Judd Gregg

Mr. GREGG

Mr. GREGG. I think the Senator from Missouri has made a superb case that it is inappropriate to set up a structure where States can be profligate or communities can be profligate and then basically throw the problems they have created on the rest of the country and the taxpayers of the rest of the country--whether they are from New Mexico or Missouri or Connecticut or New Hampshire. There is no reason why our taxpayers should pay for inappropriate fiscal actions by some other State or some other community. Rather, those States and communities should have to straighten out their own financial house and not expect that they can come to the Federal Government for a bailout if their problems have been self-inflicted, created by their own failure to discipline their fiscal house. As I said earlier in the discussion, a lot of States have a balanced budget amendment. I am not sure whether Missouri did--New Hampshire did not--but we understood if we did not run fiscally responsible budgets in New Hampshire, we would find our debt downgraded. That is what we were worried about--to get to the point where you might actually default, which would be, as I said, a totally terrible situation. But in States that have balanced budget amendments, States which have worked very hard to keep their fiscal house in order, the taxpayers of those States should not have to suddenly step up and take care of the taxpayers of another State that has failed to do that. It is not fair. It is not equitable. You certainly do not want to create that atmosphere because if you have an atmosphere where one State can throw its problems on to every other State, then you create an incentive for States to be profligate and irresponsible. Amendment No. 4051, as Modified With those comments, Mr. President, I ask to modify my amendment. I believe the modification is at the desk. Have we shared the modification with the Chairman?

Mr. GREGG. Mr. President, I ask unanimous consent to speak on that remaining time.

Mr. GREGG. Mr. President, I ask unanimous consent that after the Senator from Connecticut has used up the time that was originally allocated to him, the remaining time between now and 12:05 be divided equally between the two sides.

Mr. GREGG. Mr. President, first, let me thank the Senator from Missouri for his thoughtful and substantive discussion of this amendment. As a former Governor, I think he appreciates how tough it is to maintain balances in the State budget, and you have to make the very difficult decisions to make sure your State does not get its fiscal house into disarray and end up defaulting on debt. That would be the worst thing that could possibly happen if you were a Governor--or one of the worst things. In any event, he certainly did that when he was Governor. I tried to do that when I was Governor.

Mr. GREGG. Mr. President, I ask unanimous consent that the reading of the amendment be dispensed with.

Mr. GREGG. I call up amendment No. 4051 and ask unanimous consent that the pending amendment be set aside.

Mr. GREGG. Mr. President, I sort of did a trailer version of this bill a few minutes ago while we had some time in morning business. But let me discuss the amendment again.

Mr. GREGG

Mr. GREGG. I am reserving the right to object and asking the Senator if he can put us in a quorum for a minute or two so we can clear this issue on our side.

Mr. GREGG. Do I have the right to object? Can you do a quorum for a second?

Mr. GREGG. I make a point of order that a quorum is not present.

Mr. GREGG. Reserving the right to object.

Mr. GREGG

Mr. GREGG. Mr. President, I rise in support of the amendment of Senator Chambliss from Georgia and to express my very serious concerns about the language which has been brought forward by the chairmen of the committees--both the Agriculture Committee and the Banking Committee--relative to derivatives. Let's begin with what our purposes should be. Let's remember that derivatives, as has been said before on this floor numerous times--the Senator from Alabama said it extraordinarily well--are a critical part of how Main Street maintains its economic vitality. You know credit is what makes America work. One of the great geniuses of our society is that we are able to produce credit in a fairly ready manner which is reasonably priced and which people who wish to take risk can take advantage of in order to create economic activity and jobs. The oil that basically keeps the credit available in the American capital system is derivatives, for all intents and purposes. As has been pointed out, if you are manufacturing an item somewhere in America and you enter into a contract to sell that item--let's say overseas--there are a lot of risks on how you are going to make money on that item which you have no control over. Let's say you make it one day and you are going to sell it 6 months later. You enter into a contract when you get the order and you produce it 6 months later. There is a lot of risk there over which you have no control. You know how to manufacture. You know how to create it. If it is credit, you know how to produce it. But you do not have control over the exchange rates you are dealing with. You do not have control over the cost of the raw materials you are using. You do not have control over whether the various parties that enter into this transaction as it moves through the commercial stream survive or go out of business or experience some huge economic upset. Well, in order to avoid all of that and just be the person who wants to produce the good and sell it, you buy derivatives, which are essentially insurance policies, to make sure you have insurance against the risk which you cannot control. That is derivatives in their simplest form. It also affects all sorts of other instruments, of course, financial instruments, commodity instruments. But basically it is the capacity of someone to make an agreement with somebody else and know that agreement is not going to be affected by outside events or, if the outside events do occur, there is going to be a vehicle in place to protect you from the risks that outside event may create for you. So derivatives are crucial to our capacity as a society to be economically vibrant. We also know that during the economic downturn, during the very severe financial crisis we had, the fact that we had so many derivatives in place which were based off of contracts which were not properly supported created a huge cascading event which almost forced our entire financial structure to come to a halt--in fact, it did on one evening--and was about to put our economic house into extreme distress because the derivatives markets had not been properly regulated or managed. Now, that wasn't the primary cause of the event of the late 2008 period. The primary causes of the events of the late 2008 period were very bad underwriting--in fact, virtually no underwriting standards in some instances--for the loans which were being made, easy money, and regulatory arbitrage. But the accelerant which took those causes and basically turned them into an event of immense proportions which almost shut down America and would have caused massive dislocation in our Nation had it been allowed to go uncontrolled, had the Fed and Treasury not stepped in and taken very definitive action, the accelerant was the derivatives market. The classic example of that, of course, is the AIG situation, which has been cited here on the floor numerous times as the example of what was wrong with an unregulated market, where essentially you had a company which was issuing insurance based on its good name and virtually nothing else behind the insurance besides its good name. When that insurance started to get called because the contracts started to fail and the counterparties became concerned, there was no capacity to support the insurance. So our purpose here should be to reorganize our regulatory structure so that type of an event doesn't occur again--I mean, that should be our purpose--while at the same time recognizing that we need a very robust and vibrant derivatives market if we are going to be successful as a nation, if we are going to continue to have economic vitality as a nation. So our goal should be, one, to put in place a structure which as much as possible foresees and limits systemic risk caused by the derivatives market or that could be caused by the derivatives market and, two, maintains an extremely vibrant derivatives market where America remains the best place in the world to create capital and get credit. Unfortunately, the pending bill undermines the second part of that effort. It could be argued that the first part of the effort-- foreseeing and trying to anticipate systemic risk--is addressed in this bill, but it addresses it in such an unwieldy and unmanageable and in some ways counterproductive way, it actually undermines the basic goal, which is to keep the system sound and also keep credit markets vibrant. Why is that? Well, there are a number of reasons for it, but the two most difficult parts of this proposal relative to getting it right are the fact that it forces the swap desks to be spun off from the financial houses and it essentially forces instant movement from and basically almost total coverage of derivatives from clearinghouses into exchanges. In both those instances, you are basically going to create fairly close to the opposite result you are seeking if you pursue this course. I would predict that if this bill were to become law in its present form, it would be likely that, one, a large amount of derivative activity would move overseas; two, a large amount of derivative activity which presently occurs and which is necessary for commerce would have to be restructured in a way that would be extraordinarily expensive for the people who are doing that commerce and would therefore significantly curtail commerce; three, the credit markets would inherently contract by a significant amount of money, probably as much as $\3/4\ trillion; and four, the institutions which would be responsible for creating the derivatives market would actually be less stable. The market makers would be less stable than what we presently have today. You do not have to believe me to understand the seriousness of this and accept this as a statement or an assessment of what the present bill does. I mean, granted, I am just one Member of this body who has an opinion on it. But we do hire people, as a government, to take a look at something like this and say, does this work or does that work, and they are charged with the responsibility of accomplishing the two goals I mentioned: one, avoiding systemic risk, and two, having a vibrant credit market. One of those agencies is the Federal Reserve. They have taken a look at this language in the Dodd-Lincoln bill and they have concluded: Section 106 would impair financial stability and strong prudential regulation of derivatives, would have serious consequences for the competitiveness of U.S. financial institutions, and would be highly disruptive and costly both for banks and their customers. That is the conclusion of a fair umpire, the Federal Reserve. Now, there are a lot of people around here who do not like the Federal Reserve. But we pay them. Their job is to look at something like this and say: Does this work or does that work in making our markets more stable, more sound, more risk averse, and more competitive? Their conclusion is this language does just the opposite-- would be highly disruptive and costly for both banks and their customers. But if you do not like the Federal Reserve, listen to the FDIC. The FDIC, under Sheila Bair, during the crisis we have just gone through, has probably been one of the best performing agencies in our Federal Government. They really have stepped in on numerous occasions and stabilized banks, which had far overextended their capacity and had gotten into very serious liquidity positions, and basically settled those banks out in a way that very few customers lost anything. What does the FDIC say when they look at this, because their responsibility is to maintain safety and soundness of banks. The Chairman of the FDIC, Sheila Bair, said in her letter to--I am not sure to whom it went; I will check that--I think it was to Members of Congress: By concentrating the activity in an affiliate of the insured banks, [and that means spinning them off under the proposal under this bill] we could end up with less and lower quality capital, less information and oversight for the FDIC, and potentially less support for the insured bank in a time of crisis. Thus, one unintended outcome of this provision would be weakened, not strengthened protection of the insured bank and the deposit insurance fund, which I know is not the result any of us want. Then we have Chairman Volcker, who I think everybody agrees is a fair arbiter around here, and he has also said this language in this bill overreaches and does not work. I ask unanimous consent to have printed in the Record the Volcker letter.

Mr. GREGG. So we have these independent arbiters, these fair umpires of what we should be doing in order to maintain financial stability and strong credit markets saying: Listen, do not do it this way. Do not do it this way. There are ways to do this, however, ways to make sure we have a strong derivatives market which is also safer, more sound, and is not subject to systemic risk. Senator Chambliss's amendment accomplishes that in a very effective way. How do you basically do it? Well, in concept, you do it this way: You make sure that for the most part, all of the derivatives are cleared. They go through a clearing process. What does a clearing process mean? Well, it basically means that you get counterparties having to put up margin. They have to put up actual assets, margins, liquidity, in order to be sure there is something behind their position so that if they have a problem and they have to be called on to pay up their position, they have the capacity to do it and it is there. That is why you have a clearinghouse, because the clearinghouse becomes basically the place where that occurs and it becomes the process by which that occurs. And you make sure the clearinghouse itself, because it stands in and basically is the guarantor, for lack of a better word, of the contract, has the capital and the adequacy to make sure those contracts will not fail. So as a very practical matter, you can do this by creating a proper structure using clearinghouses. You make sure the clearinghouses have proper oversight from the SEC or the CFTC. And then as these instruments, these various types of derivatives--there are lots of different types of derivatives--become more standardized--and a lot already are standardized--you move them over to an exchange, which is the ultimate process of making sure you do not have an issue of solvency behind the instruments. So as you move them to an exchange, you are able to create an even stronger market. But you do not mandate that everything goes through an exchange right out the door because if you did that, you would end up with a lot of derivatives which are still too customized to be able to move to an exchange and they would simply not be able to be brought forward, and thus you would contract the market again. You also don't take the swap desks and move them out of the financial house because, in doing that, you would have to create a whole new capital base for the swap desks, which is the concern expressed by the Fed and by the FDIC and by Chairman Volcker, which would inevitably force a massive contraction in credit because that capital would no longer be available to underwrite credit. In addition, you would have much weaker institutions standing behind the swap desks, which is again a point made by the Fed, the FDIC, and Chairman Volcker. It is not necessary to go down the route outlined in this bill in order to accomplish the goals which we all have. In fact, if you go down the route presented in this bill, you actually undermine the goal which we all have, which is to have a derivatives market which is less prone to systemic risk and which is strong, sound, and vibrant. Rather, what Senator Chambliss has proposed makes the most sense, which is a comprehensive reform of the derivatives market in a way that insists that for the vast majority of derivatives, they end up going through a clearinghouse process and that if they are standardizable, they end up on an exchange. If they are for purely a commercial purpose, a single-purpose commercial undertaking, then they are able to be exempt from the clearing activity. This would create a much more robust undertaking of a creation of credit. It would maintain the vitality of the derivatives market while at the same time protecting and making sure we had a sound derivatives market. It would avoid what I believe the inevitable outcome of this language will be under the Dodd-Lincoln bill, which is that we would weaken the derivatives market, weaken the systemic protections, and end up forcing overseas a large amount of economic activity which appropriately should be done in the United States and which is very important to our Nation's capacity to be competitive on Main Street. Remember, this is about Main Street. I certainly hope Members will support the Chambliss amendment. It makes a lot of sense. It is well thought out. It is not exactly what I would do were I writing this myself, but it is a very good piece of legislation. It should be supported. I hope my colleagues will do so. I yield the floor.

Mr. GREGG

Mr. GREGG. Mr. President, I wish to rise also and first I want to associate myself with the words from the Senator from Georgia. He is absolutely correct in his history of how Freddie and Fannie got started and what their purpose was and the fact that they are a great idea that went wrong, unfortunately--or went ``awry'' would be a better term, not wrong. The concept remains a good idea. I rise to support Senator McCain's proposal because what he is suggesting is a way out of a very deep and dark hole of debt for our Nation and our American taxpayers, which is being generated by the legacy and the present activities of Freddie Mac and Fannie Mae. Part of this amendment in which I played a role primarily is the issue of bringing on-budget and, therefore, into the light of day just how much the American taxpayers owe as a result of the situation that has occurred in those two businesses. It is estimated that the American taxpayer will end up picking up somewhere around $400 to $500 billion in costs as a result of the activities of Freddie and Fannie. As far as the American taxpayer knows, this will be something that comes out of the sky. I mean, nobody is aware of it. Nobody is thinking about it. Nobody is talking about it. But these are actual debts that are going to get put on our books and which will affect our credit worthiness as a nation and which all Americans will have to pay back. Why is this going to happen? It is going to happen because during the halcyon days of taking on debt, or taking on obligations in the area of mortgages which were not properly underwritten--and there will be a later amendment by Senator Corker which I will support in the area of underwriting--but which were not properly underwritten and which were securitized and basically insured, for all intents and purposes, by Freddie and Fannie, we ended up with a situation where they own a lot of paper which does not have the value it is supposed to have and which is not being paid back at the rate at which it was supposed to be paid back. Unfortunately, there was a tacit understanding that grew up in the markets that the American taxpayer was going to stand behind that paper. It was never explicit, but it became tacit, and people expected that. Then when the actual event occurred, as these defaults started to accelerate, it became real and the American taxpayer is now having to stand behind all of this debt. It is certainly going to come as a shock to most Americans that they owe approximately $\1/2\ trillion--$\1/2\ trillion--because of very bad decisions that were made by a group of people who were underwriting and basically securitizing these loans. Why did that happen? Well, there will be a lot of recrimination on this subject. But the basic reason was that the Congress decided that Americans should own houses whether they could afford the houses or whether the houses sustained the value of their loans, Americans should be able to go out and buy houses. So a lot of houses were sold which did not have the underlying value necessary to support the loans which were made on them, and which the person who bought the house and took out the mortgage did not have the income over the extended period of time of that loan to pay it back. Everybody knew it at the time the house was bought. Everybody knew it at the time the mortgage was made. But they figured: Well, appreciation will always occur in real estate prices. So that will not bother us with the value of the house. Well, maybe this person who got the loan for the house, maybe their income will increase, or when the reset day occurs on that mortgage they will be able to take care of it in some way. So nobody faced up to the problem at the time, and literally millions, millions of homes were purchased under that basic scenario. That is what caused the implosion, basically, of our financial markets back in late 2008, and Freddie and Fannie are a large part of that implosion. But a lot of the initiative for that came from the Congress, basically asserting that people should be able to get those types of loans, and pushing Freddie and Fannie from using what had been very standard and traditional underwriting standards in the 1990s into much more aggressive standards as they moved into the early 2000 period. As a result, we had this proliferation of loans which simply did not have the underlying value and did not have the capacity to be repaid. They were all securitized by Freddie and Fannie. So now the American taxpayer ends up with this huge bill. I think we have an obligation as a Congress to at least be honest with the American taxpayer on this and tell them this is how big the bill is. And it is huge. It is huge. So this bill is now hidden in the drawer under the Federal accounting system where we do not even acknowledge that it exists under the Federal budget, even though we know we owe it, even though we know it is going to be put on the books of the Federal Government, even though we know the American taxpayer is going to have to end up picking this up in the long run. We do not even acknowledge it. It is stuck in some drawer somewhere in Washington. Well, that should not happen any longer. We just had an amendment about transparency with the Federal Reserve. Everybody voted for it. Everybody voted for the transparency amendment on the Federal Reserve. This is the transparency amendment on Freddie and Fannie. This amendment will tell the American taxpayer just how much they really do owe. It will bring on-budget the issue of the debts of these two corporations, which are now the obligations of the Federal Government and therefore the American taxpayer. Absolutely last to be done. I thank the Senator from Arizona for including in his amendment this language which brings this on-budget the way it should be. It opens the light of day so that the American taxpayer can understand just how much risk has been piled on their backs, how much debt has been piled on their backs as a result of the irresponsible activity, which in large part was initiated by this Congress over the years, forcing out loans and pushing a public policy that these loans should be made. Secondly, I congratulate the Senator from Arizona for bringing forward an idea, a proposal for how we unwind this situation and how we get out of this situation by putting us on a path, a path toward basically decoupling Freddie and Fannie from the American taxpayer, having those two organizations no longer be dependent on the American taxpayer and having the American taxpayer no longer having to pick up the debts of mistakes made by those two corporations, even when those mistakes were caused, to some significant degree, by the Congress taking actions which were inappropriate--or which were bad policy, not necessarily inappropriate, but definitely bad policy. So I congratulate the Senator from Arizona. I think this is a good amendment. As has been said, how can we take up financial reform if we do not take up the single biggest entity, the single biggest two entities, when combined the single biggest entity, that affects the financial markets relative to real estate lending in this country, which is what caused the downturn and the crisis at the end of 2008. We cannot do it. We cannot claim we have done financial reform if we do not take on and address this issue. I understand that the administration said: Well, we will do it next year. Well, we do not have time. It needs to be done now. We need to address this now. It is a critical issue, and it is at the essence of whether we can get our house right and our ducks in the correct order relative to financial reform. If we do not straighten out Freddie and Fannie and its relationship to the Federal Government, and specifically its relationship to the American taxpayer, we really have not done anything to solve the long- term problems of how we get our fiscal house in order because that issue of how to make real estate loans in this country is at the essence of how we correct the financial structure of this country. This amendment, coupled with the amendment that is coming from Senator Corker on the issue of underwriting, are the two key amendments to this bill which address the two elements which are not addressed but which have to be addressed if we are going to have effective, comprehensive, lasting, and meaningful reform. I yield the floor.

Mr. GREGG

Mr. GREGG. I would ask for 5 minutes.

Mr. GREGG. The amendment offered by Senator Vitter unfortunately has, as its essence, the disassembling of this independence. It would give the Congress the ability, through the GAO--and because the GAO is an arm of the Congress, our accounting arm--to go in and investigate what happens with the Open Market Committee. That is clearly going to create consequences which would be inappropriate in the decisionmaking process of the Federal Reserve. It would influence their ability to make decisions in the sense they would be concerned about Congress coming in and investigating them. It would open activities which, if they are not done in some level of confidence, inevitably end up disrupting the markets. So it is absolutely critical that the Congress not be allowed to go into the Open Market Committee and audit that part of the Federal Reserve activities--absolutely critical if we are going to maintain the integrity of the dollar. Remember, this is about Main Street. Whether that dollar you take on Main Street to buy clothing or food or a car--whether that dollar has the value you think it has depends entirely on whether there is confidence it is not going to be inflated arbitrarily. If the political process starts to influence the decisions as to how much money is printed in this country and therefore affects the inflationary value of the dollar, you will see your dollars devalued as you try to buy items on Main Street. The effect of that will be devastating on your ability as an American citizen to have confidence in the dollars which you earn and what they are going to buy and what they are going to mean when you save them--which is even more important. We cannot have a system which allows Congress to influence the decisions in this critical area. All the rest of the activities the Federal Reserve undertakes should be open, should be audited by the Congress, and should be available for public inspection on a regular basis. That is essentially what the amendment of Senator Sanders does. There is already a lot of audit activity at the Fed, but what it does is expand that and make it more transparent and more available to the American people. But in this one area which Congress has specifically by law exempted from review for the very logical and appropriate reason that we do not want the politics of the day to influence the decision as to the value of our currency, in this one area we need to keep the exception and give the Fed that type of protection. I strongly oppose the Vitter amendment. I hope those who are concerned about maintaining the integrity of our currency will also oppose this amendment. I yield the floor.

Mr. GREGG. I ask for 4 minutes out of the time of Senator Shelby.

Mr. GREGG. Madam President, first off, at this point I congratulate the Senator from Vermont and express my appreciation for his very constructive approach to this issue. I had very serious reservations regarding his original amendment, but he has worked with Members of this side of the aisle, the chairman of the committee, and members of the administration and the Fed and has come up with an extremely responsible amendment. The Senator's amendment gets to the issues which he is concerned about, which are totally legitimate; that is, the question of transparency and making sure, to the fullest extent possible, the American people know what is happening with this very significant agency that impacts our lives but which we know little about--a lot of Americans don't--and that is the Federal Reserve. I also wish to congratulate Chairman Bernanke--he and his staff--for stepping forward and aggressively pursuing a resolution to this issue in a manner which I think will be very positive for both sides. So I intend to support the amendment of the Senator from Vermont, as amended, and appreciate his offering it and appreciate his responsible effort. I do have, however, deep and severe reservations and strongly oppose the amendment of the Senator from Louisiana. The issue here isn't transparency any longer with the amendment of the Senator from Louisiana. The issue is whether we have a Federal Reserve which can function and can pursue its primary purpose, which is maintaining the integrity of the currency of the United States. When the Federal Reserve was created back in 1917, there was a huge debate--a huge debate--raging in this Nation, and had been raging since the great depressions of 1897 and 1907--about how to manage the currency of this country. The central figure in that debate was William Jennings Bryan, a man of immense proportions in our history. He was a populist in the extreme, and he believed genuinely that there should be a monetary policy in this country which allowed for free money to be produced, essentially. His Cross of Gold Speech was, of course, historic. His view was, basically, those who were in control of the government--public elected officials--should have control over the currency. But what had been learned over time was if you turn control of the currency over to elected officials, the currency becomes at risk because there is a natural tendency by elected bodies to want to produce money arbitrarily to take care of spending which they deem to be in the public interest. Thanks to the leadership at that time of a number of thoughtful people, including people such as Woodrow Wilson, the decision was made to create a separate entity called the Federal Reserve, which would manage the currency of the United States and decide how much money was printed. The printing presses would be taken away from elected officials. This decision has probably been one of the best decisions we ever made as a nation in order to determine a strong fiscal future and a strong economy because it has allowed us to have a currency which has basically been protected from the winds of the politics of the day. That is absolutely critical. It is as important today as it was when the Federal Reserve was created, if not more important today. We have seen a world where there is a tremendous amount of pressure on the currencies of almost every nation, certainly every developed nation with the exception of a few. That pressure inevitably leads to populist outrage on occasion or to popular decisions which can request that the currency be devalued in order to produce what some people see as a better lifestyle or in order to address concerns a nation may have. But you cannot do that at the whim of elected officials. It is absolutely critical that the currency of the Nation be protected from the day-to-day activities of politics. We have created this Federal Reserve System which accomplishes that. The essence of that system is the Open Market Committee, which decides essentially how much money there is going to be in circulation in this country. We have always believed that system should have integrity, be kept separate from the political process; that Members of the Congress should not have the ability, either directly or indirectly, to influence the decision of the printing of dollars in this Nation. It is a good decision and we should not abandon that course of action. Yet the Vitter amendment, couched in all sorts of----

Mr. GREGG

Mr. GREGG. Mr. President, I wish to join in congratulating Senator Corker, Senator Isakson, Senator Shelby, and others who have come together around this issue of better underwriting standards. It is hard for me to understand why this would be resisted in this bill because this has been outlined both by Senator Corker and by Senator Isakson. It was underwriting that created the problems which led our Nation to the brink of a fiscal collapse. The way I have described it is this: What we had was an inverted pyramid. We had this situation where an individual made a loan to another individual or a corporation made a loan to an individual based on the value of a piece of property. Unfortunately, when that loan was made, it was made in a way where nobody looked at the value of the property relative to the loan and nobody looked at whether the person who was getting the loan could pay it back because the system no longer had strong underwriting standards. Then that loan was taken and it was syndicated, it was securitized, it was synthesized, and it became multiplied, as the Senator from Tennessee said, into $600 trillion of notional value. We ended up with this huge pyramid of debt built on the basis of this loan down here at the bottom between this corporation and this individual, this loan which was based on value which was not there, and ability to repay, which was not there once the rates of the loan were reset. Why did this happen? Why was this loan so inappropriately made? It was inappropriately made because we had a breakdown in underwriting standards. I have been through three of these events in my professional career: once in the late seventies when I was involved in representing a bank in New Hampshire, once in the late eighties when I was Governor of New Hampshire, and now. Three major financial disruptions which were created almost entirely by a failure in underwriting standards, where people were making loans that couldn't be paid back based on asset value which wasn't there. It just was aggravated radically this time because of the way the system suddenly took these loans and exploded them through the securitization process and the syndication process. So if you are going to fix this problem, if you are going to put in place a regulatory reform system which actually fixes the issues which caused the crisis, you have to address underwriting standards. That is why the Corker amendment is so critical, because this bill does not address underwriting standards in any other way, in any significant manner. So if you are going to have a legitimate effort to try to make sure this type of an event doesn't occur again, you have to put in place underwriting standards which establish the rules of the road, which say that in the future America will not allow this sort of proliferation of lending which is not properly secured, where we know that the person getting the loan can't repay the obligation. Ironically, in this situation, these loans were made, in some instances, with the full understanding that this wouldn't happen, that they couldn't repay and the value wasn't there. Why? Because we separated underwriting standards from the process of actually making the loan. The people making loans were only interested in making a fee. They were not interested in making sure there was value of the security. They weren't interested in making sure the people could repay. They were just interested in the fee. This should stop. The language Senator Corker has put before us would accomplish that. It would put in place not unusual underwriting standards, not new underwriting standards, it would simply go back essentially to the types of standards--and they are not quite as strict, honestly--we had at a prior time when we didn't have this kind of risk in the marketplace because people knew when they borrowed money to buy a house they were going to have to put money down, and if they didn't put the full amount of the value down, they would have to have insurance to cover the difference. They knew their creditworthiness was going to be checked, and thoroughly checked, and their ability to pay the loan was going to be checked. So it is a totally reasonable approach. If you are going to do one thing in this bill to avoid a future event like the one we confronted in late 2008 where basically the entire financial industry of this country almost melted down, if you are going to do one thing to prevent that event, you should adopt the Corker amendment. This should be a bipartisan amendment. I don't understand any opposition to it. I don't understand the concept which would oppose it because it is basically good banking and good lending. It is also good for the people who borrow money because they are not going to get money just arbitrarily but only if they have the value in the asset they are borrowing on and if they have the ability to repay. So I certainly hope this amendment will be approved.

Mr. GREGG. That would be totally reasonable.

Mr. GREGG. Mr. President, I ask unanimous consent that after Senator Corker finishes his remarks, Senator Isakson be recognized and then I be recognized. If Senator Shelby wants to be recognized, he should be recognized before Senator Isakson. Senator Shelby should start, then Senator Isakson, and then myself.

Mr. GREGG

Mr. GREGG. Madam President, today I wish to recognize Marc Morin of Bow, NH. Since December 20, 2000, Marc has been a member of the New Hampshire Board of Professional Engineers and has ably served as its chairman since July 15, 2004. In August of this year, he will step down from that position, and I would like to take this opportunity to thank him for the professionalism and dedication he has demonstrated over the last 10 years. The Board of Professional Engineers has the important mission of protecting the public's safety and insuring the State's engineers follow the proper operating rules and regulations. Because of his reputation as an environmental engineer in the private sector, Marc was an excellent choice as board chairman. His educational accomplishments, such as holding a master of science in water resource engineering, underscore his ability to understand and apply the often complex licensing and due process requirements the board must oversee. My wife Kathy and I have had the pleasure of knowing Marc's wife's family for many years. He has ben a great example of the strong commitment to public service and volunteerism for which New Hampshire is so well known. While his leadership on the Board of Professional Engineers will be missed, I know we can continue to rely on the insight, sound judgments and guidance he displayed on the board. Thank you Marc!

Mr. GREGG

Mr. GREGG. Has all the time been used in opposition?

Mr. GREGG. Mr. President, I don't understand this Brown amendment. Basically what it says is if you are successful--we are not talking about too big to fail here, we are talking about entities, businesses that are big, yes. They are actually not as big as a lot of the international banks they compete with, and that we as a Nation compete with, but they are large and they are successful. You are going to break them up. Where does this stop? Do we take on McDonald's? Do we take on Wal-Mart? Do we take on Microsoft? Do we take on Google? Should we set a standard that we as a body can step in and unilaterally decide that some company has gotten too large and deserves to be broken up, even if it is healthy? If it is a systemic risk because it has overextended itself and put itself into a situation where we have a question of whether it can survive, then we have the resolution authority to take care of that. But why would we--we 100 people--think we know enough to start breaking up businesses in this Nation which are profitable and which make us competitive as a Nation? It doesn't make any sense to me.

Mr. GREGG

Mr. GREGG. Mr. President, I rise to speak about another part of the bill. I congratulate the chairman for the work he and Senator Shelby did on reaching this resolution on too big to fail. It is an important step forward on a critical part of the legislation. I think it shows that there are a lot of places where we can reach a bipartisan consensus in this bill. It is my sense that the great and very positive work done on resolution authority will--I would hope it will carry over to things such as the derivatives issue, which needs to be worked on, and issues such as underwriting standards and how the regulatory structure is created and how the chairs are moved around in that area. I think all of these issues are fertile ground for reaching consensus. I know the Senator from Connecticut has been constructive in his efforts to reach across the aisle. This bill can be a very strong and positive piece of legislation. I hope it ends that way. I think this is a strong and good step in that direction, with the announcement by the chairman on the agreement of resolution authority. I want to speak about a part of the bill that has been ignored because there have been so many big issues. That is what happens when you bring a bill this large to the floor. It is 1,400 pages, and it has a lot of language in it. It had to be a large bill because it deals with a complex issue. Included in the bill is language that was sort of baggage thrown on the train--that is the way I describe it--in the area of corporate governance. To a large degree, by its own definition, it has virtually nothing to do with financial regulatory reform. This language does a series of things: It primarily federalizes corporate law relative to the manner in which stockholders and directors and executives of corporations are treated. It is not limited to financial institutions but to any publicly traded company. It guarantees what is known as proxy assets under Federal law. That is a right traditionally set up by States. It sets up standards for how directors are elected under Federal law for all companies. That is a right that has usually been reserved to the States. It even puts in place a requirement that corporations disclose certain information that has absolutely no relevance at all to financial reform because it deals with every company in America that is publicly held, such as the ratio of compensation between different workers within a company and the manner in which boards of directors are elected, whether it is all at once or under staggered terms. It is a major push by the Federal Government into an arena that has always, historically, been primarily the role of States. It steps all over States rights, in my opinion--the right of shareholders to have companies they are comfortable with and are being well managed for the purpose of returning a reasonable return to the shareholders. It will undermine shareholders' rights, in my opinion, not increase them. If we look at the proposal specifically, let's take proxy assets. This is a term of art that essentially says that any group of shareholders will be able to put on a proxy statement a proposal for how the company should be run. If someone wants to balkanize a company, there is probably no quicker way to do it than to have unilateral proxy assets for any issue that is of concern or interest to some group that buys shares. This type of language is essentially put in to promote special interest activity. We all hear about how terrible special interests are. This language is special interest language for the purpose of promoting special interest groups--starting with the trial lawyers, of course, but followed up by various people who have a social justice purpose relative to some corporation. Let's take a group or a company such as McDonald's. Say a group believes they are selling too much food that creates the opportunity for people to eat too much and causes obesity. You could have a special interest group that was concerned about that buy stock and force a proxy statement on what type of food McDonald's should sell. It does not stop there. Of course, there are all sorts of issues about which special interest groups want to promote and change corporate governance. How you manage a corporation is supposed to be primarily in the hands of the boards of directors who are answerable to the stockholders. The purpose, of course, is to increase the value of the stockholders as a whole and their return on their investment. In most instances, that is the primary purpose of a corporation. But this Federal access, this proxy access is all about the opposite. It is about pushing agendas onto the management of corporations, through the boards of directors, through the proxy process that is very special-interest oriented and very narrow in its purpose and is not necessarily directed at return on the investment for the stockholders. It has just the opposite effect. Short-term objectives become the standard of the day under this type of approach rather than a long-term view, which is what most of our boards of directors are supposed to take relative to these decisions. The cause of the day, the cause du jour, could be any number of things. If it happens to be the activist view of the day, it becomes the issue under corporate governance versus the purpose of managing the corporation well over the long term in order to get adequate return to the shareholders. It is an inappropriate idea, especially inappropriate for the Federal Government to bury it in this bill. This language applies to every publicly traded corporation in America, not just the financial institutions. Why is it buried in this bill? It should not be in there. The same can be said of the way this bill, this language approaches directors and what the shareholders' rights are relative to directors. These have historically been State decisions. In fact, the State of Delaware, which is obviously the leading State on the issue of corporate governance and has developed a uniform corporate governance structure which a lot of States have adopted, including my State of New Hampshire, which basically tracks Delaware to a large degree--that has been the law of the land for all intents and purposes, settled law, predictable law, the purpose of which is to have fair and adequate corporate governance, where the directors are responsible to the shareholders under a structure that everybody knows the rules and which is controlled by the States. Yet this bill comes in and does fundamental harm to that. For what purpose? Because there is an agenda in this Congress to usurp States rights to be able to manage corporate law and to put in place of it opinions and ideas which are only supported by a very narrow group of special interests that basically have gotten the ear of people in this Congress. That is the ultimate special interest legislation. The implications for these companies is, it is going to be darn expensive, if you are a small- or middle-sized company, to deal with this type of Federal interference with the management of the company and the proxy process. It is a very inappropriate initiative. Furthermore, this creates an atmosphere where nobody is going to know who is governing what because you are going to now have State law and you are going to have Federal law and you are going to have the SEC whose responsibility will increase dramatically. We already know the SEC is strained to do what we have asked them to do. They have some big responsibilities. They have big responsibilities in the financial reform area. They have big responsibilities in corporate governance, generally. To push this further burden on them is going to be very difficult for them to meet. I happen to be a very strong supporter of having a robust SEC, but we should not burden them unnecessarily with a whole new set of corporate governance rules, which are already adequately and appropriately addressed by State law, primarily Delaware State law but other States which have their own corporate rules. More important, we should not undermine the rights of stockholders across this country to be able to get a reasonable return on their investments by being reasonably assured that their management-- specifically, the directors of the company--are working for the purposes of the company's financial return and strength versus for the purpose of some special interest group that comes in and wants to put special interest legislation in the middle of the corporate governance effort, which is exactly for which this language is proposed. That is why it is here. The reason this language is put forward is because there are a lot of self-proclaimed social justice groups in this country that decided they want better access to corporate boards and have this Federal proxy access which will basically balkanize, as I said earlier, the process of governing and leading these businesses in which most Americans are invested. The vast majority of Americans in this country either have a pension fund, IRAs, 401(k)s or are personally invested in the stock market. Why do they invest? They invest to get a reasonable return on that investment, either in the way of appreciation or in the way of dividends or maybe a combination. That is what they do. Most of the savings--a lot of the savings in this country are tied up in that. Why would this language appear which will basically undermine those stockholders' rights and ability to presume and expect that their directors are going to be managing for the purposes of the stockholders-at-large versus for a single interest group within the stockholder group that happens to want to put a social justice agenda into the management of that corporation? It makes no sense at all, unless you happen to be a special interest group. We rail around here all the time. I hear, ironically, from a lot of groups that are sponsoring this language, such as Public Citizen, that they are against special interests. Yet here we have the most significant piece of special interest legislation in this whole bill, an attempt to bootstrap special interest groups' social agenda and force them on corporations and stockholders who would otherwise not pursue their agendas because they are interested in getting a return on their investment. It is going to, as I mentioned earlier, make it much more difficult for us to have a vibrant stock market and a corporate structure in this country which is rational, and it certainly will undermine significantly States rights in the area of corporate governance, which historically had primary responsibility for setting up the rules by which our corporations operate. I hope that as this bill moves down the road, this type of language, which is extraneous--totally extraneous--to the financial reform effort because it affects all public corporations and, ironically, the three financial corporations which are at the core of the problem we had in 2008 relative to visibility--AIG, Lehman, and I believe one other, maybe Citibank--had a couple of these rules in place anyway. Obviously, they had nothing to do with reducing the implications of the event. Rather, this language is simply put in because some group got somebody's ear. I hope it will be taken out before we get to the end of the day. I yield the floor.