizers, stimulants, and sedatives is currently the fastest growing drug abuse trend in the country. According to the most recent National Survey of Drug Use and Health, NSDUH, nearly 7 million people have admitted to using controlled substances without a doctor's prescription. People between the ages of 12 and 25 are the most common group to abuse these drugs. However, more and more people are dying because of this abuse. The Centers for Disease Control and Prevention report that the unintentional deaths involving prescription narcotics increased 117 percent from the years 2001 to 2005. These are statistics that can no longer be ignored and tolerated. Regretfully, we read about children dying as a result of prescription and over-the-counter drug abuse. An article from February 2009 in the Des Moines Register reports on the death of a 14-year-old Brody Middle School Student who was found dead at his home from an apparent overdose of prescription drugs. The same article reports that 85 percent of drug and alcohol overdoses at the children's emergency center at Mercy Medical Center in Des Moines are from prescription or over-the-counter medicines. Millions of Americans are prescribed controlled substances every year to treat a variety of symptoms due to injury, depression, insomnia, and other conditions. Many legitimate users of these drugs often do not finish their prescriptions. As a result, these drugs remain in the family medicine cabinet for months or years because people forget about them or do not know how to properly dispose of them. However, these drugs, when not properly used or administered, are just as addictive and deadly as street drugs like methamphetamine or cocaine. According to the NSDUH, more than half of the people who abuse prescription narcotics reported that they obtained controlled substances from a friend or relative or from the family medicine cabinet. As a result, most community antidrug coalitions, public health officials, and law enforcement officials have been encouraging people within their communities to dispose of old or unused medications in an effort to combat this growing trend. This is also why I have cosponsored the Secure and Responsible Drug Disposal Act of 2010. This legislation will enable the Attorney General of the United States to issue guidelines to help States and communities establish prescription drug take-back programs. Current law makes efforts to establish these programs difficult and time consuming. However, efforts to get old and unwanted medicines out of the home have shown signs of great promise to be successful if widely adopted. For example, the town of Clinton, IA, has held an annual ``Clean Out Your Medicine Cabinet'' day that has collected over 300 pounds of old or unwanted medicine from the community. This is medicine that will not fall into the hands of a child or stranger or cause potential harm to any user. It is important that we encourage people to dispose of their old or unwanted medicines so that they will not fall into the wrong hands. This is why I am pleased to be submitting this resolution and why I encourage all my colleagues to join us in raising public awareness of this important issue.

Mr. GRASSLEY

Mr. GRASSLEY. Madam President, I am pleased to join my colleagues, Senator Casey and Senator Kohl, in submitting a resolution to designate May 24, 2010 as the ``Prescription Drug Disposal Awareness Day.'' The abuse of prescription narcotics such as pain relievers, tranquilizers, stimulants, and sedatives is currently the fastest growing drug abuse trend in the country. According to the most recent National Survey of Drug Use and Health, NSDUH, nearly 7 million people have admitted to using controlled substances without a doctor's prescription. People between the ages of 12 and 25 are the most common group to abuse these drugs. However, more and more people are dying because of this abuse. The Centers for Disease Control and Prevention report that the unintentional deaths involving prescription narcotics increased 117 percent from the years 2001 to 2005. These are statistics that can no longer be ignored and tolerated. Regretfully, we read about children dying as a result of prescription and over-the-counter drug abuse. An article from February 2009 in the Des Moines Register reports on the death of a 14-year-old Brody Middle School Student who was found dead at his home from an apparent overdose of prescription drugs. The same article reports that 85 percent of drug and alcohol overdoses at the children's emergency center at Mercy Medical Center in Des Moines are from prescription or over-the-counter medicines. Millions of Americans are prescribed controlled substances every year to treat a variety of symptoms due to injury, depression, insomnia, and other conditions. Many legitimate users of these drugs often do not finish their prescriptions. As a result, these drugs remain in the family medicine cabinet for months or years because people forget about them or do not know how to properly dispose of them. However, these drugs, when not properly used or administered, are just as addictive and deadly as street drugs like methamphetamine or cocaine. According to the NSDUH, more than half of the people who abuse prescription narcotics reported that they obtained controlled substances from a friend or relative or from the family medicine cabinet. As a result, most community antidrug coalitions, public health officials, and law enforcement officials have been encouraging people within their communities to dispose of old or unused medications in an effort to combat this growing trend. This is also why I have cosponsored the Secure and Responsible Drug Disposal Act of 2010. This legislation will enable the Attorney General of the United States to issue guidelines to help States and communities establish prescription drug take-back programs. Current law makes efforts to establish these programs difficult and time consuming. However, efforts to get old and unwanted medicines out of the home have shown signs of great promise to be successful if widely adopted. For example, the town of Clinton, IA, has held an annual ``Clean Out Your Medicine Cabinet'' day that has collected over 300 pounds of old or unwanted medicine from the community. This is medicine that will not fall into the hands of a child or stranger or cause potential harm to any user. It is important that we encourage people to dispose of their old or unwanted medicines so that they will not fall into the wrong hands. This is why I am pleased to be submitting this resolution and why I encourage all my colleagues to join us in raising public awareness of this important issue.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I hope we have a chance now, during the final hours of debate, to take into consideration some of the reasons we got from where we have been over the last 3 or 4 years with the bubble, and that bubble bursting a couple of years ago, and the financial crisis and the recession that has come as a result of it. I want to start out with something that is familiar to all my colleagues, something that George Santayana said: Those who cannot remember the past are condemned to repeat it. As the Senate continues to debate the financial regulation bill, I think it is important to consider how we got from where we are today. Many people believe the housing and financial crisis was the result of too much greed on Wall Street. No doubt. No doubt whatsoever; there was plenty of greed on Wall Street. But greed is like gravity--it is a constant of nature. When planes crash we don't blame gravity. If you search the Internet for the term ``decade of greed,'' you will discover that is what some people called the 1980s. There is no reason to believe people are greedier now than they were then. Greed has always existed. The Ten Commandments admonish us not to covet our neighbor's possessions. Everyone is tempted by greed. Some are more successful than others in resisting temptation. But greed alone does not explain our current crisis. We need to look further. Many people blame the crisis on deregulation. According to this explanation, Congress repealed all the rules and let Wall Street run wild. Greedy bankers tricked innocent consumers into taking out risky mortgages and sold them to unsuspecting investors. This explanation views the crisis in terms of victims and villains. If it were only that simple. Obviously, anyone who has committed a crime should be prosecuted to the fullest extent of the law. But this explanation overlooks several important facts: First, the United States is not alone in this crisis. Housing booms and busts are occurring all around the world resulting in government bailouts. According to the Organization for Economic Cooperation and Development--we refer to this as the OECD--nearly a dozen European countries are experiencing bigger housing bubbles than our own. These countries include Australia, Canada, Denmark, France, Ireland, Italy, New Zealand, Norway, Spain, Sweden, and the United Kingdom. The global nature of this crisis shows the problem is not ours alone. Second, we do not have an unregulated free market. Let me underscore that point. This crisis occurred with lots of government involvement. The Federal Reserve controls the money supply. The Federal Deposit Insurance Corporation insures bank deposits. The Fannie, Freddie, Ginnie, FHA, and the Federal Home Loan Bank boards insure subsidized or guaranteed mortgages. We have an entire alphabet soup of government agencies that regulate our financial institutions--CFTC, FDIC, FHFA, FTC, NCUA, OCC, OTS, SEC, plus all the State agencies and the Federal Reserve. Finally, we have adopted a policy of too big to fail. The essence of a free market is the opportunity to succeed and the potential to fail. As economist Milton Friedman observed: capitalism is a profit-and-loss system. The loss part is just as important as the profit part. Profits encourage risk taking and losses encourage what they should--prudence. Unfortunately, we have privatized the profits and socialized the risks. In some cases, we have bailed out individual companies. In others, we have bailed out the financial markets. In recent years, market participants even coined a phrase for such bailouts--``the Greenspan put.'' In other words, Wall Street was betting on former Federal Reserve Chairman Alan Greenspan to protect them from their own mistakes. Recent government bailouts, both industry-specific and market-wide, include Lockheed in 1971; Penn Central Railroad in 1974; Franklin National Bank in 1974; New York City in 1975 and 1978; Chrysler in 1980; Continental Illinois in 1984; the stock market crisis in 1987; Latin American debt crisis in the early-1980s; the Savings & Loan crisis in the late-1980s; the Mexican peso crisis in 1994; Asian financial crisis in 1997; Long-Term Capital Management in 1998; the stock market crisis in 2000; the airline industry in 2001; AIG, Bank of America, Bear Stearns; Citigroup, Chrysler, GM, Fannie and Freddie in 2008. Reducing the cost of failure encourages reckless behavior. When people come to expect and accept government bailouts that's not capitalism--it is cronyism. Until we eliminate the perverse incentives created by these bailouts, no one can honestly say we have an unregulated free market. I do not mean to say regulation is unnecessary. Indeed, the exact opposite is true. Free markets are not possible without laws to protect property and enforce contracts. The problem is government regulation often has unintended consequences. The desire to control human greed through regulation is understandable. But we forget regulators are human too. They are subject to the same temptations as everyone else. History is replete with examples of regulatory capture and government corruption. The revolving door between Washington, Wall Street, and the Fed make these problems even worse. Second, regulation can provide a false sense of security. They encourage people to rely on the government instead of their own common sense. Third, regulation designed to solve one problem often create another problem. That can lead to more regulation and more problems. But most of all, regulation cannot succeed when it is undermined by good intentions. For most of the past century our government--under both Democrats and Republicans--has pursued an ad hoc industrial policy. We have encouraged home building to stimulate the economy, and home ownership to promote a better society. Unfortunately, we pursued these policies by undermining the safety and soundness of our financial system, which was already a house built upon sand. I will have more to say on that later. A review of U.S. housing policy during the 20th century illustrates this point. Consider the government's first major campaign to boost homeownership as described by Steven Malanga of the Manhattan Institute. As Secretary of Commerce, Herbert Hoover declared that nothing was worse than increased tenancy and landlordism. In 1922, Hoover launched the ``Own Your Own Home'' campaign, urging Americans to buy homes. According to Hoover, homeowners work harder, spend leisure time more profitably, live finer lives, and enjoy more comforts of civilization. He urged the lending institutions, the construction industry, and the great real estate men to counteract the growing menace of tenancy. Hoover called for new rules that would allow nationally chartered banks to devote a greater share of their lending to residential properties. Until that time mortgage lending had primarily been conducted by savings and loans, or as they were originally known, building and loans. In 1927, Congress responded by passing the McFadden Act, which allowed national banks to expand their residential lending to encourage homeownership. The act also prohibited interstate branching to protect smaller local financial institutions. Congress would later pass the Riegle-Neal Act of 1994, which repealed the ban on interstate banking, subject to certain limits. This partial repeal followed the savings and loan crisis in the 1980s. Many observers suggest the lack of diversification and concentration of risk among smaller local institutions contributed to the S&L crisis. The housing market boomed during the 1920s right along with the stock market. When stocks crashed in 1929, so did housing. According to one study, nearly 50 percent of the mortgages in America were in default by 1934. As panicked depositors withdrew their money, banks were forced to call in loans or stop rolling them over. Before the Great Depression, home mortgages typically required a substantial down payment--as much as 50 percent. They usually had a very short maturity--as few as 5 years. They often had a balloon payment at the end. Homeowners had to refinance their mortgage or give up their home if they could not afford to pay off the balance when their loan came due. In response to the housing and financial crisis caused by the Great Depression, Congress enacted the Home Owners' Loan Corporation and the Reconstruction Finance Corporation. These programs were designed to bailout insolvent financial institutions; buy up troubled mortgages; and refinance them on more affordable terms. A report by HUD on the history of the era, noted that many borrowers deliberately defaulted on their mortgages to take advantage of these bailouts. One might think of these earlier programs as the original versions of the current TARP and HAMP. In 1934, Congress attempted to strengthen the housing and financial markets by creating the Federal Home Loan Banks--FHLB--to lend money to other banks; the Federal Housing Administration--FHA--to guarantee home loans; the Federal Deposit Insurance Corporation--FDIC--to insure bank deposits, the Federal Savings and Loan Insurance Corporation--FSLIC--to insure the deposits of S&Ls; and the Federal National Mortgage Association--Fannie Mae--to create a secondary market for government insured mortgages. Congress would later abolish FSLIC by merging it with the FDIC following the S&L crisis in the late 1980s. In 1944, Congress passed the GI bill, which provided low interest, zero down payment home loans for servicemen. This enabled millions of American families to move out of urban apartments and into suburban homes. In 1945, President Truman proposed the ``Fair Deal,'' which included several housing proposals, including temporary price controls. President Truman declared: Such measures are necessary stopgaps-but only stopgaps. This emergency action, taken alone, is good--but not enough. The housing shortage did not start with the war or with demobilization; it began years before that and has steadily accumulated. The speed with which the Congress establishes the foundation for a permanent, long-range housing program will determine how effectively we grasp the immense opportunity to achieve our goal of decent housing and to make housing a major instrument of continuing prosperity and full employment in the years ahead. It will determine whether we move forward to a stable and healthy housing enterprise and toward providing a decent home for every American family. I ask unanimous consent to include President Truman's full statement on housing policy in the Record.

Mr. GRASSLEY. In 1949, Congress enacted the Federal Housing Act, which provided Federal funding for slum clearance, urban renewal, and public housing. The act also expanded the FHA mortgage insurance program. To understand the origins of our current housing and financial crisis, it is critical to recognize the role played by the FHA--the Federal Housing Administration. The FHA was created in 1934. At the time, State and Federal laws prevented lenders from reducing their down payments and lengthening the terms of their loans. As I noted earlier, the typical mortgage required a 50-percent down payment and had a maturity of 5 years. These features were considered essential to maintaining the safety and soundness of the banking system. Lower down payments increased the risk of foreclosure because buyers had less equity in their houses. If home values declined, more borrowers might walk away from their homes instead of continuing to make payments on their mortgage. Longer terms increased the risk of insolvency among financial institutions because of an increase in interest rates or a decline in the economy. The FHA challenged conventional wisdom. It sought to waive all of the safety and soundness regulations that applied to the mortgages it insured. According to an article by Adam Gordon published in the Yale Law Journal: The FHA had a compelling economic case for requesting such waivers: Treating insured loans differently from uninsured loans made sense from a safety-and-soundness standpoint. From the banks' perspective, insurance balanced out the risks of lower-down-payment, longer-term loans by guaranteeing that, even if the property value went down and the buyer quit making payments, or if the buyer defaulted twenty years into a 25-year loan, the bank would be made whole by the insurance fund. These assurances and the political pressure for new ways to support homeownership led Congress and every state legislature to rapidly pass the requisite exemptions from bank safety-and-soundness laws. By 1937, all 50 States had enacted legislation giving the FHA free rein to write its own rules with respect to the mortgages that it insured. The results were predictable. Delinquencies, defaults, and foreclosures increased dramatically. The FHA lowered down payments from 20 percent, to 10 percent, and finally to 3 percent by the mid-1960s. As a result, the foreclosure rate increased sixfold, from less than 2 for every 1,000 mortgages to more than 12 per 1,000 mortgages. Almost everyone seemed prepared to accept rising foreclosure rates as the price to be paid for expanding homeownership. However, the FHA soon faced a bigger scandal. Today, we often forget just how much of the pre-civil rights era in America was marked by racial discrimination. The FHA program was a prime example. During its first 30 years in existence, the FHA maintained various policies to deny insurance to minorities. These policies effectively prevented most African Americans from obtaining FHA insured mortgages. Being denied an FHA loan usually meant being denied any opportunity to obtain lower down payments and longer terms because such provisions were still illegal for conventional loans. FHA's discriminatory policies did not end until Congress passed the Fair Housing Act of 1968. Unfortunately, efforts to end racial discrimination marked the beginning of what we now call predatory lending. According to Beryl Satter of Rutgers University: After decades of refusing to insure mortgages in areas with black residents no matter what their economic status, in 1968 the FHA went to the other extreme and told mortgage companies that if they would loan in low-income minority neighborhoods, the FHA would guarantee those loans 100%. Speculators immediately exploited the new policy by buying slum properties, and then bribing someone to appraise the properties at, say, quadruple their real value. Speculators might buy a house for $5000 but get a corrupt FHA appraiser to say it was worth $20,000. Once they had that appraisal, they could easily sell that property for $20,000. So what if the price seemed high? The mortgage lender couldn't lose-- after all, $20,000 was the property's appraised value, and more importantly, the FHA insured the loan 100%. [Speculators] enticed buyers by emphasizing the low down payment rather than the high final cost. People eager to buy on such terms were easy to find. They were usually black or Latino, and often low income. Given the desperate housing shortage facing low income families during that decade of massive inflation, an offer of a home of one's own for $200 down was often irresistible. The speculators made the procedure quick and easy. They did all the paperwork, routinely falsifying the buyers' income to make it look like they could carry the overpriced loan. The lenders didn't ask any questions about these loan applications because the mortgages were fully insured; the creditworthiness of the borrower was therefore of no relevance. Since mortgage companies also made profits through the exorbitant service fees they charged for FHA loans, they made money on every sale, with no risk whatsoever. By 1972, similar abuses of FHA programs were being reported in Boston, New York, Newark, Philadelphia, Wilmington, Miami, Detroit, St. Louis, Seattle, Los Angeles, and Lubbock, Texas. The New York Times noted that FHA-guaranteed loans were being given on ``substandard'' buildings that lacked ``such essentials as adequate heating and plumbing.'' The confluence of inflated mortgage payments and high repair costs meant that the low-income buyer never had a chance. The repossessed buildings sometimes ended up back in the hands of the speculators, who started the cycle anew. While the scandal meant ruin for low and moderate-income home buyers, it meant huge profits for those in the game. . . . The companies exploiting FHA policies were not marginal. In New York top officials of three of the largest mortgage lenders in the region were convicted of housing fraud in 1975. In Brooklyn alone, the U.S. Attorney's office produced a five hundred-count indictment demonstrating that ``real estate speculators, brokers, lawyers, appraisers and bribed FHA employees conspired in the scheme'' to get FHA insurance on slums sold at inflated prices. The FHA planted many of the seeds that ultimately grew into the current housing crisis. The goal of making homes affordable was used to justify the weakening of traditional standards of safety and soundness. The goal of eliminating discrimination was used to justify extending both FHA and conventional loans to borrowers with poor credit and low income. These changes led to rising foreclosures. Lenders responded by charging higher rates and fees to cover their losses. Higher rates and fees increased the cost of buying a home and led to new charges of discrimination on the basis of predatory lending. That led to renewed calls for innovative ways to reduce the cost of housing. That led to a further weakening of safety and soundness standards. All of that brings us to where we are today. Before discussing our current crisis, however, let me conclude my brief review of the history of U.S. housing policy. In the midst of the FHA scandal, Congress created more programs to promote the American dream of home ownership. In 1968, Congress enacted the Truth in Lending Act to require clear disclosure of lending arrangements and costs associated with a loan. Also in 1968, Congress split Fannie Mae into two parts creating the Government National Mortgage Association, Ginnie Mae, which now deals with government guaranteed mortgages, primarily those insured by the Department of Veterans and the FHA. In 1970, Congress created the Federal Home Loan Mortgage Corporation, Freddie Mac, to compete with Fannie Mae. In 1974, Congress passed the Real Estate Settlement Procedures Act to prohibit kickbacks between lenders and settlement agents and require a good faith estimate of all closing costs. In 1977, Congress enacted the Community Reinvestment Act, CRA, to encourage banks to meet the needs of their local communities in a manner consistent with safe and sound lending practices. According to Peter Wallison of the American Enterprise Institute, the CRA had a vague mandate to prevent banks from refusing to lend to qualified borrowers, which was enforced by denying mergers and acquisitions among banks. Initially, enforcement actions were rare. But over time, Congress shifted its emphasis from ``encouraging'' to ``requiring'' and from ``safe and sound'' to ``innovative and flexible.'' Ultimately, the CRA helped undermine the banking system by encouraging more risky loans. As Stan Liebowitz of the University of Texas at Dallas observed: ``From the current hand-wringing, you'd think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards--at the behest of community groups and `progressive' political forces . . .'' But before faulty underwriting helped create the current housing crisis, there was the S&L crisis. The late 1970s and early 1980s saw a dramatic rise in inflation due to the steady erosion of sound monetary policy in previous decades. Rising inflation led to higher interest rates, which threatened to destroy the Savings and Loan industry. S&Ls relied on short-term deposits to fund long-term, fixed-rate mortgages. Rising inflation forced them to pay higher rates to attract new deposits. But they continued to earn the same rate on their existing mortgages. Rising costs relative to a fixed income undermined profits and threatened insolvency. The S&Ls were further hampered by Regulation Q, which limited the interest rate they could pay to attract new deposits. The origin of Regulation Q dates back to the 1930s when Congress authorized the Federal Reserve to set interest rate ceilings. According to proponents, the ceiling on interest rates would encourage smaller rural banks to lend in their own communities rather than send their money to larger urban banks where they might earn more. The ceiling was also seen as a way to increase bank profits by limiting the competition for deposits; in other words, it would prevent banks from engaging in a bidding war for new customers. Regulation Q was extended to S&Ls in 1966. State usury laws also placed limits on the interest rate paid to depositors as well as the interest rate charged to borrowers further undermining the S&Ls' financial viability. Congress took numerous steps throughout the 1980s to forestall the S&L crisis. These steps ultimately failed as more than 1,600 banks and S&Ls were either closed or bailed out by the government. The S&L crisis ultimately cost taxpayers more than $120 billion. The S&L crisis shows the failure of many small banks can be just as costly as the failure of a few large banks. That is a lesson we must not forget as we consider ways to address the problem of too big to fail. In 1980, Congress enacted the Depository Institutions Deregulation and Monetary Control Act to abolish caps on both the interest paid and the interest received. The Alternative Mortgage Transactions Parity Act of 1982 preempted State laws to enable the nationwide use of adjustable rate mortgages, balloon payments, and negative amortization. These flexible features proved useful during the inflationary 1970s and 1980s. But they also set the stage for the emergence of the housing crisis of today. The Secondary Mortgage Market Enhancement Act of 1984 made it easier to issue mortgage backed securities and enabled financial institutions, pension funds, and insurance companies to invest in the top rated tranches of these securities. The Tax Reform Act of 1986 eliminated the double taxation of dividends paid to those who invest in real estate mortgage investment conduits, REMICs. The act also eliminated the tax deduction for interest paid on consumer loans, except for those secured by a home mortgage. These two acts established the path toward the creation of collateralize debt obligations, CDO, and the off-balance sheet entities known as special investment vehicles, SIVs, which featured prominently in the latest crisis. The tax deduction for home equity loans contributed to the overleveraging of housing. The Financial Institutions Reform and Recovery and Enforcement Act of 1989 abolished the Federal Savings and Loan Insurance Corporation; it transferred the regulation of thrift institutions from the Federal Home Loan Bank board to the Office of Thrift Supervision; it allowed bank holding companies to acquire thrifts; it established new regulations for real estate appraisals; it established new capital reserve requirements; it required the publication of CRA evaluations. This act also included reforms of the real estate appraisal system, which had broken down during the FHA scandal in the 1970s, and contributed to the S&L crisis. Despite these reforms, faulty or fraudulent appraisals contributed to the most recent crisis as well. Federal Deposit Insurance Corporation Improvement Act of 1991 allowed the FDIC to borrow from the Treasury and created new capital requirements and risk-based deposit insurance premiums. Moreover, it granted the Federal Reserve authority to lend directly to nonbank firms during times of emergency. This authority increased the moral hazard problem by expanding the scope of potential Federal bailout recipients. This authority played a critical role in bailing out AIG. The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 was enacted, in part, to encourage Fannie Mae and Freddie Mac to increase their service to low- and moderate-income families and neighborhoods. These changes, along with others that followed, served to undermine standards of safety and soundness by allowing Fannie and Freddie to receive credit toward its affordable housing goals by purchasing subprime loans from other lenders. This increased the demand for such loans as well as the amount of funds available to finance them. The 1992 act coincided with a Boston Federal Reserve Bank study on discrimination in mortgage lending. In theory, lenders evaluated the collateral and creditworthiness of those seeking to borrow money. Those applicants who qualify get credit, and those who do not are denied. The Boston Fed study suggested qualified minority applicants were being denied. In response to growing concerns that traditional underwriting standards had a discriminatory impact on low-income and minority families, many housing advocates began to urge the widespread adoption of risk-based pricing. Unlike traditional underwriting, risk-based pricing assumes everyone can qualify as long as they pay an interest rate, or other fee, that reflects their individual risk. Thus, risk- based pricing was viewed as a way to safely implement the flexible underwriting standards needed to eliminate discrimination and expand homeownership. In 1993, the Federal Reserve Bank of Boston published a report entitled ``Closing the Gap.'' This report included recommendations on ``best practice'' from lending institutions and consumer groups. It offered lenders a ``comprehensive program'' to ensure all loan applicants are treated fairly and to reach a more diverse customer base. The report stated: While the banking industry is not expected to cure the nation's social and racial ills, lenders do have a specific legal responsibility to ensure that negative perceptions, attitudes, and prejudices do not systematically affect the fair and even-handed distribution of credit in our society. Fair lending must be an integral part of a financial institution's business plan . . . Even the most determined lending institution will have difficulty cultivating business from minority customers if its underwriting standards contain arbitrary or unreasonable measures of creditworthiness. . . . Institutions that sell loans to the secondary market should be fully aware of the efforts of Fannie Mae and Freddie Mac to modify their guidelines to address the needs of borrowers who are lower-income, live in urban areas, or do not have extensive credit histories. In 1995, the Department of Housing and Urban Development announced a National Homeownership Strategy which stated: The inability (either real or perceived) of many younger families to qualify for a mortgage is widely recognized as a very serious barrier to homeownership. [The Strategy] commits both government and the mortgage industry to a number of initiatives designed to: (1) Cut transaction costs through streamlined regulations and technological and procedural efficiencies; (2) Reduce down-payment requirements and interest costs by making terms more flexible, providing subsidies to low- and moderate-income families, and creating incentives to save for homeownership; (3) Increase the availability of alternative financing products in housing markets throughout the country. Efforts to expand the use of flexible underwriting standards raised obvious concerns about the potential for increased defaults and foreclosures. To address these concerns, numerous groups, both inside and outside government, conducted studies, and proposed new laws and regulations. In 1996, Freddie Mac issued a report to Congress based on its effort to develop an automated underwriting system. The report concluded that it was possible to replace ``subjective human judgment'' with computers that could accurately assess ``multiple risk factors'' and ``identify which loans would wind up in foreclosure and which would not.'' By fairly and objectively accessing individual credit risk, an automated system could eliminate discrimination and strengthen the underwriting process. This study was primarily focused on improving the prime mortgage market by identifying applicants who received prime loans, but shouldn't have, and applicants who did not receive prime loans, but should have. However, the ability to identify risk within the prime market led to the conclusion that it was possible to do the same thing in the subprime market as well. In relatively short order, Fannie, Freddie, and almost every other participant in the home mortgage market adopted computerized systems to analyze and securitize home loans. These new procedures were applied to subprime loans. Of course, risk based pricing also raised concerns that lenders might charge borrowers more than their risk profile would justify. Such overcharges raised the specter of predatory lending. In response, Congress enacted the Home Ownership and Equity Protection Act of 1994 which required disclosures and imposed restrictions on high-cost loans. This act served to highlight once again the difficulty of promoting flexible underwriting to expand homeownership while at the same time trying to protect consumers from discriminatory lending. The Taxpayer Relief Act of 1997 exempted from taxation profits on the sale of a personal residence of up to $500,000, couples, or $250,000, singles. This change provided a boost to home prices by increasing the after-tax rate of return on housing. The Interstate Banking and Branching Efficiency Act of 1994 repealed restrictions on interstate banking. This act was designed to address the lack of diversification and the concentration of risk among smaller local financial institutions that contributed to the S&L crisis. The Financial Services Modernization Act of 1999--also known as Gramm-Leach-Bliley--repealed part of the Glass-Steagall Act of 1933. The extent to which this repeal contributed to the current crisis is the subject of much debate. Glass-Steagall prohibited commercial banks from underwriting or dealing in securities. It also prohibited them from having affiliates that were principally or primarily engaged in underwriting or dealing in securities. It is important to understand exactly what this means. As Peter Wallison of the American Enterprise Institute has explained: Underwriting refers to the business of assuming the risk that an issue of securities will be fully sold to investors, while ``dealing'' refers to the business of holding an inventory of securities for trading purposes. Nevertheless, banks are in the business of making investments, and Glass- Steagall did not attempt to interfere with that activity. Thus, although Glass-Steagall prohibited underwriting and dealing, it did not interfere with the ability of banks to ``purchase and sell'' securities they acquired for investment. The difference between ``purchasing and selling'' and ``underwriting and dealing'' is crucially important. A bank may purchase a security--say, a bond--and then decide to sell it when the bank needs cash or believes that the bond is no longer a good investment. This activity is different from buying an inventory of bonds for the purpose of selling them, which would be considered dealing. The Gramm-Leach-Bliley Act did not repeal the restriction on underwriting or dealing by commercial banks. It only repealed the restriction on affiliates. There is no evidence the activities of any affiliates were large enough to cause the current crisis. On the other hand, as Mr. Wallison noted, there was a critical exception to the Glass-Steagall prohibition on underwriting or dealing by commercial banks. It did not apply to securities issued by Fannie Mae and Freddie Mac. The major commercial banks--such as Citibank, Wachovia, Bank of America, JP Morgan Chase, and Wells Fargo--that got into trouble did so by engaging in activities that were never prohibited by Glass-Steagall. These banks suffered heavy losses because they invested in poorly underwritten, overvalued mortgage-backed securities, including those of Fannie and Freddie. Likewise, the major investment banks--such as Lehman Brothers, Bear Stearns, Merrill Lynch, Morgan Stanley and Goldman Sachs--that got into trouble have always been exempt from Glass-Steagall. As I will discuss later, the demise of these investment banks was due to a new variation on the classic bank run. The Commodity Futures Modernization Act of 2000 authorized over-the- counter financial derivatives. Although over-the-counter derivatives, like credit default swaps, CDS, are exempt from most regulation, those who buy and sell them are not. For example, the acting director of the Office of Thrift Supervision, OTS, recently testified about the American International Group, AIG, one of the major participants in the CDS market. According to his testimony, ``. . . in hindsight, OTS should have directed the company to stop originating CDS products . . . [and] OTS should also have directed AIG try to divest a portion of this portfolio.'' Although AIG was comprised of more than 220 companies operating in more than 130 countries, its primary line of business was insurance. According to a Government Accountability Office report: State insurance regulators are responsible for monitoring the solvency of insurance companies generally, as well as for approving transactions regarding those companies, such as changes in control or significant transactions with the parent company or other subsidiaries . . . In other words, Federal and State regulators had the authority to monitor the financial institutions which were among the largest buyers and sellers of CDS contracts, and take appropriate action to protect their safety and soundness. Unfortunately, the regulators failed to recognize the inherent dangers created by the bubble in the housing market. The Federal Deposit Insurance Reform Act of 2005 raised the limit on deposit insurance; merged the various deposit insurance funds; provided credits for banks for prior contributions; and required rebates when the deposit fund goes above 1.5 percent of deposits. The Credit Agency Reform Act of 2006 required rating agencies to register with the SEC. Despite these requirements, the ratings agency contributed to the most recent crisis as well. Credit ratings agencies--such as Fitch, Moody's, and Standard & Poor's--have been given privileged status as Nationally Recognized Statistical Rating Organizations, NRSROs, since 1975. These agencies played a significant role in the recent financial crisis in two different ways. First, they placed their AAA seal of approval on subprime mortgages that were converted into traunches--or tiers--of securitized loans. Second, they contributed to excessive borrowing because of flawed capital standards. According to government regulations, banks needed $1 in capital for every $25 of single-family home loans. But, if those mortgages were converted into AAA securities, the banks could hold $60 in loans for every $1 in capital. Higher leverage entails greater risk to the financial system. This brief legislative history produces an unmistakable feeling of Deja Vu as one considers where we are today. The current crisis has been summarized along the following lines: In response to the high-tech, dot-com bust in 2000, the Federal Reserve began a series of interest rate cuts reducing the Fed Funds rate from 6.5 percent to 1.0 percent. As cheap credit flooded the markets, financial institutions adopted reckless lending practices under the political banner of increasing homeownership. These practices included liar loans, no verification of income or assets; no-money down, including seller-financed and other third-party contributions, and wrap-around loans; interest-only loans; negative amortization, missed payments are added to the principal; adjustable-rates; and balloon payments. As these risky loans were extended to marginal borrowers who could not afford their overpriced homes, the financial wizards on Wall Street devised schemes to theoretically insure themselves against default. These so called credit default swaps allowed investors who purchased mortgage-backed securities to pay fees to underwriters, like AIG, in exchange for a promise to cover any losses. Because regulators and other market participants did not seriously consider the possibility of falling home prices and rising default rates, these CDS contracts were not backed by adequate collateral to cover potential losses. By allowing those who bought and sold mortgage-backed securities to transfer risk to other market participants, it became more difficult to determine who would suffer the actual losses as home prices began to fall and default rates began to rise. The house of cards collapsed as financial institutions became less willing to lend to each other under the growing cloud of uncertainty. While there is plenty of blame to go around for getting us into this mess, and there were lots of contributing factors, ultimately this crisis was triggered by a new variation on the classic bank run. Here's how Gary Gordon of Yale University describes what happened: In a banking panic, depositors rush en masse to their banks and demand their money back. The banking system cannot possibly honor these demands because they have lent the money out or they are holding long-term bonds [which can only be sold at fire sale prices] . . . the panic in 2007 was not like the previous panics in American history . . . it was not a mass run on banks by individual depositors, but instead was a run by firms and institutional investors on financial firms. According to Mr. Gordon, this run was caused by the collapse of the repurchase agreement--or repo--market. Before the crisis, trillions of dollars were traded in the repo market. No one knows the exact amount because there are no data on the total size of this market or the identity of all its participants. Estimates suggest it could be as much as $10 trillion, which is roughly equal to the total assets of the entire U.S. banking system. As tempting as it may be to blame our current crisis on Wall Street greed and irresponsible deregulation, the truth is a bit more complicated, as I think I have tried to show. To understand how we got to where we are today, it is necessary to review some history and some economics. There have been financial booms and busts throughout recorded history--from tulip mania, the South-Sea bubble, and the Mississippi scheme, to the Mexican peso crisis, the Asian crisis, and the dot-com boom. Economist Hyman Minsky argued there are five stages of a financial bubble: stage 1, investors get excited about some asset or commodity; stage 2, prices rise as more investors enter the market; stage 3, euphoria occurs as financial markets devise new ways to inflate the bubble; stage 4, investors begin to cash-out of the market; and, stage 5, panic sets in as the bubble pops and everyone tries to get out before it is too late. There have been alternating cycles of financial fear and euphoria throughout history. While greed and speculation played an important role, there is another essential element that is all too often overlooked. That critical ingredient is money. The nature of money, the source of its value, and the determination of its supply are topics of extreme importance. Historically, money is believed to have developed from the concept of barter or exchange. Individuals wished to trade one good for another. The most desirable, divisible, and nonperishable goods were designated as money. Cows, wheat, rice, rocks, sea shells, silver, and gold have all served as money throughout history. The development of money soon led to the introduction of banking. Banks served not only as a place to store money, but also as a means to facilitate commerce by granting various types of loans. The deposit of money involves two different concepts. First, a demand, or checking, deposit implies a custody arrangement. The bank maintains 100 percent reserves. Thus, the funds are available at all times to meet the needs of the depositor. Second, a loan, or time, deposit implies a temporary transfer of ownership. The bank is authorized to make loans. Thus, the funds are transferred to someone else who is obligated to repay them at some future date. Initially, most banks recognized and accepted the distinction between these two different kinds of deposits. Moreover, they confined their lending activities within the limits of their total deposits. But they quickly discovered that not everyone sought to withdraw their money at the same time. Thus, they decided they could safely issue as much credit as they desired, as long they retained enough money to meet expected withdrawals. So began the practice of fractional reserve banking. According to economist Jesus Huerta de Soto, early European bankers often sought to conceal their use of fractional reserves while claiming to maintain 100 percent reserves. Only later upon receiving official government sanction did they openly admit to and defend the practice of fractional reserves. The most common defense of fractional reserve banking is that it is highly unlikely that most depositors will seek to withdraw their funds simultaneously. Thus, it is said the law of large numbers permits a bank to safely lend out most of its funds. But as Huerta de Soto observes: . . . in the field of human action the future is always uncertain, . . . The open, permanent nature of the uncertainty . . . differs radically from the notion of risk applicable within the sphere of physics and natural science. History shows beyond a doubt that we cannot predict when a bank run will occur. The creation of deposit insurance and the establishment of a central bank as a lender of last resort would not be necessary if we could predict such events with any degree of certainty. The dangers created by misguided efforts to treat uncertainty of human action as some form of statistical risk is evident in the current crisis. The use of computer models to convert subprime loans into AAA securities ignored the human action of declining underwriting standards and the growing bubble in the housing market. Some observers may be tempted to conclude this crisis is simply the latest in the cycle of booms and busts that inevitably plague mankind. Others may be tempted to conclude we need a brand new systemic risk regulator--in other words, we need someone to oversee the safety and soundness of our entire financial system. The logic behind this approach is that our current hodgepodge of Federal and State regulatory agencies was too busy looking at the individual institutions within their jurisdiction. No one saw the big picture. However, the problem is not that we lack a systemic risk regulator. The problem is we already have a system risk creator, namely the Federal Reserve. Mark Thornton of the Ludwig von Mises Institute describes central banking as a confidence game: The Federal Reserve plays a confidence game with us. A confidence game . . . is described as an attempt to defraud a person or group by gaining their confidence. . . . [The] Fed's basic confidence game [is] trying to gain and maintain our confidence in its system and getting us not to take proper precaution against the negative effects of its policies. . . . [The] Fed's mission [is] to instill confidence in us about the economy while simultaneously instilling confidence in us about the abilities of the Fed itself. The first mission is easy to see because Fed officials are almost always publicly bullish and hardly ever publicly bearish about the economy. The economy always looks good, if not great. If there are some problems, don't worry, the Fed will come to the rescue with truckloads of money, lower interest rates, and easy credit. If things were to get worse, which they won't, the Fed would be able to respond with monetary weapons of mass stimulation. All this is consistent with the viewpoint of mainstream economists who see the business cycle as caused by psychological problems and random shocks. In their view, it is your fault for becoming overly speculative and risky and then lapsing into risk aversion and depression. It is your fault! This may seem like an unfair characterization of the Fed, but consider the following quotes from 2007. Remember, by early 2007 housing prices were falling in many areas. In January of 2007, Chairman Bernanke described the Fed's superhero- like ability to access information, identify risk, anticipate crisis, and respond to any challenge. Mr. Barnanke said: Many large banking organizations are sophisticated participants in financial markets, including the markets for derivatives and securitized assets. In monitoring and analyzing the activities of these banks, the Fed obtains valuable information about trends and current developments in these markets. Together with the knowledge obtained through its monetary-policy and payments activities, information gained through its supervisory activities gives the Fed an exceptionally broad and deep understanding of developments in financial markets and financial institutions. . . . In its capacity as a bank supervisor, the Fed can obtain detailed information from these institutions about their operations and risk-management practices and can take action as needed to address risks and deficiencies. The Fed is also either the direct or umbrella supervisor of several large commercial banks that are critical to the payments system through their clearing and settlement activities. . . . In my view, however, the greatest external benefits of the Fed's supervisory activities are those related to the institution's role in preventing and managing financial crises. Finally, the wide scope of the Fed's activities in financial markets--including not only bank supervision and its roles in the payments system but also the interaction with primary dealers and the monitoring of capital markets associated with the making of monetary policy--has given the Fed a uniquely broad expertise in evaluating and responding to emerging financial strains. I could go on at length reading similar quotes from various Fed officials. But to save on time and embarrassment, I will simply put Mr. Thornton's article in the Record, and skip to his conclusion. Mr. Thornton says: We can see that the Fed is a confidence game. Their public pronouncements, while heavily nuanced and hedged, uniformly present the American people with a rosy scenario of the economy, the future, and the ability of the Fed to manage the market. Ben Bernanke told Congress [in March of 2010] that we are in the early stages of an economic recovery. Of course, he has been saying that since the spring of 2009 (if not earlier). . . . These are the people who said that there was no housing bubble, that there was no danger of financial crisis, and then that a financial crisis would not impact the real economy. These are the same people who said they needed a multi-trillion dollar bailout of the financial industry, or we would get severe trouble in the economy. They got their bailout, and we got the severe trouble anyways. It is time to bring this confidence game to an end. Mr. President, I ask unanimous consent that Mr. Thornton's article be printed in the Record.

Mr. GRASSLEY. The current financial reform bill will not end the cycle of financial booms and busts. This cycle is not the result of green, or capitalism, or animal spirits, or irrational exuberance. Ultimately, it is caused by our failure to recognize and enforce traditional legal principles, namely, the protection of private property. According to Huerta de Soto: It is a remarkable fact that three of the most noted monetary theorists of the eighteenth and early nineteenth centuries were bankers: John Law, Richard Cantillon, and Henry Thornton. Their banks all failed. Law was involved in the infamous Mississippi scheme, and Cantillon was involved in a fraudulent stock trading scheme. Only Thornton escaped controversy because his bank did not fail until after his death. All of these bankers were actively involved in convincing their colleagues and customers of the safety, soundness, and wisdom of violating traditional legal principles. Once upon a time, common sense as well as the law recognized the difference between a demand deposit and a loan deposit. According to Huerta de Soto, ancient Roman law made it clear that bankers carried out two different types of operations. On one hand, they accepted demand deposits, which involved no right to interest and obligated the bank to maintain the continuous availability of the money; and the depositor had absolute privilege in the case of bankruptcy. On the other hand, bankers also received loan deposits, which obligated the banker to pay interest on the money; and the depositor lacked all privileges in the case of bankruptcy. The clear distinction between these two types of deposits began to break down with the unfortunate choice of a penalty for the failure to return a demand deposit. A banker who accepted a demand deposit and later failed to return the money upon demand was obligated to pay a penalty in the form of interest. According to Huerta de Soto, the ban on usury by the three major monotheistic religions--Judaism, Islam, and Christianity--did much to complicate and obscure medieval financial practices. Historically, usury meant charging any interest on a loan. Today, it means charging excessive interest on a loan. Since it was forbidden to pay interest on loans, it is easy to understand how convenient it was in the Middle Ages to disguise a loan as a deposit in order to make the payment of interest legal, legitimate and socially acceptable. For this reason, bankers started to systematically engage in operations in which the parties openly declared they were entering into a deposit contract and not a loan contract. The method of concealment . . . was a simulated [demand] deposit which . . . was not a true [demand] deposit at all, but rather a loan [deposit]. At the end of the agreed-upon term, the supposed depositor claimed his money. When the [bank] failed to return [the money], [the bank] was forced to pay a ``penalty'' in the [form] of interest on [its] presumed ``delay.'' Disguising loans as deposits became an effective way to get around the canonical ban on interest and escape severe sanctions, both secular and spiritual. It would appear the history of banking consists of a continuous effort to eliminate the distinction between these two types of deposits. I do not mean to criticize modern day bankers. I suspect they are largely unaware of this history. They simply operate under the rules as they exist today. Anyone who studies money and banking in college is taught about fractional reserves, deposit insurance, and the need for a central bank to serve as lender of last resort. This is standard fare that passes for higher education around the world. As economist John Maynard Keynes once observed, ``even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist.'' Having said all this, the question remains: Where do we go from here? To answer that question let me return to the topic of money. In a world of paper currency--without the backing of any tangible commodity--the supply of money is ultimately determined by the government. In most countries, the power to create money has been delegated by the government to a central bank. The central bank in turn controls the money supply in a number of ways: buying and selling financial assets-- so-called discount window or open-market operations--and requiring banks to keep deposits at the central bank--so-called reserve requirements. As our Nation's central bank, it is often suggested that the Federal Reserve controls both interest rates and the money supply. However, the only interest rate the Fed controls is the discount rate. That is the rate the Fed charges other banks when they borrow money from the Fed. The Fed generally prefers that banks borrow from each other. So, it usually sets the discount rate higher than the rate banks charge each other. That rate is called the Federal funds rate. U.S. banks are required to hold reserves as a percentage of their demand deposits, but not their loan deposits. These reserves are designed to cover daily withdrawals. On any given day, some banks may have a reserve shortfall, while others may have excess reserves. Thus, banks borrow from each other on an overnight basis. The Fed sets a target for the interest rate banks charge each other--the Federal funds rate--and then it attempts to achieve its target. According to the textbook explanation, when the Fed wants to lower the Federal funds rate, it buys financial assets, such as government bonds, from other banks and pays for them by creating additional reserves. This is sometimes referred to as creating money out of thin air. Since the banks now have more reserves, they are generally willing to lend at a lower rate. When the Fed wants to raise the Federal funds rate, it sells financial assets back to the banks and withdraws the additional reserves. Since the banks now have fewer reserves, they will usually require borrowers to pay a higher interest rate. The Fed can also change the supply of money by changing the reserve requirement. By raising or lowering the reserve requirement, the Fed can control how much money banks must hold in reserve. Higher reserves mean less money is available for banks to lend, and lower reserves mean more money to lend. Although central banks control the money supply in the long run, in the short run individual banks are largely in control. As the Federal Reserve Bank of Chicago explained in its publication Modern Money Mechanics: In the real world, a bank's lending is not normally constrained by the amount of reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank's credit policies and its expectations about its ability to obtain the funds necessary to pay its customers' checks and maintain required reserves in a timely fashion. In other words, when banks make loans, they create new deposits, thereby increasing the money supply. In the short run, banks are free to make as many loans as they want based solely on their expectation of future repayment and their ability to meet required reserves and expected withdrawals, plus their capital requirements. In the long run, central banks control reserve requirements and the cost of borrowing excess reserves. Thus, they can eventually prevent individual banks from endlessly expanding the money supply. Money can be defined as the thing that all other goods and services are traded for, or as the means to achieve final settlement of all transactions. As the means of final payment, money is uniquely valued above all other assets. It is considered to be the most liquid because it is accepted by everyone and it trades at face value. That is, $1 is always equal to $1. Because banks have the power to create money--within limits set by the central bank--they are viewed with a high degree of suspicion. But banks are ultimately at the mercy of their customers because they are obligated to convert deposits into cash. When banks lose the confidence of their customers, they are subject to bankruptcy if too many customers try to withdraw their money. Banking panics in the past led to the creation of central banking and deposit insurance. These government safety nets were designed to prevent the collapse of the banking system. To further limit the risk of a banking failure, the government imposed various standards of safety and soundness. These standards range from underwriting loans to maintaining adequate levels of capital and reserves. While these standards make banking safer, they also make it more expensive. It takes time and effort to evaluate the creditworthiness of borrowers. Likewise, money that is set aside in reserves cannot be used to make a loan and earn a rate of return. As I have outlined earlier, Congress undermined both underwriting standards and capital requirements in an effort to expand home ownership. However, these actions alone would not have likely caused the crisis. Another major contributing factor was the fact that all of the limits placed on traditional deposit-based commercial banking led to the expansion of the alternative securities-based investment banking system. This system is sometimes referred to as the ``shadow'' banking system. While both types of banks are arguably clouded by a fog of confusion, the differences are very clear. Investment banks do not accept or create deposits. Instead, they help businesses and governments raise money by selling their stocks and bonds to investors. To accomplish this goal, they also perform two other important functions. They transform stocks, bonds, or mortgages into securities. This securitization process is designed to diversify the investments and reduce market risk. Many investment banks also serve as market-makers. Just as a commercial bank must meet a depositor's demand for cash, a market-maker must buy securities for cash. However, there are two important differences. Unlike deposits that must be redeemed $1-for-$1, securities are redeemable at the market-price, which could be more or less than the amount originally paid. The other important difference is that investment banks do not have an established government safety net. They do not have access to deposit insurance because they do not have deposits. They do not typically have the ability to borrow from the central bank as the lender of last resort, again because they do not have deposits. Nevertheless, when they lose the confidence of their customers, they are subject to the equivalent of a bank run. That is basically what happened. Investment banks borrowed short term, primarily through repos, and invested long term, primarily in mortgage-backed securities. When it finally became apparent to everyone that mortgage default rates were going up and home prices were going down, the short-term lending came to an end. Without the ability to borrow more short-term money or sell long-term securities at their original price, the investment banks faced insolvency. This was not our first crisis, and it won't be our last. Increased transparency and accountability are necessary, but they are not sufficient. A sound financial system requires a sound monetary policy. That means a strong and stable dollar. The history of U.S. monetary policy, indeed the history of monetary policy around the world, reveals an ongoing effort to devalue money through endless inflation. The reform we need most is to overcome the temptation to purchase prosperity with inflated dollars. Until that goal is achieved, I am afraid the current reform effort will amount to little more than rearranging the deckchairs on the Titanic. Mr. President, I yield the floor. Exhibit 1 President Harry S Truman Message to the Congress on the State of the Union and on the Budget for 1947 January 21, 1946 National housing program Last September I stated in my message to the Congress that housing was high on the list of matters calling for decisive action. Since then the housing shortage in countless communities, affecting millions of families, has magnified this call to action. Today we face both an immediate emergency and a major postwar problem. Since VJ-day the wartime housing shortage has been growing steadily worse and pressure on real estate values has increased. Returning veterans often cannot find a satisfactory place for their families to live, and many who buy have to pay exorbitant prices. Rapid demobilization inevitably means further overcrowding. A realistic and practical attack on the emergency will require aggressive action by local governments, with Federal aid, to exploit all opportunities and to give the veterans as far as possible first chance at vacancies. It will require continuation of rent control in shortage areas as well as legislation to permit control of sales prices. It will require maximum conversion of temporary war units for veterans' housing and their transportation to communities with the most pressing needs; the Congress has already appropriated funds for this purpose. The inflation in the price of housing is growing daily. As a result of the housing shortage, it is inevitable that the present dangers of inflation in home values will continue unless the Congress takes action in the immediate future. Legislation is now pending in the Congress which would provide for ceiling prices for old and new houses. The authority to fix such ceilings is essential. With such authority, our veterans and other prospective home owners would be protected against a skyrocketing of home prices. The country would be protected from the extension of the present inflation in home values which, if allowed to continue, will threaten not only the stabilization program but our opportunities for attaining a sustained high level of home construction. Such measures are necessary stopgaps--but only stopgaps. This emergency action, taken alone, is good--but not enough. The housing shortage did not start with the war or with demobilization; it began years before that and has steadily accumulated. The speed with which the Congress establishes the foundation for a permanent, long-range housing program will determine how effectively we grasp the immense opportunity to achieve our goal of decent housing and to make housing a major instrument of continuing prosperity and full employment in the years ahead. It will determine whether we move forward to a stable and healthy housing enterprise and toward providing a decent home for every American family. Production is the only fully effective answer. To get the wheels turning, I have appointed an emergency housing expediter. I have approved establishment of priorities designed to assure an ample share of scarce materials to builders of houses for which veterans will have preference. Additional price and wage adjustments will be made where necessary, and other steps will be taken to stimulate greater production of bottleneck items. I recommend consideration of every sound method for expansion in facilities for insurance of privately financed housing by the Federal Housing Administration and resumption of previously authorized low- rent public housing projects suspended during the war. In order to meet as many demands of the emergency situation as possible, a program of emergency measures is now being formulated for action. These will include steps in addition to those already taken. As quickly as this program can be formulated, announcement will be made. Last September I also outlined to the Congress the basic principles for the kind of decisive, permanent legislation necessary for a long-range housing program. These principles place paramount the fact that housing construction and financing for the overwhelming majority of our citizens should be done by private enterprise. They contemplate also that we afford governmental encouragement to privately financed house construction for families of moderate income, through extension of the successful system of insurance of housing investment; that research be undertaken to develop better and cheaper methods of building homes; that communities be assisted in appraising their housing needs; that we commence a program of Federal aid, with fair local participation, to stimulate and promote the rebuilding and redevelopment of slums and blighted areas-- with maximum use of private capital. It is equally essential that we use public funds to assist families of low income who could not otherwise enjoy adequate housing, and that we quicken our rate of progress in rural housing. Legislation now under consideration by the Congress provides for a comprehensive attack jointly by private enterprise, State and local authorities, and the Federal Government. This legislation would make permanent the National Housing Agency and give it authority and funds for much needed technical and economic research. It would provide additional stimulus for privately financed housing construction. This stimulus consists of establishing a new system of yield insurance to encourage large-scale investment in rental housing and broadening the insuring powers of the Federal Housing Administration and the lending powers of the Federal savings and loan associations. Where private industry cannot build, the Government must step in to do the job. The bill would encourage expansion in housing available for the lowest income groups by continuing to provide direct subsidies for low-rent housing and rural housing. It would facilitate land assembly for urban redevelopment by loans and contributions to local public agencies where the localities do their share. Prompt enactment of permanent housing legislation along these lines will not interfere with the emergency action already under way. On the contrary, it would lift us out of a potentially perpetual state of housing emergency. It would offer the best hope and prospect to millions of veterans and other American families that the American system can offer more to them than temporary makeshifts. I have said before that the people of the United States can be the best housed people in the world. I repeat that assertion, and I welcome the cooperation of the Congress in achieving that goal.

Mr. GRASSLEY

Mr. GRASSLEY. Mr. President, I rise to recognize the sacrifice of a brave young Iowan, LCpl Joshua M. Davis, who died from wounds he received while supporting combat operations in Helmand Province, Afghanistan. He was 19 years old. Josh's loss will be felt very deeply in his hometown of Perry, IA, where his drive and leadership skills were recognized early on as a member of the football and wrestling teams and SkillsUSA. He was determined to serve his country and joined the Marine Corps right after high school, even graduating a trimester early to start basic training. Accounts describe Lance Corporal Davis as humble, but his sense of patriotism and service humbles me and makes me proud to be an Iowan. Learning about the life of this remarkable young man makes the knowledge of his tremendous sacrifice all the more poignant. My thoughts and prayers will be with his family at this time, including his father Dave, his mother Beverly, and all those touched by his loss. I cannot adequately express the debt of gratitude we owe, but I ask all Senators to reflect on, and pay tribute to, the life of a great American, LCpl Joshua Davis.

Mr. GRASSLEY

Mr. GRASSLEY. Madam President, I ask unanimous consent to waive the reading of the amendment in the whole.

Mr. GRASSLEY. Mr. President, the Senator from Missouri, my friend, has given a very good explanation of this bill. Before I give my version of it, which will be similar to hers, I wish to compliment her because she is in a position of jurisdiction over IGs. She has done a very good job of strengthening these positions in other legislation she has sponsored. So I feel very good to be in the company of the Senator from Missouri on this amendment. Our amendment would correct serious problems in section 989B of the Dodd-Lincoln substitute. This section of the bill would change the way that five inspectors general are hired and fired. Currently, these five inspectors general are hired and fired by the agency that they oversee, but section 989B would put the President in charge of hiring and firing them. This provision was included because the sponsors of the legislation believe that making inspectors general Presidentially appointed will make them more independent. However, rather than strengthening oversight over our financial institutions with more independent watchdogs, section 989B could introduce politics into what have traditionally been career, nonpolitical positions. Under the Inspector General Act of 1978, there are two types of inspectors general, presidentially appointed IGs and designated Federal entity IGs, DFE IGs. Both types of inspectors general are tasked with hunting down waste, fraud, and abuse at Federal agencies. However, there are some major differences in how they are appointed and removed from office and how they operate. DFE IGs are appointed by the agency rather than the President. The Inspector General Act created 30 of them, not just the 5 addressed in this bill. The agency-appointed IGs typically run smaller offices than Presidential appointees, often with just a handful of employees. Almost all of them oversee agencies that are headed by a bipartisan board or commission. By contrast, Presidentially appointed IG's generally run much larger offices and employ dozens or hundreds of employees to oversee Departments such as the Department of Defense, the Department of Justice, Health and Human Services, and so on. They are nominated by the President and confirmed by the Senate. They are subject to removal at any time by the President. However, the President must provide Congress 30 days notice and a written list of reasons for dismissing the inspector general. Agency-appointed IGs have a similar protection requiring that the agency notify Congress in advance of the reasons for any removal. The sponsors of section 989B argue that because agency-appointed IGs are hired and fired by the agency they oversee, they might be tempted to pull their punches more than someone who could only be fired by the President. I actually agree that this is a potential problem. However, the solution in this bill misses the mark. Unfortunately, section 989B only attempts to address this independence issue at five of the 30 agency-appointed IGs. In my view, this fix is too narrow. In addition, it attempts to ensure independence by replacing these five IGs with Presidential appointees. There is no evidence that Presidential appointees will be more independent than their predecessors. There have been problems in the past with Presidential appointees being too cozy with the agency they are supposed to oversee or pulling punches for political reasons. There is strong evidence that agency-appointed IGs can be fiercely independent despite the possibility of being removed by the agency head. It all depends on the quality of the appointment. For example, David Kotz, the Securities Exchange Commission inspector general has exposed the SEC's failures in the Madoff and Stanford cases, and is currently looking into the timing of the government suit against Goldman Sachs. Similarly, the Pension Benefit Guarantee Corporation's, PBGC, inspector general aggressively investigated the former head of the agency, Charles Millard, and has challenged the acting director about providing inaccurate information to Congress. Despite the potential risks of being replaced, these IGs have not been timid about challenging their agencies to improve. Because of the way section 989B is currently drafted, these IGs could be summarily dismissed soon after the bill is signed into law. Under this provision, each IG could continue to serve but only until the President nominates a replacement. Once the President makes a nomination, the IGs would no longer enjoy legal protections for their independence and would become instant lame ducks. In fact, SEC Inspector General Kotz recently stated that if this provision becomes law it will effectively end some of the ongoing investigations his office has at the SEC. There is a practical problem with Presidential appointments as well. This administration does not have a great track record in filling vacancies in an expeditious manner. Having no watchdog on duty is a concern for all Americans. There are over a dozen IG positions where there is a vacancy, an acting, or an interim IG. The administration waited 18 months to appoint an IG at the Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae. That is 18 months without strong leadership able to direct audits, investigations or examinations of agency policy. That's 18 months without a cop on the beat. Maybe that is the way the administration likes it. I am sure the bureaucrats at these agencies would enjoy life more without an inspector general asking questions. Imagine if the SEC were not held accountable for their failures in stopping the Madoff or Sanford Ponzi schemes. This bill would create five lame ducks in the IG community and the potential for more extended vacancies unless we fix it. There would be far less oversight during the lengthy transition process under the current bill with no guarantee of vigorous oversight by the new appointees. Essentially, this provision could politicize the positions that have historically been filled by career public servants. I know the goal of this provision is to enhance IG independence, but there are better ways to protect the independence of these IGs than by replacing them with Presidential appointees. We should do it more effectively and make sure that all agency- appointed IGs are more independent, not just the five singled out in the bill. That is why I am offering this amendment. The Grassley- McCaskill amendment simply applies the same sort of protections that have worked for one of the 30 agency appointed IGs to the other 29 agency-appointed IGs. The Postal Service inspector general enjoys enhanced protections and my amendment would extend those protections more broadly. Our amendment would strike section 989B of the bill and replace it with a system that will bring true reform, independence, and accountability. It would make the IGs report to the entire bipartisan board or commission heading their agency, and the IG could only be removed for cause by a \2/3\ majority vote of the bipartisan board or commission. This would ensure that should an agency make a political attempt to remove an IG, there would be the possibility of dissent among the board or commission members. These are serious protections from political interference currently enjoyed by the Postal Service IG, but it also allows an IG to be held accountable when necessary. These same provisions have worked for the Postal Service inspector general and it is time to extend them to all the agency-appointed IGs. It also holds IG's accountable by requiring that they disclose the results of all their peer reviews in the semi-annual reports to Congress, thereby making them public. This amendment strikes the right balance, improving both independence and accountability of all DFE-IGs. In fact, even the White House has gone on the record telling the Center for Public Integrity, ``the administration does not support in any way politicizing the function of the Inspector General and we have not proposed these changes'' in the Dodd-Lincoln substitute. The amendment is supported by the nonpartisan Project on Government Oversight and has bipartisan support from members on the committee with jurisdiction over the IG Act. This important amendment deserves an up- or-down vote at the appropriate time. In summary, our amendment would correct serious problems in section 989B of the Dodd-Lincoln substitute. This section of the bill would change the way that five inspectors general are hired and fired. Currently, these five inspectors general are hired and fired by the agency they oversee, but this section of the bill would put the President in charge of hiring and firing them. This provision was included because sponsors of the legislation believed that making inspectors general presidentially appointed would make them more independent. However, rather than strengthening oversight over our financial institutions with more independent watchdogs, this section could introduce politics into what has traditionally been career, nonpolitical positions. It is important to ensure that this bill does not then hurt the oversight of these designated Federal regulatory agencies by the inspectors general. I think our amendment corrects the potential to create long-term vacancies at five important regulatory agencies that, quite frankly, cannot afford to have these sorts of vacancies and not have the proper oversight. The amendment provides true transparency, and with transparency you get accountability among inspectors general. We are going to bring about real independence--or maybe it would be better for me to say maintain the independence these folks have shown already. We should take steps to make all agency-appointed IGs more independent, not just the five addressed in the bill. These five should not be singled out. The amendment before us makes the IGs report to the entire bipartisan board or commission heading their agency and requires a two-thirds vote to remove an inspector general. I will not speak about the peer review Senator McCaskill has already spoken about. But I think it is important we have semiannual reports to Congress on the effectiveness of the people in their various positions. By reporting to the entire bipartisan board or commission rather than just the chairs, these IGs will be further insulated from political influence. As a consequence, they will be more independent. So in the final analysis, I think this brings the right balance to the independence of it. As I said, this amendment is supported by the nonpartisan Project On Government Oversight. Because it comes from another committee of jurisdiction, I am glad that through Senator McCaskill and other people on the committee, we have bipartisan support from the committee of jurisdiction. This is an important amendment and deserves an up-or-down vote at the appropriate time. I yield the floor.

Mr. GRASSLEY. Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. GRASSLEY. Madam President, I ask unanimous consent to set aside the pending amendment for the purpose of calling up amendment No. 4072.

Mr. GRASSLEY. Madam President, I yield the floor, and I suggest the absence of a quorum.

Mr. GRASSLEY. Madam President, I appreciate very much the words of my colleague from New Jersey. He is a very thoughtful Senator. He is a member of the Finance Committee so I have a lot of relationships with him. I am glad he spoke highly of some of the changes we have suggested in the IG system generally through our amendment. But I think the real difference for Senator McCaskill and this Senator is the fact of whether they should be Presidentially appointed. That is probably a difference that is going to be hard to bridge. So I will speak to that point and also say I hope Senator McCaskill will be able to come over here and rebut Senator Menendez because she is on the committee that has jurisdiction over IGs, and she has been very much involved over her recent tenure in the Senate on strengthening the system of IGs. She will probably speak with more authority on this issue than I can, from the standpoint that I am not on that committee--even though I am involved very deeply in strengthening IGs because I think they are an extension of the checks and balances of government, particularly the extent to which they work with those of us involved in the constitutional responsibility of oversight performed by the Congress. I wish to say flat out I do not accept the argument that Presidentially appointed IGs are always more independent. I think Senator McCaskill spoke on this point earlier when she was presenting our amendment. In fact, Presidential appointments raise another problem. President Obama has had a problem with filling IG vacancies. It took the President 18 months to appoint the IG at the Federal Housing Finance Agency. That is one example. Eighteen months without a cop on the beat would be a disaster at these financial agencies. Just think, if the SEC, Securities and Exchange Commission, did not have an IG for 18 months, how many more Madoffs would there be, how many more Sanford Ponzi schemes would there be. Our amendment provides flexibility with accountability and transparency by reporting to the entire board or commission. The IG is not beholden to one person. That brings up the point, for 80 years now, since independent agencies have been set up--well, I suppose for 130 years, going back to the setting up of the Interstate Commerce Commission, as an example-- they have been meant to be a fourth branch of government, pretty much immune to any one President due to the fact they are appointed to overlapping terms and there has to be representation of both political parties on a commission. Just from the history and purpose of independent agencies, you would also want to make sure that inspector general was independent from the chief executive; not totally independent--because the President appoints them--but at least more independent than inspectors general in Treasury and State and the Justice Department--name any of the Cabinet positions you want. Also, it provides for accountability by requiring a two-thirds vote to remove an inspector general. If the inspector general were appointed by the President, the IG could be removed, then, by one person. This takes politics out of the equation. Our amendment takes politics out of the equation. It strengthens the IG's independence and obviously that is why we are offering the amendment. I suppose we are offering the amendment from the standpoint that we want that independence to be there because it has accountability with independence; also, because we think there can be a lapse in the work of an inspector general when a President takes a long time to appoint somebody. In further response to the reasons Senator Menendez has given, I wish to say that the underlying language in the bill would allow the IGs to serve, yes, until the President appoints someone. But this means once the President nominates someone, the current IG is removed because there is a long lapse between appointment and Senate confirmation. This means the entire time the Senate debates the nominee, the agency does not have an IG. This is an invitation to allow waste, fraud, and abuse and mismanagement in agencies. So we come to you--when I say ``we,'' I mean Senator McCaskill and myself--with a sincere desire that if something is not broken, do not fix it. We come with a desire to say these agencies are so important there should not be any lapse in time between what they are doing now and some new process of bringing somebody aboard. I have seen the independence of these IGs to do their job and to help us uncover a lot of things that are wrong, particularly, as I think I have been able to point out with the Securities and Exchange Commission, not only under this administration but under the previous administration. Probably in the last couple of years of the Bush administration, we were able to, working with IGs, make sure the job was done right and exposed a lot of things that were wrong. I yield the floor.

Mr. GRASSLEY. Madam President, this will be the last time I will speak on it, and just for a couple of minutes. I hope the Senate would give some discretion to the fact that when Senator McCaskill comes over, that she would be able to speak for 2 or 3 minutes on this issue so that people can hear from the other side of the aisle on the importance of this amendment. We appear to have a fundamental difference regarding how independent Presidential appointees are. If I were an inspector general, I would feel more independent with a two-thirds vote of a bipartisan panel, meaning commission appointees, as opposed to one person. Our amendment assures IGs, if they are terminated, it will be in a public forum and not the back room of the White House, if they are Presidentially appointed. I yield the floor.