Judd Gregg

Mr. GREGG

Mr. GREGG. Will the Senator from New York yield for a unanimous- consent request?

Mr. GREGG. Mr. President, I ask unanimous consent that at the conclusion of the statement of the Senator from New York, I be recognized for 10 minutes, and then other Republicans speaking on the rescue plan be allotted 10-minute segments from the Republican side.

Mr. GREGG. I don't believe it covers the 10 minutes.

Mr. GREGG. Let's go forward with the Senator from New York.

Mr. GREGG

Mr. GREGG. I ask unanimous consent that I be recognized for 10 minutes, and at the conclusion of my remarks, the Senator from Montana be recognized.

Mr. GREGG. I further ask unanimous consent that when we get into the debate and the time has been divided, the Republican Members have 10 minutes to speak on the matter.

Mr. GREGG. Mr. President, first, I wish to recognize and acknowledge the Senator from Connecticut, the chairman of the Banking Committee, for the tremendous work he has done over the past few days to bring this piece of legislation to this point. This is an emergency. This is a crisis. Those terms are often overused. In this instance, they are not being overused. We know the financial markets are under extreme duress. We have seen some of our largest and most significant financial institutions fail or be reorganized in the last few weeks. We also know, regrettably, that the credit markets are basically locked up and that credit on Main Street is disappearing, that people are not able to get financing for the payrolls, financing for inventory, financing to buy a car, send children to school, rebuild the local hospital, rebuild the local school system. This is not a virtual event, it is not an event of theory, this is a real event of very severe economic consequences. Action has to be taken. The chairman of the committee, working under a bipartisan, bicameral format with the Secretary of Treasury, has come up with this proposal to try to address this issue. Is this the answer to the entire problem? Obviously not. The way I describe this is we have a patient who has suffered a severe wound and is bleeding profusely. We are going to try to put a tourniquet on that patient so we can stabilize their condition, get them to the hospital, and hopefully take other action which will cure them and get them back on their feet, specifically get the economy back on its feet, make sure Americans are able to go to work and enjoy a prosperous lifestyle. This proposal, as it came from the Treasury, was simple, with a purpose of basically going forward with a significant amount of taxpayers' dollars, $700 billion, taking those dollars and buying investments. That is an important point to remember, because there has been a lot of misrepresentation, regretably, demagoguery and hyperbole about how we are throwing money at Wall Street. That is not the case. What is happening is we will be purchasing assets, assets that have value. The Federal taxpayer will own those assets. Down the road, we will probably sell those assets, and we will actually get money back in for the taxpayer, into the Federal Treasury. We may actually break even, we may lose some money, but it is more likely, in my opinion, that we will come close to breaking even, and we may actually, some people tell us, make money for the taxpayer. But this is not $700 billion out the window. In doing this effort, we are going to free up credit, credit on Main Street, that makes it possible for people on Main Street to do what they usually do. America runs on readily available, reasonable, affordable credit. Every American has credit on something: their credit card, their home, their car, their kids going to school, the little company they work for, if they work for a mom and pop, and even a middle-sized company probably has credit to make their payroll, probably has credit to buy the inventory. All this is necessary in order to keep the economy going. Yet today we are seeing it dry up and we are seeing it freeze up. We are going to try to relieve that pressure so Main Street can operate as it should. In addition to what the Treasury Secretary felt he needed to free up that credit, we as a Congress felt we needed to do some other things. We needed to protect the taxpayer, and we have done that in this bill. Every dollar that comes into the Treasury as a result of reselling these assets will go to reduce the Federal debt, it will not go to create new programs, it will go to reduce the Federal debt. In addition, we wished to make sure nobody is going to game the system, nobody is going to make a lot of money on this at the expense of the taxpayer. So we have language in here that limits, and eliminates in some instances, any sort of golden parachute, limits the salaries of the heads, the CEOs of these major companies who may take advantage of this, and basically eliminates, as a result of the efforts of the Senator from Montana and his good ideas, eliminates the tax deductions for high-income individuals above a reasonable amount. In addition, as a result of the leadership of the chairman of the committee, again, we focused a lot of attention on making sure we can keep people in their homes. We do not want people foreclosed on, and interestingly enough, as a result of the Federal Government buying these assets, which we will be buying, which are mostly mortgages, mortgage-backed securities, which we will be buying at 20 or 30 percent below face value, we as a government are going to be in a position to reorganize the mortgages of people who today cannot meet their payments because they bought a subprime mortgage and, as a result, they could not make the mortgage payments when the mortgage reset. We are going to be able to adjust those mortgages. If a person lives in their property as a personal residence, and if they have a reasonable income, hopefully, we will be able to structure it so they can stay in that property today, something they most likely would not be able to do if the economy played out in the present scenario. So we are going to keep people in their homes and protect their opportunity to participate in a reasonable mortgage; at the same time, maybe make money for the taxpayer, because once those mortgages start to perform again, they become more valuable, and we can resell them into the market. Fourthly, we address the issue of oversight. We create massive transparency so everybody is going to know what is happening. As was mentioned earlier by the Senator from New York, things will be going up on the Internet, so people know what is happening, plus we have significant oversight. We have a board headed by the Federal Reserve Chairman to oversee the Treasury Secretary; we have a board for the Congress to oversee the Treasury Secretary. We have a new inspector general just for this issue, a new GAO initiative just for this issue. There will be significant oversight so taxpayer dollars are watched carefully so we know proper actions are being taken. We heard from our colleagues in the House of Representatives that they had concerns in the area of give us an option of an insurance program. So as the negotiations went forward, we put in the option of an insurance program. We heard from colleagues on the Democratic side: Make sure the taxpayers have an option, so if we do not recover all the money we put in, if there is some shortfall, there is an ability to go back to these financial institutions 4 or 5 years from now, when they are a little stronger, and get a payment to cover that shortfall. That option is in there. Then, in addition, we have expanded the FDIC coverage with this bill so people can have confidence in the money they are putting in their savings accounts, in their checking accounts, in banks, is going to be safe, and they do not have to move it around and maintain these artificial caps in their accounts. So that step is forward. This is a plan that addresses the needs of the Main Street America through freeing up credit, but it also does it with a lot of efforts to protect the taxpayer, protect the mortgagee, have the proper oversight, and do it in a way that is constructive and, hopefully, returns revenue to the Treasury rather than cost the Treasury revenue. Is it the answer to the whole problem? No. Please do not assume that after we pass this bill--and hopefully we will pass this bill--suddenly the light is going to shine on the American economy. We are in for a difficult economy for a considerable period of time. We know that. Other institutions will be under significant pressure. Regrettably, probably some of these institutions will not survive this economic situation. But the option of not doing anything at this time is to virtually guarantee that we as economy will begin a very significant downturn of disproportionate impact on people on Main Street. People will lose their jobs, people will lose their savings, people will find that they cannot get the credit necessary to keep their businesses open or to function at a reasonable level. There is no question that if we do not get the credit markets working again, we will face a dramatic downturn of proportions which we have not been seen in my lifetime in the United States of America and in our economy It is something we should not risk. We should not roll those dice. This is a program which we can do. It may not cost taxpayers anything. But if it does cost taxpayers something, it is not going to be a dramatic amount of money. We can do it with proper safeguards, as we have. As a result, it is an action we should take as a Congress, as representatives of our citizenry, in order to fulfill our obligation to make sure that when you see an impending crisis you know is going to have a huge adverse effect on the people you represent, you move on that crisis, you take action, and you try to revolve it. That is what this proposal does. It is not the answer to all the problems we have in this economy, but without it, we are going to have a much more severe and difficult time. I yield the floor.

Mr. GREGG

Mr. GREGG. Madam President, I understand we have some time on our side. I ask unanimous consent that the Senator from South Carolina be recognized for 7 minutes, the Senator from Florida be recognized for 7 minutes, and that I be recognized for the remainder of the time, and that obviously we would go back and forth.

Mr. GREGG. Then I understand we are going to Amtrak for half an hour?

Mr. GREGG. If I could engage the chairman in a colloquy, as I understand it, we have about 15 minutes left on our side under the bill.

Mr. GREGG. Fourteen minutes. How much time remains on the majority side?

Mr. GREGG. I thank the chair.

Mr. GREGG

Mr. GREGG. Mr. President, this agreement was reached after considerable effort and negotiation by a lot of different parties-- Senate Democrats and Senate Republicans; House Democrats and House Republicans. It is a good agreement. It is basically an agreement which, hopefully, will cost the taxpayers virtually no money. It protects the taxpayers, it protects mortgagees, it is directed at making sure there are no golden parachutes or undue benefits to the people who run these companies, and it has aggressive regulation. It is a balanced approach which was reached through a lot of effort, and it is absolutely necessary that we pass it now in order to help Main Street, which is about to be crushed by the present economic downturn driven by the lack of credit. Unfortunately, the Senator from Vermont is introducing a brand-new idea into this effort. It is an idea which is extremely controversial. Being from New Hampshire, we are not in favor of any taxes, so from my standpoint, this would be a major mistake and undo an agreement which is very bold and aggressive in its attempt to help Main Street America.

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

Mr. GREGG

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

Mr. GREGG. Mr. President, I wanted to speak a little about where we stand. I know everybody is concerned about this relative to our efforts to provide for the economy and free up the credit markets and make sure Main Street continues to function and jobs are created and economic activity is pursued. Obviously, the House vote on Monday was disappointing, to be kind, and it had an immediate effect on America, with $1.2 trillion in wealth taken out of the American system almost instantly--a 770-point drop in value in the exchange. Those dollars are real. That is pension fund value. Most people who work have pension funds. It is IRAs and 401(k)s all losing value very quickly. People who are right on the cusp of retiring are especially impacted by that. Today, it is up a little bit, which is good. I am glad calmer heads have prevailed in the markets and that fear is not driving the markets today. That is good. But the problem that drove that hasn't gone away. The problem that created that event--and that is that the credit markets, not the equity markets--and this is important for people to understand; the stock market is different from the credit market--the credit markets are moving toward the point of freezing up. What does that mean? That means the local employer who maybe has to finance his or her payroll, the small restaurant or the small seasonal business that one week doesn't make enough to cover that payroll but the next week makes more than the payroll, in the week they have to borrow the money to make the payroll from the bank, they are not going to be able to do it or it will be less than what the total payroll is. The person who buys inventory--a restaurant has to buy food, a small business has to buy materials, a store has to buy its inventory and the things it puts on its shelves. That is all done through credit on Main Street. That credit won't be available. The family who sends their child to college--that is an event that energizes a debt and creates credit. The family who uses a credit card--that again energizes a debt and creates credit. All these Main Street activities are freezing up. What does that lead to? It leads to a loss of jobs, a loss of economic activity, the loss of savings, the loss of the basic character of America to be a place of commerce and economic well-being. Unfortunately, whether we like it or not, we are on the cusp of that event, and it is severe and it is serious and it is real. So what did we suggest as a proposal? Well, the Treasury came to us and said the way to free up these markets, the way to get credit moving again--or part of the way to get credit moving again--is to buy off the books of a large number of the financial entities in this country what are known as nonperforming loans--loans which are based on mortgages, mortgages on homes where the value has dropped so precipitously that the mortgage actually exceeds the value of the home or, alternatively, or in combination, the mortgage reset because it was a subprime mortgage and the payer of the mortgage can't afford to pay the mortgage anymore because interest rates went up so much on it. Those nonperforming loans are sitting on the books of a lot of lending institutions, and there is no way to value them because the value of those underlying assets has dropped so much. The practical effect of that is those institutions can't lend against those assets. So what we were going to do was to step in and buy those assets, those nonperforming loans, so that those lending institutions could start to lend against real assets--valued assets--and thus create credit. Then we were going to take those assets which we purchased and we were going to hold them while the market started to settle down and the economy, hopefully, would improve, and then we would resell them into the market and we would get money back to the taxpayer. So even though $700 billion is the number we hear--and it has been, in the most inappropriate way, hyperbolized and demagogued, that we are taking $700 billion and throwing it at Wall Street, and that is not what is happening. We are taking $700 billion and with that taxpayer money we are buying assets which the taxpayer will own, and then later on we are going to sell those assets. We may sell them for what we paid for them, we may sell them for less than we paid for them, or we may actually sell them for more than we paid for them--in fact, a lot of people think we will. So the cost to the taxpayer is not going to be great, and it is not going to be anywhere near $700 billion. There is a chance--an outside chance--the taxpayer may make some money. That is not our goal, but that is an opportunity that lies here. Let me describe it this way, to put it in simpler terms and more vivid terms, hopefully. If you had an eight-lane highway in your town or in your city--most people don't, but let's say there was one--and you had a crash on that highway that blocked the entire highway, and backed up behind that crash might be trucks carrying the payrolls for people who are working, carrying the money that made the hospital work, carrying the money to make the school system work, carrying the money that let the garbage get picked up, carrying the money that allowed the kids to go to college, all those trucks carrying that money are backed up behind this accident and they can't get to the places they need to get to. So what we want to do as a government is to come in and take that accident off the highway and let the commerce flow again. Then we would take the cars that were in the accident, those cars that are all mangled, and we are going to repair them a little bit and resell them, hopefully for more than what we paid for them, but we are certainly going to resell them for a value which is considerable. That is what we are doing here. We need to act. This is not a theoretical or a virtual event. The market showed us yesterday just how worried people are and how important it is that we proceed. So what should we do now, now that the House has acted in this way and basically suspended the effort here? Well, we need to return to the issue. We need to, in a conscientious and constructive way, get this matter back up and get it moving in the right direction. I hope the Senate will act. I think we should act. We are obviously here at the Jewish holiday, so we are unable to take action today and maybe not until late tomorrow night because of that recognition and because we want to be appreciative of those sacred days. But the fact is, we need to act soon. This is not a situation which is going to get any better with time. It is going to get significantly worse, and at some point it is like the snowball rolling down the hill: It is going to get going so fast that our ability to stop the damage that is going to be caused is going to be dramatically lessened. Is this proposal we came forward with perfect? No, but it has a lot of safeguards in it. Taxpayers were safeguarded. This was all added on through the negotiation--at which negotiation, by the way, were representatives of all the players: the House Members, House Republicans and Democrats; the Senate Members, Senate Democrats and Republicans; and Treasury. We put in very strict, very aggressive taxpayer protection. For example, all the dollars which we get from selling these assets are going to go to reduce the debt. We limit executive compensation so people cannot take advantage of the situation. We limit golden parachutes. We put in place language which says that if we get these assets and they are mortgages of people who are in their home, we want to try to keep them in their home, and so we will try to reorient that mortgage so they can afford it. We have aggressive oversight, which is extremely important. So we have done a series of moves to make this work better and work to the benefit of the American taxpayers and the people who live in their homes. But it is critical that we do it. Now, does it solve the problem? No, it doesn't solve the problem completely or even totally in any way. But here is what it does do. Think of it is as a person who has received a severe wound, and I mean a life-threatening wound. We are putting a tourniquet on that wound and stabilizing that person so we can take them to the hospital and hopefully get them cured and get them on the road again to a prosperous life. That is what we are doing with the economy. We are putting a tourniquet on the economy to stabilize it so it can stand back up on its own two feet and get going again. If we don't go forward, there are going to be severe events, and most of the burden of the severe events is going to be borne by Main Street. Ordinary Americans are going to bear the burden. They are going to be the ones whose jobs are affected because payrolls can't be made, and so they will lose their jobs. They are going to be the ones who can't borrow money to buy a car, who can't borrow money to buy a house or borrow money to send their kids to school. It is their hospitals that are not going to be able to roll over their revenue bonds. It is their industrial parks, where their jobs are located, that won't be able to roll over their bonds to do the improvements that create the entities that expand the economy. Those are all the things that are going to be impacted here--on Main Street America. So I think our responsibility as a government is to take action. But in this instance, people have been misrepresenting what is happening. They have been hyperbolizing, and there has been a lot of theater in the marketplace by some people who basically are being irresponsible and demagogic, in my opinion, about what we were doing, and so the general public has been misinformed and really grossly misinformed. Of course, they naturally mistrust the Government, and they probably should. We should all be a little suspicious of the Government, to say the least. But as a very practical matter, in this instance, there has been a tremendous amount of misinformation, especially about the immediate impact this will have on people on Main Street if we don't act. So we have this situation, and I think what we need to do is to step back, calm these waters, and act in a responsible way and move forward in a way that allows us to take this opportunity to try to settle out the markets, free up the markets, get credit flowing again, and hopefully relieve some of the pressure every American is going to be facing from what is a very severe economic situation. I hope we will vote soon. I would like the Senate to vote as soon as we can--and not in any way impinge on the Jewish holiday--because I believe we need to do that. We need to pass this legislation because the consequences of not passing it are so extraordinary and will be so detrimental to our country and to our people that it would be totally irresponsible of us to not take this action. Mr. President, I yield the floor.

Mr. GREGG

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

Mr. GREGG. Mr. President, I understand that at 12 o'clock I am to be recognized for half an hour, but I ask unanimous consent that I be allowed to proceed at this time for half an hour.

Mr. GREGG

Mr. GREGG. Mr. President, the reason I wanted to take a half hour is to discuss at some length and in some depth the situation we are in right now, as I see it, relative to the financial markets as they affect Main Street because there is a lot of confusion out there and this issue is about Main Street. It is that simple. Why is it about Main Street? It is about Main Street because if our financial markets become totally destabilized, that leads directly to the ability of people to keep their jobs, to keep their savings, and to create more economic activity on Main Street. How does this work? It is very simple. If you are working for a small company or even a medium-sized company and certainly if you are working for a large company, it is very likely those companies borrow money to do things. They may borrow money to buy the materials you work on in order to create their product. They may borrow money in order to pay their suppliers. They may borrow money to pay their payroll every week to make your paycheck. That is just the natural order of commerce in our Nation. That is the way banks work. That is the way Main Street works. You have a little restaurant, a mom-and-pop restaurant, and they didn't make quite enough this week to pay their payroll, so they go to their local bank or the community bank and they say: Will you give me a loan to get me through this week so I can make payroll? A person who makes a significant or a reasonable amount of money takes their money and puts it in their bank, into a savings account or maybe into a money market instrument because they get more interest on a money market instrument, and that becomes a big asset in their life. Let's say a person wants to go out and buy a car. Most likely, they are going to borrow money to do that, either from their local bank or through their car dealership or they are going to borrow money from a major financial entity such as GE or GMAC. The same is true if you are buying a house, obviously, or if you are buying a lot of things. If you are adding on to your house, you are probably going to try to get a home equity loan. If you are going to expand or improve your kitchen, put on a playroom for your kids or, if the kids are old enough, send them to college, you are probably going to borrow money to pay for their college education. The ability to borrow, the ability to use credit in our system is at the essence of the economic lifeblood of our system. Every person in this country is affected by it. Unfortunately, what we are confronting and what we almost saw last week is a total seizing up of our financial industry, and not just the big banks in New York we hear so much about--not just Lehman Brothers and Merrill Lynch and Bear Stearns--but the mom-and-pop bank in your local town, the medium-sized bank in your local county or your State. All of these were under huge pressure. And why is that? It is because underlying the banking system is the business of trading and exchanging credit, of buying and selling debt between banks. One of the main elements of buying and selling debt is a debt instrument called a mortgage-backed security. Now, what is that? A mortgage-backed security is a debt instrument, as if you went to your local bank and borrowed money, only it is a big set of debt instruments, and the security for those debt instruments is mortgages. What has happened, because of the real estate meltdown and because of the subprime event and the collapse of the real estate industry, primarily in our bigger States, such as Arizona, California, and Florida, is it has become extremely hard to value the security below that debt instrument--those mortgage-backed securities--because the value of that asset has reduced so much, the house price has reduced so much. The reason for that is because a lot of the loans which were made to buy those securities--to the person who is actually paying the loan, the person who lives in the house, theoretically, or the person who speculated and bought the house as part of their investment--were made at a time when money was so cheap to borrow that they were made at interest rates which were extraordinarily low and are today being reset, as those notes become due under the terms of them, at a much higher interest rate and at an interest rate that the person who lives in that home can't afford to pay. That is called the subprime issue. And there are also a lot of variations of that, by the way. So the person who is responsible to pay that note, first, has an asset which probably isn't worth what the note was issued for because of the drop in the value of the home prices and, second, finds themselves with a debt they can't afford to pay because the interest rates have jumped so much. That translates into thousands, tens of thousands, hundreds of thousands of situations which merged together in these mortgage-backed securities which were then sold and then insured and then reinsured and reinsured through something called credit default swaps in order to avoid failure, in order to give coverage, and all of that system has essentially frozen up--frozen up--so that those mortgage-backed securities are no longer tradeable because nobody knows the value of them, and the insurance that was issued on them is at risk, also, because of the fact that the asset has depreciated and the revenue to pay the cost of that debt has depreciated. How does this affect the person on Main Street, the person in Epping, NH, or Raymond, NH, or Lancaster, NH? The way it affects them and the way it affects all Americans is that when that freezes up and the banking system can no longer get value for the debt which it has on its books and it has to start writing down that value, then the banking system starts to contract dramatically because the assets which the bank was depending on in order to be able to lend against are depreciating radically. As a result, the financial ability to get credit dries up and contracts, and people react to that, and they did last week. This is not a theoretical event, by the way. This type of destabilization is upon us, unfortunately, and what we are trying to do is avoid it becoming an epidemic. But last week, in response to the fact that people couldn't get money and didn't have confidence in lending money or borrowing money, we had $335 billion taken out of money market accounts and basically moved over to Treasurys. What did that do? It was essentially a run on money market accounts. Well, if you have a run on money market accounts, you have a very serious problem. Last Wednesday night, we had that problem, because what happens when there is a run on money market accounts? Well, the entities that have those money market accounts have to pay them off, which means they have to hoard their cash in order to support and defend their money market accounts which are in their banks. So they can't lend any more money; they have to actually start calling in accounts. So when somebody comes into their office and says--and this is a simplified way of explaining this--OK, I need some commercial paper, some financing to get through my next payroll, which is going to be this week, because I didn't make enough money on my business this week--it is maybe a seasonal event or a seasonal slowdown--and they say: I need to get some commercial paper to make my payroll, well, they can't get it because the bank can't lend it to them because the bank is holding its money or the finance house is holding its money for the purpose of supporting its own capital position or for the purpose of defending itself against the fact that so many of its money markets are being called in. The practical effect of this is that you create the potential for massive destabilization of the economy at a level we have never seen, potentially. Now, some might say that is hyperbole. I don't think it is. Mr. Greenspan doesn't think it is. The former Chairman of the Fed said this is a 100-year event. Warren Buffett doesn't think it is--a Democrat-- and I am quoting him because he said this morning that he had never seen an event like this in his life with the potential for this type of destabilization. I think anybody who is honest about it recognizes that the last few weeks have been extraordinary and the threat to our economy and to the everyday life of Americans has been immense--the threat. What has happened to try to address this? Fortunately, we have had a very activist, very bold, and very creative Federal Reserve Chairman and Secretary of the Treasury. Leading up to where we are today, we had three major fiscal crises that were addressed aggressively. The first, of course, was Bear Stearns, the first financial house to go down. That was aggressively addressed by an infusion of support, not for Bear Stearns--the stockholders of Bear Stearns lost all their money, as did their debtholders--but for the underlying financial institutions and the debt structure built around Bear Stearns. The second was Fannie and Freddie. Here, the Federal Government, again, and the Congress, acting in a very responsible bipartisan way, passed legislation which allowed us to stabilize those two entities. Why did we need to stabilize those two entities? Because they own $5 trillion of the mortgages in this country. Mr. President, 70 to 80 percent of the mortgages in this country are run through those two companies. Had they been allowed to collapse, had they been allowed to totally implode or to become massively dysfunctional, the entire credit market would have frozen, the mortgage market would have frozen, and a lot of people would have lost their homes. So, again, the Congress, acting in an extraordinarily responsible way with the Secretary of the Treasury, created the authority to move forward to settle that. Then, the third event was last week, last Tuesday night--AIG, an insurance company. Why, you say, do we need to step in to defend an insurance company? We didn't need to step in to defend the insurance company. What we needed to do was to defend the insurance which they had issued. Why? Because almost every bank of any small or medium size in this country uses insurance issued by AIG to insure much of its capital assets so those capital assets can be used against lending. Whether a bank can lend depends on how much they have in capital assets. Had AIG gone down, the insurance--the rating agencies would have rated that insurance as nonperforming, for all intents and purposes. I am simplifying it, but that is basically what would have happened. That would have meant the banks would have had to contract their capital immediately and that would have meant dramatically less lending; good loans being called, people who paid their loans would find their loans no longer existing as the banks had to collect more capital to get their capital requirements up. Many banks might even have failed as a result of that event. It was a systemic problem because the insurance was so pervasive throughout the system and it so supported the banking and financial houses, to say nothing of the money market area where it also played a major role. Again, Chairman Bernanke in this situation stepped in to stabilize that insurance. He didn't bail out AIG. Don't say to Mr. Greenberg, who was the primary stockholder in AIG and who lost $5.8 billion in 1 week, I think it was, that he was bailed out. No, the stock basically went down to $1, I think, $1 or $1.50. The senior debt was replaced by debt owned by the Federal Reserve, which is paying 11 percent and I think everybody agrees that in the end that will end up being a financial-- the Federal Reserve will make money on it. Now we are at the fourth event of this very tenuous and difficult financial dislocation that we confront and that is the request by Chairman Bernanke and Secretary Paulson to give Secretary Paulson the authority to basically use up to $700 billion of Federal debt to go in and buy debt which is not performing off the books of various lending agencies and financial houses so the market can begin to perform. This goes back to those mortgage-backed securities I talked about; to get that freeze which has occurred, that logjam to break up so the markets can function in an orderly way and people can borrow money and people on Main Street can finance their payrolls, can finance their homes, can finance their house, can finance sending their child to college, and the economy grows rather than contracts. Instead of losing jobs, we will add jobs; instead of losing net worth, we add net worth. That is what this is about. There has been a lot of misrepresentation, exaggeration, and political statements made around here--especially in the ``talking head'' area of the media. They say, basically, there is a $700 billion bailout, we are going to take $700 billion of taxpayers' money and throw it at financial institutions across this country and get the fat cats off the hook, so to speak. We need to go back and talk about what happens to the taxpayers in all four of these events. I will represent upfront I do not know exactly what is going to happen. Nobody else does. But I also represent upfront that the cost to the taxpayer will be dramatically less than any of these numbers which are being thrown out there in a most irresponsible and inappropriate way. When somebody says $700 billion to $1 trillion this is going to cost taxpayers, they are being dishonest when they make that statement. It is never going to cost that type of money, never even be close to that type of money. In fact, the taxpayers are going to come out of this making money because we will replace other investors, and when those investors pay off, they will make a little money. Let's go through all four of these items as to how much it is going to cost the taxpayers. Bear Stearns, $29 billion. That is what the Federal Reserve put into Bear Stearns. That is the Federal Reserve, remember. This is not off the Federal budget. It is not from the Federal taxpayer. The Federal Reserve is an operating corporation. It has about $895 billion of assets. Every year it makes $25 billion to $30 billion, which it pays to the Federal Government as income. Chairman Bernanke has decided to take $29 billion and invest it in various bonds that were issued by Bear Stearns, to give those bonds stability. It is very likely the Federal Reserve will get all that money back, or a large percentage of it back. It is totally unlikely the Federal taxpayers will end up with any type of bill from this exercise. That is probably a zero cost to Federal taxpayers. The only thing that could possibly happen that would affect Federal taxpayers is the Federal Reserve might make less money this year and, thus, pay less into the Government as part of its contribution, when it makes a profit, to our revenues. But even if that occurs, in the outyears, it is likely that amount of money will be higher because they will be getting that money or a large percentage of it back. So that doesn't cost us anyway. So when someone in the press--not the press, I don't want to pick on the press--when someone says it is a $29 billion taxpayer bailout with taxpayer dollars, it is not. That is plain wrong. The second event I wish to talk about because it is similar--it is not in sequence, but it is significant--is the AIG, $85 billion. In this instance, once again it is the Federal Reserve investment. It is not taxpayers' dollars being invested. The Federal Reserve has taken $85 billion and essentially bought AIG. In buying AIG, they got the parts as well as the holding company. The holding company is where the problems were. The parts, the subsidiary insurance companies--of which I think there were about 150 or 160--were actually quite economically strong and viable. In buying that company, not only did they wipe out the stockholders, not only did they kick out the management, not only did they eliminate the golden parachutes, but they took back securities which guaranteed an 11.5-percent payment to the Fed before anybody else. So as AIG starts to make money again--which it certainly will because it and its subsidiaries are a very viable company--the Fed is going to make 11.5 percent at a minimum. I don't think there is anybody who has looked at this exercise who has not concluded that this is going to be a financial benefit to the Fed. The Fed is actually going to make money off that in the sense that over the long run--when I say ``long run,'' I am talking about less than 5 years--over 5 years they will have a return on that purchase of AIG which will exceed the $85 billion they put up. So when somebody says that was a bailout with taxpayers' dollars, once again they are totally inaccurate and they are misrepresenting and trying to scare people by saying that. Now we come to the two big items. Big items? The other ones are pretty big; $85 billion would take care of the State of New Hampshire for I don't know how long--probably 20 or 25 years or so. Now we come to the two very large exercises; first, Fannie Mae and Freddie Mac. In those instances, the Congress, in a bipartisan, extraordinarily constructive way, joined with Secretary Paulson and said to Secretary Paulson: We are going to give you $100 billion of authority for each company, $200 billion total, that you can use to stabilize those two institutions. Why so much money? Because we had to make it clear to the people who were dealing with Fannie Mae and Freddie Mac that the Government would be there to stabilize them. By stabilizing them, it would cost us a lot less. If we allowed them to unravel, if we allowed them to basically go into a destabilized situation, then the contraction to the economy would have been so overwhelming because mortgages would essentially have been called all over this country and mortgages would not be able to be obtained by virtually anybody. We would have seen a massive contraction on top of the already serious situation we have in the real estate industry and that would have had a huge impact, not only on Main Street and on John and Mary Jones, who want to buy their house or stay in their house, but on the Federal Government in the way of revenues because taxes would have fallen off precipitously. By stabilizing those two companies, we were able to keep the ordinary business of lending for mortgages in this country going forward and moving in a constructive way. We had to put enough money on the table or represent that we were willing to put enough money on the table so nobody could question that we were not going to be able to stabilize those two institutions and that is why the numbers were picked. How much has actually been spent of taxpayer dollars? Five billion dollars, that is what the Treasury has had to put in so far. As a result of this putting in that $5 billion, we are seeing mortgage rates actually come down because we are actually getting a Fannie Mae and Freddie Mac that are able to function again. So that is all good news. I don't know how much more will have to go in, but it certainly will not have to be $200 billion or anything near that number. Furthermore, once again, with that $5 billion, we are buying assets that have value. How much value is still up in the air. But we will get some sort of return on that $5 billion. Thus, under the scoring rules that we work under in our budget, because this is a credit action, this is not going to score as a $5 billion hit on the Federal deficit, even though $5 billion has been spent because CBO is going to say some percentage of that $5 billion is going to come back to us as these assets mature and as people make payments on those assets and, thus, maybe it will only be $1 billion; maybe we will get $4 billion back. So the effect on the Federal deficit will be $1 billion. I don't know how CBO is going to score it, but they are going to score $5 billion as dramatically less than $5 billion as a hit on the deficit. At the same time, we have been able to stabilize, to some degree, the Fannie Mae and Freddie Mac situation because we took aggressive and bold action, which brings us to where we are now. This whole issue of whether we need to move forward with a major effort of stabilization and recovery for the financial industry, generally, by having the Federal Government come in and basically buy up a lot of securities which today cannot be traded on the market because nobody can value them. That is what I was talking about earlier. You cannot value these securities because nobody understands what the underlying equity that supports these securities is, the value of that home; and nobody knows whether the people paying on that debt originally are going to be able to make their payments as these mortgages reset. The Federal Government is going to come in. What Treasury Secretary Paulson has asked is for the Federal Government to have the authority to come in and start buying up these securities in classes, in groups, across the board. The question becomes, will he have to spend $700 billion to stabilize the financial markets? And how much will that cost the American taxpayer? First off, the easy answer to it is it is not going to cost anywhere near $700 billion, even if he uses the whole $700 billion, which he probably will not do. But even if he were to use the entire $700 billion authority, he would be out buying assets. He would be out buying notes that have security behind them and, therefore, we will be paid, to some degree, as to their value and depending upon what he buys these notes at. Let's say he is not going to buy them at face value. Let's say someone borrowed $100,000 secured by a house, and nobody knows what the house's value is now, and the person who borrowed the money cannot repay that because the cost of the note, the reset interest rate is too high. That note is not going to sell for $100,000, it is going to sell for something less, maybe $70,000 maybe $60,000. It is not clear what the Treasury is going to buy that for right now. I want to get into that in a second, but whatever they buy it for, they will be getting an asset. And the question will be, is the price they paid for that asset above or below what they can, in the end, get for that asset? Now, the big advantage the Federal Government has is we do not have to do what is known as mark to market. We do not have to write down these assets the way a bank does or a financial house does as they become destable, as the assets become destable. We are the Federal Government. We can hold that asset until it is paid off at face value, for example. So not only do we get the 70 cents back, but we get 100 cents back on the dollar, so we can actually put ourselves in a position where if we pay a reasonable price for an asset we may make money on the asset. We do not know that that will happen, because the purpose here is not to make money, the purpose is to stabilize the financial markets and give them the ability to start freeing up, trading and freeing up activities so that the credit markets start to move back and forth once again. But if we are successful, and we will be if this plan is approved, then the credit markets will start to move once again, and that will raise the economy. And as the economy improves, then these mortgages that we will have bought, these mortgage-backed securities, and their other things such as loans, will start to improve in their performance, and the chances of us getting a good portion or all of the money back that we put into this effort will be pretty high. What is the effect of that? That means that instead of costing $700 billion, we may get $600 billion back, we may get $500 billion back, we may get $800 billion back. Whatever we get back, that is going to be a net figure. So when CBO scores this activity, they are not going to say the deficit is going to increase by $700 billion as a result of us passing this proposal, they are going to say it is going to increase by the net difference between the $700 billion and what they estimate we will get back from the assets that we purchase. I suspect that estimate is going to be--I do not know what it is going to be, but it is certainly not going to be anywhere near $700 billion, $100 billion. It is going to be a shot in the dark because nobody knows. But we do know we are going to get some value for this investment. In fact, if things were to work out, we might get as much value back as we put in, maybe even more. That is not the expectation, that is not the purpose. But clearly when somebody gets on the public airwaves and says: We are putting $700 billion of taxpayers' money into this and we are not getting anything back, we are throwing it at these big companies, they are big demagogues, they are big, dishonest, they are heightening the problem rather than addressing the problem. They are certainly not factually accurate as to what is going to happen here. The deficit will not be aggravated by anything near that number. Now, will the Federal debt go up? Yes. But then it comes back down as we get the money back. So that also is not a legitimate argument. If you have got a legitimate complaint, it is this as a conservative: When we make this investment and we start to get this money back, which we will, over the next 5 years, so that money is flowing into the Treasury at a pretty big rate, $500 billion, $600 billion, $700 billion, we better make darn sure that money goes to reduce the debt of the Nation and does not get spent around here on various products, which is what we tend to do with money when we see it arriving at our doorstep. That is what I am concerned about. I am hopeful that whatever the final agreement is, it will have language in it that says as we start to get this debt repaid, the Federal Government starts to receive monies as a result of the investment we have made, those monies will go directly to reduce the debt of the Federal Government, and the debt we are passing on to our children. But what is the practical effect of doing this, of putting this type of commitment up, this type of commitment to stabilization? The practical effect is that we stabilize, hopefully, the financial markets. What is the effect of not doing this? What is the effect of not doing this? We are playing with fire. We are rolling the dice. We are confronting potentially one of the most significant economic events in the history of this country, and it is not a good event if we do not take action. There are a lot of very thoughtful people around here who know that. Last week we almost saw that event occur when there was $335 billion of money market funds pulled out of the market and we basically saw the banks unable to continue to operate in an orderly way because of that until the Fed and the Treasury came in to basically stabilize the situation. We do not want to take that gamble as a nation. The cost of not taking that gamble is not that high. It is not $1 trillion, it is not $700 billion, as I have run through the scenario. It is virtually no dollars in the Bear Stearns-AIG event; it is a marginal number of dollars potentially in the Freddie Mac and Fannie Mae event; and in the big event, the $700 billion, we do not know what it will be, but we know it is dramatically less than $700 billion because we know we are going to recover a large amount of those assets, and the net cost of that activity will be well below $700 billion, assuming there is even a net cost over a 5-year or 10-year period as we work out these loans. But the cost to us if we do not do this? Potentially staggering to everybody in America. This is not about Wall Street; this is about Main Street. This is about people keeping their jobs; small mom-and-pop businesses being able to borrow money to operate; people being able to send their kids to college; an economy being able to be a growth economy rather than a contracting economy. That will affect everyone, everyone in America. So I think it is time to put an end to the theater and to the politicization and to the hyperbole. I congratulate a lot of folks on the other side of the aisle. I congratulate the Senator in the chair, from Pennsylvania. He has been responsible. I have heard Senator Schumer, who is a leader in this area, make some extraordinarily constructive ideas. Senator Dodd is trying to be constructive. I think there is a willingness in this body to act at least in a bipartisan, constructive way. That is what we need is some mature action around here. That is our responsibility as a government. We have a crisis upon us. There are ways to avoid it. We have a responsibility to pursue a course of action which gives us the best chance of avoiding that for the American people. I yield the floor and I suggest the absence of a quorum.

Mr. GREGG

Mr. GREGG. Will the Senator yield for a question?

Mr. GREGG. Mr. President, I ask unanimous consent that at the conclusion of the time the Senator from Oklahoma has used, I be recognized for 10 minutes under morning business; and at the conclusion of my time, Senator Alexander be recognized; and if a Democratic Member wishes to speak, that they be inserted in the proper order.

Mr. GREGG. Mr. President, I wish to congratulate the Senator from Oklahoma. He has made an extraordinarily statesmanlike presentation. This isn't about the politics of the day, it isn't about theater or hyperbole. This is about how we maintain the integrity of the American financial system so we have the necessary tools to make Main Street solvent and prosperous so Americans don't lose their jobs, don't lose their savings, and we have economic activity that continues. He has stood and--in the face of what is some fairly intense criticism coming from pundits who don't have a vested interest in the issue, other than their desire to get ratings--made the very rational point that we need to do this, we need to take action, we need to step outside the bounds of politics, outside the bounds of theater, and we need to do it now; that delaying this only will lead to significant problems. So, first, I wish to say I have unlimited praise for the position the Senator has taken, and he has not only done this in this Chamber but he has done it in meetings with membership, and it has had a huge impact on my colleagues because he is so highly regarded on the issue of fiscal policy especially. But I guess my question is: We have Senator McCain basically suspending his campaign to come back and try to work on this, and Senator Obama has been very constructive. It is time to move forward in a bipartisan way. Doesn't the Senator from Oklahoma believe this has to be done in a bipartisan way and done in a very timely way; otherwise, we will lose the opportunity to settle this situation out, and we may see a disastrous event occurring which affects every American's pocketbook and their lifestyle, basically?

Mr. GREGG. Well, Mr. President, I wish to continue the dialogue the Senator from Oklahoma has begun because I believe it is critical. There are times when our Nation faces a crisis of incomprehensible threat--incomprehensible in terms of the size and the effect of it--and at those times we have united as a nation. This is a time when we have to do that. Most of those threats have been physical events, the most recent being Katrina and, obviously, 9/11, and the attack on Pearl Harbor. These were physical events that caused us as a nation to pull together and act in an extraordinary way and as a government to do the same. What we are facing is an event that will create a massive disruption of our economy and will have a huge impact on individuals. That is the point. People will be unable to get credit. If you run a small mom-and-pop grocery store or a small business, and this month or this week you don't make enough money to meet payroll, you are not going to be able to borrow money to meet payroll, so people will not be paid. If you have a child in college and you want to borrow to keep them going in college, you are not going to be able to borrow that money. If you have a house you want to refinance or add on to, you probably would not be able to borrow to do that. The credit markets are locked down and will lock up if we don't take some action to try to relieve this pressure. The important point is this action is not that expensive in the context of the overall threat. The number $700 billion has been thrown around. That is a totally specious number. Yes, that is what will be borrowed, but it is not what it will cost us, because that money will be used to purchase assets, and those assets have value and the Government and the taxpayers will recover that value. The net effect of that borrowing and the assets purchased, when they are resold, could be zero, we could actually make money, or it may be $100 billion, which is a lot of money, but it is certainly not $700 billion. So in the context of what the initial cost will be, it will hardly be anything on the deficit in the next year. It may be significant on the debt but not on the deficit. The practical effect of that in the long run will be that it would not be anything on the debt because the money will be repaid through the selling of the assets that are purchased. Compare that cost to what happens if we do nothing--if we have a total destabilization of our financial houses, if banks start to fail, if Main Street contracts, if people are put out of work, if revenues drop dramatically. You are talking about lost revenues to the Federal Government of an inordinate amount. You are talking about programs which will have to be added to take care of people in dire straits of inordinate amounts. I can't imagine what the cost would be if we went through a dire recession or worse. But it would be huge--huge--and dramatically more, by factors of multiples, multiple events compared to what the cost is of trying to do something now. The point is we have to do it quickly. This is understood, by the way, by a lot of people around here. It is understood, fortunately, by Senator McCain, who has said he is going to suspend his campaign to come back and try to get this thing done. I believe it is understood by Senator Obama. I have been totally impressed with his very mature and appropriate response to this issue. I am hoping Senators McCain and Obama can lead us, in a bipartisan way, to resolve this. I have also been impressed with the leadership on the other side of the aisle, especially the role taken on by Senator Schumer, who obviously understands this intuitively and substantively, being from New York, But also other Members on the other side of the aisle. I think Senator Dodd, chairman of the Banking Committee has played a major role. Obviously, he was extremely critical, he and Senator Shelby, in the initial effort with Fannie Mae and Freddie Mac. Their work was extraordinary. So there is the core and the energy in the Senate to do something aggressively, in a bipartisan way, and to do it right. I think the point is we need to do it aggressively and do it right and do it now. We can't wait. I see my colleague, Senator Alexander, on the floor, and I know he has a number of thoughts on this, and so I yield to the Senator from Tennessee because he is a leader on this issue.

Mr. GREGG. Well, nobody actually knows, is the answer to that. But there are some pretty good parameters you can put it within. We know the Bear Stearns situation, which was $29 billion by the Fed, is probably going to be a wash. We expect the AIG which again was the Federal Reserve action, not coming off our Treasury books, which was $85 billion--is probably going to be a winner. In other words, they will get more money back than they are spending. Freddie Mac and Fannie Mae, where we put up $200 billion, we essentially said we were willing to put up $200 billion and give the Treasury Secretary that type of authority. We have only spent $5 billion so far of that $200 billion. That $5 billion will net out, so the total cost of that $5 billion is going to be less than $5 billion, probably at the most maybe $1 billion, maybe $1.5 billion after you net out the assets. So if you look at those parameters and look at the $700 billion number, what we are going to be buying is assets. Think of it this way: We are going to go out and buy a lot of cars that have been a little damaged; some have been really damaged. The pricing we pay for those cars isn't going to be what the person paid for them when they bought them off the lot. It is going to be what those cars are valued as damaged. There may be a premium, but I don't think it will be much. Then we will take those cars and either repair them and resell them or we are going to resell them, when the economy improves, as damaged cars. People will want them because they are going to repair them. In either event, we are going to get back a fair amount of the money we invested because we have a physical asset. It is called a mortgage- backed security, most likely, and we own it and we can resell it or we can wait until it matures at face value and get the money back, having bought it at less than face value. I honestly believe, and my guess is--and everything is going to be a guess, but my guess is the cost of this event will be less--less--than the initial stimulus package which we passed around here, which was $140 billion. That is a guess.

Mr. GREGG. Mr. President, if the Senator from Tennessee would allow me to express a question to our leader: The point the leader makes is absolutely valid, but it is not unique to Kentucky. We are hearing all over the country that municipal--communities are unable to roll over their municipal bonds or are getting close to that threat. We have heard about major corporations that have been unable to move cash into franchises last week because the banks did not have the wherewithal to move cash because of the threat and the pressure that was being put on their money market accounts, which they had to protect and defend. As you say, this is not a Wall Street event. This is going to be a Main Street event. People are going to be put out of work, they are going to lose their jobs, there is going to be a huge disruption. The potential for economic disarray is unprecedented. I think it is very appropriate that the Senator from Kentucky, as the leader, has pointed out a very real-world event here because this is real-world stuff. This is not theory.