Judd Gregg

Mr. GREGG

Mr. GREGG. Mr. President, will the Senator yield for a second? I ask unanimous consent that after Senator Brown speaks, Senator Mikulski be recognized and then I be recognized.

Mr. GREGG. Mr. President, I wish to speak briefly on the bill that is before us and how I think it can be improved. First, I congratulate the chairman of the committee, working with the ranking member. I understand they have reached an agreement on how to do the issue of resolution, which addresses the issue of too big to fail, which is a very critical part of this bill. I congratulate them for making that type of initiative. I hope the rumors are true and that such an amendment will address strong too-big-to-fail language so the American taxpayers will not be on the hook for institutions that overextend themselves and take on too much risk but are institutions that are so large it is felt they are too big to fail, that concept will no longer be part of our lexicon, and we will essentially put an end to that. I congratulate the chairman and ranking member. There are, however, other major issues in this bill that need to be addressed. They are substantial and rather complex. A few that are not even in the bill--for example, how we address Fannie Mae and Freddie Mac. We know that the American taxpayers today are on the hook for somewhere between $400 billion and $500 billion--$400 billion to $500 billion--that we are going to have to underwrite in order to stabilize those two entities on the credits which they have run up which have gone bad and they have purchased. That is serious. There will be a proposal that comes from our side of the aisle. It will not totally be structured to Fannie and Freddie. It should. I would like to see that. It is too complex to do in this bill. It will at least address some of the core issues that ought to be addressed. For example, we ought to tell the American people upfront and forthrightly how much they owe. It should be put on budget. We ought to put on budget what the obligations are, because they are scoreable, relative to the costs the American taxpayers are going to have to bear to bail out and maintain Fannie and Freddie. It is going to be somewhere around $400 billion to $500 billion additional debt. It is coming. We do not want to talk about it because it affects other debt obligations of this country in a lot of different ways, primarily in crowding out. Second, the bill has language on underwriting but it is not strong enough. If you want to look at what caused this event at the end of 2008, what caused this traumatic event which almost brought the entire financial system of America down, which almost put us into a depression and put us into a very severe recession, cost a lot of people their jobs--and there are still a lot of people experiencing trauma because of it--there are three or four main causes. I have talked about them before: One, of course, is that I believe the money was made too easy to get, at too low a price, for too long by the Fed. Another was the fact that the Congress specifically encouraged and, in fact, forced lenders, for all intents and purposes, to lend to people who couldn't afford the homes they were buying because it became congressional policy to do that. Another was that people were shopping for the weakest regulators. This is what happened in the derivatives market, and the derivatives were not structured in a way that actually put capital or liquidity or margin behind derivatives. The fourth and I think probably the most significant was that there was a total breakdown in underwriting standards. In other words, the people who were making the loans on subprime mortgages and on other types of exotic instruments so that people could buy houses who couldn't afford them were making those loans and not looking at the underlying value of the asset, and they weren't looking at the ability of the person to pay back that loan. What they were doing, quite simply, was making the loan because they were going to get a fee for it and then they were going to sell the loan, securitize it. It was going to be chopped up, sent out, and syndicated, and they didn't really care what the loan did because they were basically making a loan for the purpose of making a fee. Those were the one-off lenders. In the banking industry, you had a complete breakdown. Banks were lending to people they knew couldn't repay when these loans reset, and they knew the value of the asset could only support that loan if there was an appreciation in the market, which was a gamble. This happens every time we go through one of these events, by the way, one of these real estate-driven recessionary events. It happened in the late 1970s; it happened in the late 1980s when I was Governor of New Hampshire and New England went through a horrific contraction as a result of an expansive effort of lending money in the real estate markets--underwriting standards break down. There needs to be a clear national definition of what proper underwriting standards are. Senator Isakson and I and a number of other people--Senator Corker--are going to put forward an amendment in that area. One of the core areas here that needs to be addressed and hopefully will be included in this bill and improve the bill in this area--one area of this bill that simply has to be changed if it is to be effective in doing what it is supposed to do is the language of derivatives. Most Americans don't understand derivatives. It is understandable. They are complex products. But basically think of it this way: You are on Main Street, and you have a business--usually a fairly large business--and you are making a product. You want to be able to sell that product to somebody at the price you quote that person and make the profit you expected at that quoted price. But there are a lot of things that affect that product that you can't control. If you are selling it to another country, you can't control what the dollar is going to do in relationship to the currency of that country--for example, if you are selling it to Brazil, whether their currency goes up or down vis-a-vis the dollar. If you enter into a contract today and can't sell your product for 6 months, your whole profit could be wiped out by the market devaluing as relates to that currency. The materials you buy to make that product may change in value or viability. The person you are getting a loan from to allow you to expand your business to build that product may have financial troubles and you may have an issue there or, vice versa, you may have an issue with that person. All of these are things which are usually beyond the ability of the individual who is making the product--and in this case, I am talking about making products--to control. So there is something called a derivative, which is an insurance item. Basically, someone insures for you over those risks. There is a lot of complexity to this because these insurance items mutate into all sorts of different instruments. They can affect financial instruments, they can affect commodities, they can affect goods, they can affect just plain currencies, but they are critical instruments--derivatives-- for making the economic engine work. They are sort of the grease you put in the economic engine to make sure it doesn't seize up, to allow the economic engine to move down the road. They are so critical, in fact, that they are approximately $600 trillion--trillion--of notional value. Notional value is not really what the risk is because there are underlying assets here, but that is a big number--a big number. So we have to make sure that when we amend the derivatives section of this bill to try to have a stronger derivatives industry, we don't make big mistakes and basically undermine the ability of people to use this type of instrument to get credit and to make the markets work and to create jobs on Main Street because these all tie back to jobs on Main Street. Even if you are not working for the company that uses the derivatives, you are probably working for somebody who does business with a company that does derivatives. In Nashua, NH, there are a bunch of big companies that do derivatives. There are a lot more smaller companies that sell products to those companies on Main Street. So it will affect Main Street if we do this wrong because credit will contract. The unique advantage America has is that we are the place in the world where, if you have a good idea and you are willing to take a risk yourself and you are an entrepreneur, you can usually get capital and credit to allow you to do that idea, to take that risk and thus create jobs, which is the bottom line for all of us; we want to create jobs. So derivatives play a large role in making that system work. This bill, unfortunately, adopted language which was put forward in the Agriculture Committee which literally undermines the safety and soundness of the derivatives market and, secondly, the ability of America to be a leader in the derivatives market. Our goal here should be very simple. Our goal should be two steps: One, make our banking and financial system safer, sounder, and a system which will, to the extent we can anticipate it, avoid systemic risk. While doing that, our second goal must be to have a vibrant credit market and capital market and be the primary place in the world where people come to create credit and capital because that gives us a competitive advantage over the rest of the world. That creates jobs here in the United States. Unfortunately, this bill, as structured, doesn't accomplish that. In fact, it undermines that. A good derivatives reform bill would essentially create an atmosphere where derivatives are more transparent, where the pricing is more transparent, and where there is standing behind the two parties to an agreement on a derivatives contract--assets, liquidity, margin-- something that can be turned to should one of the parties fail to perform on the contract. This can be done by creating a reasonable exception for end-use derivatives--those are the ones where you basically have a purely commercial purpose--and if people don't fall into that reasonable exception, then requiring essentially all the other derivatives to go through what is called a clearinghouse. The clearinghouse becomes basically the situation where the two parties to the contract--there are multiple parties to the contract-- essentially put up collateral, margin, liquidity, so that the contracts are supported--the counterparties are supported. The clearinghouse itself also has to be collateralized adequately, capitalized adequately, so that it doesn't become a risk because it is going to be the insurer, basically, of these contracts--all very doable through new regulatory restructure or a modified regulatory restructure. Then, as these contracts become more standardized or are standardized, they move over to an exchange. A lot of them could do that right now, but some simply can't because their contracts are too customized to move directly to an exchange. But over time, most of them probably will. And that is the way it should be structured. Unfortunately, in this bill, it is directed that we set up a new process for doing these derivatives by taking basically the market makers in these derivatives--which are the swap desks--and moving them out of the financial institutions into separate institutions. Where this idea came from is hard to fathom because on its face it makes absolutely no sense. I mean, it is so counterproductive to the purpose of making the derivatives market safer, sounder, and more efficient and, as a result, a better market which creates credit in a transparent, fair, effective, and sound way. It is so counterproductive to that on its face, you would think anybody who suggested it would have it immediately pointed out that this doesn't work. But for some reason, it has found its way into this bill. The practical effect of doing this is that you will create these separate entities. These separate entities are going to have to be capitalized because you have to have capital behind these derivatives desks. That is the whole point. You have to have something standing behind these desks to make them viable so that you don't end up with an AIG. What was the AIG problem? There was nothing behind the derivative contracts except for the name AIG. You don't want to do that again. You want capital. It is estimated that it would cost $250 billion to set up these separate desks. What does that mean? That means that capital is not going to be available for the creation of credit. You will see an immediate contraction. It is estimated by the industry--and again, this is an industry number, not mine, so you can take it with a grain of salt--that will cause a $\3/4\ trillion contraction in credit. That is Main Street not being able to get credit. Let's even say they have exaggerated. Say it is only going to contract 80 percent. That is still $600 billion to $700 billion of credit that is not available on Main Street to do business, to create jobs, to take risk. It is foolish to do that type of contraction and to set up this structure. Plus, you have nobody who is going to oversight this as effectively as the people who oversight the present derivative market makers. The FDIC won't be able to get on top of this. The Fed probably will have trouble getting on top of this. You will create a less stable platform from which to view these markets, when the whole purpose of the bill was to make it more stable. It makes absolutely no sense. This is section 106 in the Agriculture bill. I think it is section 714 in this bill. And you don't have to believe me on this. I mean, two of the major, premier regulatory agencies--which are the fair arbiters here, really; I mean, they are the umpires--have come out in a very unusual way, because they do not usually comment in the middle of a legislative process such as this, and said that this--this is my paraphrasing--is a stupid idea, a counterproductive idea, the type of idea which, if it were to be put in place, would be cutting off your nose to spite your face and we would end up with a less sound system. Let me read to you from the commentary of the Federal Reserve staff on section 106, which is now, I believe, section 714. Here is what the Federal Reserve staff said about this approach: Section 106 would impair financial stability and strong prudential regulation of derivatives; would have serious consequences for the competitiveness of United States financial institutions; and would be highly disruptive and costly, both for banks and their customers. That is pretty specific. That is pretty damning testimony as to the effect of this language. It is going to reduce our competitiveness because a lot of these derivatives will go overseas. It is going to make it much more difficult to have sound regulatory policy toward derivatives, and it will be highly disruptive and costly not only for the banks but for their customers. That is called Main Street--the people who create the jobs. This is a very inappropriate idea that has been put in this bill. But don't just rely on the Fed if you are a Fed hater--and there appear to be a number in this body, for reasons I still have trouble fathoming. They must have something against having a sound money policy. But if you don't like the Fed, listen to the FDIC. I don't think anybody around here doesn't give great credibility to the way Sheila Bair, the Chairman of the FDIC, handled the bank crisis. Very honestly, they stepped in, they settled out a lot of major banks, and they did it in a way that was extraordinarily professional. As a result, the markets remained calm, people got their money back, and deposits were not at risk. This is an agency which has high credibility, and this is what Chairman Sheila Bair has specifically said about this: If all derivatives market-making activities were moved outside the bank holding companies, most of the activities would no doubt continue, but in less regulated and more highly leveraged venues. In other words, be much more risky. Such affiliates would have to rely on less stable sources of liquidity which--as we saw during the past crisis--would be destabilizing to the banking organizations in times of financial distress, which in turn would put additional pressure on the insured banks to provide stability. In other words, bad idea. It undermines the banking industry to do it this way. Finally: ``Thus, one unintended''--actually, this is not finally. The whole letter is three pages long and has a lot of strong points. But the final part I am going to read: 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. That is pretty specific. So you have the Fed on one side, one of the major regulators, saying this idea doesn't work, it will undermine the structure of the banking industry. You have the FDIC on the other side saying this proposal doesn't work, it is going to undermine the insurance deposit system. So you do not have to listen to myself or others who pointed out the failure of this section. Listen to these regulators. This section has to be removed from this bill. There are other things that need to be done in the derivatives areas which would improve the language. For example, once you are on a clearinghouse, you should not be mandated to go directly to an exchange because it simply will not work. There needs to be an intermediary step as standardization and then the best thing to do would be to require regulators to look at these different instruments and then, if they feel they can be standardized, tell the people producing them they can be standardized and then move them over. To unilaterally say everything has to go to an exchange is, I think, going to be counterproductive and again push a lot of business offshore. But clearly this one section is damaging to our efforts to produce a safer, sounder, more transparent derivatives regime which has adequate liquidity and capital behind it and which keeps America as the primary place to do credit in the world so our entrepreneurs can get credit at a reasonable price, so they can go out and take the risks to create the jobs in America. I ask unanimous consent to have both these statements printed in the Record, and I yield the floor.

Mr. GREGG

Mr. GREGG. Mr. President, I wanted to rise to speak further about this financial reform bill. Yesterday, I talked at some length about the problems I saw with the bill relative to section 106 in the derivatives language. Today, I want to talk about things that are not in the bill that should have been in the bill. The reason I am rising to talk about this bill, which is a very complex bill, and intricate, is because we on our side feel very strongly that we should be involved in the negotiations of a better bill. We are not asking that there be no bill; just the opposite. We are saying there is a lot in this bill that just plain needs to be improved. For example, in the area of too big to fail, we have to make absolutely sure, if a company is large and it gets into trouble and it overextends itself, that it fails; that the American taxpayer doesn't come in and support that company in the financial sector, or anybody else, as a matter of fact, such as the automobile sector. So that language in the bill needs to be tightened up. It doesn't accomplish that as effectively as we think it should. The derivatives language has some serious problems. I talked yesterday about one of them, but there are a whole series of problems. The purpose of the derivatives part of this bill should be, No. 1, to reduce systemic risk and make sure that, prospectively, we do everything we can to make these instruments--which are critical to the ability of the economy to be liquid and produce credit--are as safe and as sound as possible, while at the same time making sure we do not overreact and create a situation where this market--which is so crucial to manufacturers across this country and especially to Main Street, which basically benefits from the credit generated by derivatives-- doesn't artificially contract due to excessive regulation, or that it doesn't go overseas. So we lose the fact that we are today at the center of capital and credit. We want to be the best place in the world to create capital and to create credit, and we should have a bill that accomplishes that. I have been outlining concerns I have in the derivatives area-- yesterday I talked about section 106--and I could highlight a number of other areas. For example, the immediacy with which derivatives are pushed from a clearinghouse into an exchange situation, which I don't think will work under this bill. I think, basically, it would contract the market dramatically. But what I want to speak to specifically are the things left out of this bill that should be addressed in order to make sure we don't have happen again what happened in September of 2008 and on into the rest of that year, which was that tremendous trauma that our Nation went through and is just now coming out of--and for some people it is still a trauma because they don't have a job, which is the worst trauma of all for somebody. That trauma was caused by some very distinct and specific events that occurred, and a lot of them were the responsibility of the Congress. If we want to look for who is the cause of the downturn and the crisis in the subprime market, we can look at ourselves in the mirror and say: We are, to a large degree. Easy money was also a problem. But I think right at the center of the problem was the collapse of underwriting standards in this country. It used to be, up through the 1990s, you couldn't get a loan for much more than 85 percent of the value of the home. You had to put some money down, and you had to be able to show to the person who was lending you the money--the mortgagor--that you could pay the money back. Well, we went into this huge expansion in lending which was driven in large part by two things: One, the monetary policy of the Fed, which basically allowed for easy money to flow out there very quickly into the market; and, secondly, the Congress, specifically insisting everybody should be able to have a home whether they could afford it or not or whether the home was properly valued. Those two factors lead to an explosion in home ownership, equally leading to an explosion in mortgages which, first, did not meet the value of the underlying asset and, in fact, in some instances were actually valued at more than the asset even at the time they were issued. Almost all these subprime mortgages presumed there would always be an appreciation of real estate prices, so they could loan at 100 percent and at some point you would be down to 85 percent or 90 percent of the value. That didn't happen, of course. The value went down, and so the mortgages went underwater in terms of their basic value. Secondly, the monies were lent to individuals who, because of the way they structured these loans for the first 2 or 3 years, could pay the interest or the mortgage payment, but as soon as these loans reset to a realistic interest rate, they couldn't pay it. Everybody knew it when they did the loan. Now, why did people do that? Why was there this collapse in underwriting standards? Well, there were a lot of reasons. I happen to think probably the primary one was that we separated the owner of the loan from the actual loanmaking process. Therefore, the people who were originating the loans weren't interested in the underlying security. They were not even interested in whether the person could pay it back. They were only interested in the fees they were generating. So we had a collapse in the underwriting standards. We had an inverted pyramid, with this person down here borrowing money from this entity over here on a piece of property which wasn't worth the value at which money was being borrowed. The person borrowing the money couldn't pay it back, but nobody cared because that loan was then taken and sold and securitized and subdivided and syndicated and sometimes put into a synthetic instrument, or had a synthetic instrument mirroring it. So we had this loan down here, and this massive structure from the churning of that loan on top of it, and the loan wouldn't support all that structure over it. So it all collapsed on us in late 2008. This bill, however, doesn't address that issue of underwriting standards in any effective way. Senator Isakson and I have spoken about this on the Senate floor a number of times, and we are going to offer what we hope is a bipartisan proposal. But it will improve the bill because it will basically be taking us back to the underwriting standards that used to be in place in the 1990s, not only for the origination of the loan but also for the securitizer of the loan. This is critical. If we are going to fix this problem--and the purpose of the bill should be to fix the problem that created the crisis and make sure it doesn't occur again--if that is the real goal, then there should be underwriting standards. The second issue in this bill that is not addressed is Fannie and Freddie. These two entities have trillions of dollars of outstanding liability, outstanding notes, and it is estimated that the taxpayer has a $400 billion to $500 billion--that is $\1/2\ trillion--of liability because a lot of these notes aren't ever going to be paid back. Yet Fannie and Freddie are still operating almost in a business-as-usual mindset, pushing money out the door, buying up bonds and notes and mortgages, and doing it almost as if there is no end to the taxpayers' pocketbook. In fact, we don't even put Fannie and Freddie on the Federal balance sheet. We know, since we own 80 percent of those companies that the taxpayer is on the hook for this debt--this $400 billion to $500 billion of debt. This bill acts as if it doesn't even exist, and yet that was one of the primary drivers of the economic collapse of 2008, from which we are all suffering and have suffered. So this bill should have at least an initial step into the arena of how we are going to handle this issue of straightening out the GSEs, as they are called. The first step is that we ought to bring their liabilities onto our books so that the taxpayers aren't being lied to; so that we are telling the truth to the American people as to how much it will cost to straighten this out and we have started thinking about how we are going to straighten it out. Yet this bill doesn't do that. That is a place where we, as Republicans--and I think a lot of other people--would like to see this bill improved, and that is why we are opposing going forward with the bill in its present form until we are allowed to participate in the negotiations on improving it. That is what this is all about. The third issue, of course, is the credit rating agencies. We know without any question that the credit rating agencies failed miserably, and people relied on their information, their credit rating of varied securities. That is one of the primary reasons people were willing to buy a lot of the instruments that were floating around. They believed, generally, when the credit rating agency said it was a triple-A rated security, that they had done their due diligence and it was a triple-A rated security. It turned out it wasn't, in many instances. As a result, it was sloppy underwriting again, by people or financial houses that were willing to buy these securitized products, the CDOs and various other products. They didn't do the heavy lifting of everyone going and looking at the actual assets which were backing up these products. They relied on the rating agencies, and the rating agencies didn't do their job either. So we have this serious issue with rating agencies that needs to be addressed. It is not effectively addressed in this bill. But we cannot correct the problems which created the 2008 crisis and caused this very severe recession and put this country through this tremendous trauma unless we address that issue, along with underwriting standards, GSEs, and credit rating agencies. So Republicans are saying: Let's look at that and try to fix that. That is why we don't want to go forward until we are brought to the table and allowed to address that issue. Another question: They have filled this bill with all sorts of extraneous things that had absolutely nothing to do--absolutely nothing to do--with the housing crisis and the economic meltdown that followed. A lot of corporate governance rules that have been kicking around this city for a long time and that are the agenda of certain groups in this city that have a political agenda dealing with wanting to have control over corporations--a lot of it influenced by organized labor--have been thrown into this bill willy-nilly. They had nothing, and they have nothing, to do with the overarching issues that affect protecting the market and making and giving us a sound financial system. Yet they are in this bill. They shouldn't be in this bill or, if they are going to be in the bill, they should be significantly adjusted. So these are some of our concerns. People ask: Well, why are the Republicans stopping this bill at this point? Because we want a better bill, and we have specific proposals for accomplishing that. We want language which does accomplish too big to fail and ends that policy. We want language which makes the derivative market not only safe and not a systemic risk but a sound and strong force for credit in this country. We want language which addresses better underwriting standards. We want language which addresses the issues of the GSEs. And we want language which addresses the failures of the credit rating agencies. We don't want a lot of extraneous language which is simply brought along because the train was leaving the station and it was thrown on it, and which, in many instances, in my mind at least, undermines rather than becomes a constructive force for a better financial system in this country. So those are our concerns, and that is why we are continuing to insist that we be allowed to be at the table to negotiate these very critical issues on this very complicated bill. I thank the Senator from North Dakota for showing me the courtesy of allowing me to go first, and I yield the floor.

Mr. GREGG

Mr. GREGG. Mr. President, I rise to speak on the bill. This is such a complex piece of legislation, it is difficult to debate in a sense that is understandable because there is so much of a technical aspect to the bill. Let's start with the purpose or what I believe the purpose should be. Our purpose should be, one, to do as much as we can to build a regulatory regime which will reduce the potential for another event, the type of which we had at the end of 2008 where we had a massive breakdown in the financial system and, as a result of huge systemic risk being built into the system, which wasn't properly regulated and certainly was not handled correctly by either the financial institutions or by the Congress--the Congress maintains a fairly significant responsibility for the meltdown that occurred at the end of 2008, for the policies that we had running up to that period in the area of housing. That should be our first goal, prospectively, trying to reduce systemic risk as much as possible in the system and putting in place policies which will accomplish that. The second goal, however, should be that we maintain what is a unique and rare strength which America has, which is that we have the capacity as a country to create capital and credit in a very aggressive way so entrepreneurs who are willing to go out and take risks have access to capital and credit, that creates jobs, and that creates the dynamics of our economy. We should not put in place a regulatory regime that overly reacts and, as a result, significantly dampens our capacity to have the most vibrant capital and credit markets in the world while still having safe and sound capital and credit markets. The bill the Senator from Connecticut is bringing forward, I presume, is going to have a lot of different sections in it. I want to focus on one because it has become a point of significant contention, and that is the derivatives section. Derivatives are extraordinarily complex instruments, and there are a lot of different variations of derivatives. They are basically insurance policies on an underlying product that is occurring somewhere in the economy. Their notional value is almost staggering. There is $600 trillion of notional value out there in derivatives, which is a number that nobody can comprehend. But you can understand it is a pretty big issue. Notional value means, of course, that if everything were to go wrong at the same time, you would have $600 trillion of insurance sitting out there that had to be paid off. That obviously is never going to happen. But the fact is, it shows the size of the market and what its implications are. There are all sorts of different elements to this market. It is not one monolithic market. It is not even a hundred, it is thousands--tens of thousands--of different and various things that are having derivatives written against them, although they divide into pretty understandable categories. Within the bill that came out of the Agriculture Committee, there was, for lack of a better word, an antipathy expressed toward the entities which presently manage the derivatives market in this country, which are essentially the large financial houses. There was an equal antipathy expressed relative to the entities that use these derivatives, including large amounts of manufacturing companies in this country, people who are dealing with financial debt instruments in this country, people who are dealing with the housing markets in this country. It was almost as if somebody sat back and said: We dislike these folks, and we are going to put in place a regime which will sort of gratuitously penalize them for the business they do because we do not like it. It is too big. It is too complicated. I think the people who wrote it felt it was not understandable and, therefore, they decided to put forward proposals which would fundamentally undermine the capacity to do derivatives in this country. Is that bad? Yes, it is very bad because derivatives basically are used for the purpose of making commerce work in our Nation, of making it possible for people to borrow money in our Nation, of making it possible for companies in our Nation to sell overseas, of making it possible for people to put a product in the stream of commerce and to presume that when they enter into an agreement on that product, the price would not be affected by extraneous events, such as the fluctuation of currency costs or fluctuations in material costs. So it is critical we get the derivatives language right. There needs to be a significant new look at the regulatory regime of derivatives. The essence of the exercise should be transparency, maintaining adequate capital for the counterparties and margins, liquidity. That should be where we focus our energy: trying to make sure the different derivatives products that are brought to the market are as transparent as possible and also have behind them the support they need in the form of collateral, capital, and margin, so if something goes wrong they will be paid off, for lack of a better word. This proposal, as it came out of the Agriculture Committee, does not try to accomplish that. Rather, it tries to essentially eviscerate the use of derivatives as products amongst a large segment of our economy. It sets up something called section 106, where it essentially says the people who are doing derivatives today, which are, for the most part, financial markets, must spin those products off from their financial houses. That sounds, in concept, like a reasonable idea, especially if you were in Argentina in the 1950s and working for the Peron government. But as a very practical matter, it is a concept which will do fundamental harm to the vitality of our economy. Why? Because you will not have a lot of derivative products in this country that will be able to pass the test of being spun off. You do not have to listen to me to believe this. Let me quote from a message that was sent to us by the Federal Reserve, which is a reasonably fair arbiter in this exercise. They do not have a dog in the fight other than the financial stability of our country. This is the Fed talking, not me: Section 106 would impair financial stability and strong prudential regulation of derivatives; would have serious consequences for the competitiveness of the U.S. financial institutions; and would be highly disruptive and costly, both for banks and their customers. That is about as accurate and succinct a statement as to what the effect of this section would be as I could have said. I did not say it. Nobody would probably believe me. The Fed said it. The fair arbiter said it. Why did they say that? Well, it is pretty obvious if you know anything about the way these products work. But essentially, if you spin off these products, you are going to have to create entities out there to replicate the entities they were spun off of. So if a large financial institution is now doing derivatives, and you spin the derivatives desk off, the swap desk off, from that financial entity, that spun-off event is going to have to replicate the capital structure of the financial institution which was basically underpinning the derivatives desk. That capital structure is estimated to be somewhere in the vicinity of a quarter of a trillion dollars to a half a trillion dollars of capital, which will have to be created. Well, what is the effect of that? When you start putting capital like that into the system, that capital comes from somewhere--assuming it comes at all--it comes from somewhere, and where it comes from, quite honestly, is the creditworthiness of other activity. It is not new capital. It is taking capital and recreating an event, a freestanding entity here, of which capital is not around. It will also mean there would be a contraction--and this is an estimate not of the Fed but of the group of entities that actually do this business and, therefore, it can be called suspect, but I think it is in the ballpark, give or take a couple hundred billion dollars--it will also cause a contraction of about $700 billion of credit in this country, to say nothing of the fact that if you are looking for a derivatives contract and you cannot go to the financial houses that usually do it in the United States, and you are a commercial entity or a hedging group, you are going to go overseas and do it because they are not going to have these types of restrictions and you are going to be able to buy that contract in Singapore. So a large amount of entities, a large amount of business, will move offshore almost immediately upon the passage of this bill, should this section be kept in it. Is it necessary, is the question. Is it necessary to make the derivatives market work right in this country? Absolutely not. This is punitive language put in out of spite because there is a movement in this country, and in this Congress, unfortunately, which I call pandering popularism, which simply dislikes anything that has to do with Wall Street. I am sure they did a lot of things wrong and they caused a lot of problems. But if you are going to apply the problems that occurred around here fairly, we should be looking in our own mirror, at ourselves, for some of the problems we caused to the American economy, by forcing a lot of lending in a housing market that could not sustain it. It is penal. That is the purpose of this: punitive. In the end, it is going to cut off our nose to spite our face because it will be our credit that contracts, and business can be done and could be done in a very effective way, here in the United States, overseas. What should be done here? What should be done rather than this exercise, as the Fed has said, in causing a ``highly disruptive and costly'' effect on banks and their customers, and having serious consequences on the competitiveness of the United States? Remember, we are competing in the world. That may have escaped the attention of the Agriculture Committee when they wrote this language, but we are in a world competition. Derivatives are not a unique American product. They are a world product. So these are jobs that go overseas. This is credit that goes overseas. This is business that goes overseas. This is Main Street that will be affected by this language. How should it have been done? Well, it should have been done in a rational way, not in a punitive way. We know the derivatives market was not transparent enough. We know there was not enough capital, liquidity, margin--whatever you want to call it--behind the products and the counterparties that were exchanging products in the derivatives market in the over-the-counter system. We know--because we have AIG as example No. 1--a tremendous amount of CDs, especially, were being written with nothing behind them except a name. We can fix all that. It can be fixed in a way that almost everybody is comfortable with by, first, making sure the exempted products from going on a clearinghouse are only products which have a specific commercial use and are customized and are narrow, and that the people doing those products are not large enough in their business so there are systemic issues. Secondly, we put everybody else in a clearinghouse. What does a clearinghouse mean? It essentially means there will be a third party insurer or holder of the basket of assets necessary to support the derivatives contracts so we are fairly confident when a trade is made in a clearinghouse, the counterparties have the liquidity in the margin behind their positions to support their trades. At the same time, the clearinghouse itself must be structured in a way that it has adequate capital. Where is that capital going to come from? It can only come from one place. It comes from the people who trade in these instruments. They are going to have to put up the capital. The regulators--the SEC, the CFTC--will have direct access to controlling and making sure that capital is adequate in the clearinghouses and making sure the clearinghouses are adequately monitoring the contracts. Then as the contracts become more standardized--and they can and they will; we all accept that--they move over to exchanges where they are basically traded like stock. Then you have absolute transparency, price disclosure, and you do not have the issue of the over-the-counter market that causes so much problem for us. That will happen. That will happen almost naturally, but you could have the regulators stand up and say: Well, we think this group of derivatives is standardized enough and you have to move it to an exchange. We could give that power to the regulators, and that makes sense. But it would happen naturally anyway as these clearinghouses become more effective and standardized in the products, and people become more comfortable with standardized products in these areas. Of course, there would have to be real-time disclosure to the regulators of what the prices were, if they are OTC prices or clearinghouse prices, so they know what is going on. Then it would be up to the regulators to decide when that information should be disclosed to the markets, depending on how you make these markets. Sometimes you cannot disclose the information immediately; otherwise, you would not be able to make a market; otherwise, you would not be able to do the contracts and, therefore, you would not be able to do the business, which underlies the need for the derivative. So all of that could be done. All of that could be done, and it does not require creating this entity or these series of entities out there which the Federal Reserve has described as impairing the ``financial stability and strong prudential regulation of derivatives.'' In other words, what the Federal Reserve is saying is, when you go in the direction of what is being proposed from the Agriculture Committee in the area of derivatives and set up this independent swap desk, you are not making things stronger in our financial structure; you are making them weaker. You are significantly reducing the strength of the regulatory arms that guide derivatives or oversee derivatives. You are also, as I mentioned earlier, creating an almost guaranteed-to-fail situation relative to the need for capital to support these derivative transactions. It is just--it just makes no sense at all. To begin with, derivatives are, by definition, a bank product, so the idea that they have to be spun out of banks and financial institutions is, on its face, absurd, truly absurd, and counterproductive to the whole purpose of doing derivatives, which are very important. The Congress recognizes that. In Gramm-Leach-Bliley, we called derivatives a bank product. We understood that then. We seem to have forgotten it now. I have been trying to figure out what is behind this type of language because it is so destructive to our competitiveness as a nation. This is the type of thing, as I said earlier, we would have seen in Argentina in the 1950s, this almost virulent populist attack on entities simply because they are large and because obviously there is a populous feeling against them, which ends up, by the way, significantly impacting Main Street in a negative way. Look at Argentina. In 1945, I believe, or 1937, somewhere in that period, they were the seventh best economy in the world, the seventh most prosperous people in the world. Now they are like 54th. It is because of this populous movement which has driven basically their ability to be competitive offshore. So now we have this huge populous movement here, and I am trying to think what is behind it. What is the rationale here, other than just rampant pandering populism? A vote occurred in the Budget Committee last week, of which I happen to be ranking member, which crystallized the situation. Senator Sanders from Vermont--whom I consider a friend and I enjoy immensely. He is a great guy. He has a great sense of humor, but we disagree on a lot of things. He runs as a Socialist. I run as a conservative. Senator Sanders offered an amendment which said that the government--and the government, I assume, would be four or five people down at Treasury or four or five people down at--I don't know where they would be, some new offices somewhere--has the right to break up large corporations. It didn't say break up large corporations which had problems, which had overextended themselves, which everybody agrees should happen. That is what Senator Warner was talking about. He has done extraordinary work in this area and I am supportive of his efforts on resolution authority, where if a big bank, a big financial house or a big entity gets into trouble, if they overextend themselves or they are essentially insolvent, they get broken up. There is no--the taxpayers do not come in, in any way, shape or manner and support that entity. That is what the Warner-Corker language does, and I believe the Senator from Connecticut has tried to incorporate a large amount of that. That should be our policy. But what the Sanders amendment said was anything--any financial house--could be broken up simply because it was deemed to be big, no matter how resilient or strong it is; no matter if it is a major player for our Nation in being more competitive internationally. Remember, when an American company goes overseas, they want to use an American bank. They don't want to have to use the Credit Suisse or the Bank of Singapore. They want to use an American bank to follow them around the world, and those banks have to be pretty big to do that. Some of them are quite profitable and quite strong. Well, this language would have said no matter how strong and profitable you are and how robust you are and how much you contribute to the American economic system by giving us one level of financial services--which we need as a country, large financial institutions that can support very complex, sophisticated, international economic activity and domestic economic activity--that they would be broken up because a group of people in Washington didn't like them for social policy, social justice reasons. They didn't lend enough money to some group they wanted them to lend to or they lent too much money to some group they didn't want money lent to. For social justice reasons, we will go in and break up this company, even though it is totally solvent, strong, fiscally responsible. That is the policy that was proposed in the Budget Committee. Ten people voted for that policy. Ten. Ten out of the twenty-two people who voted, voted for that policy. Incredible. Where does that stop? Where does that stop? Where does this section 106 stop? Do we break up Walmart because they are not union? Do we break up McDonald's because they sell food that some people think makes you too fat? Do we break up Coca-Cola because they have too much sugar in their products? Does anything that is big in this country get broken up because there is an attitude that big is bad, whether it contributes or not? Unless you happen to be big and union, in which case you get saved, of course, as the UAW was able to work out with GM and Chrysler. That is the essence of this language. This language isn't about fixing the derivatives market at all. You can fix the derivatives market in a most comprehensive and substantive and effective way that keeps America the best place to create these types of products in the most sound and safe way. You can do that, and I have outlined pretty specifically how you would do it, without this section. I will close by reading one more time how the fair arbiter has defined it, the Federal Reserve. This is such a damaging section that it cannot be underestimated the damage to our economy were it to be approved. Section 106 would impair financial stability and strong prudential regulations 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. Remember, their customers are the people who work on Main Street for the companies that use derivatives, and almost every company in this country of any size uses a derivative to hedge their risks. Ironically, this is all done in the name of social justice because Wall Street is bad, so we are going to go out and cut off our nose to spite our face. It is incomprehensible that a nation which has become as strong and as vibrant as we have by promoting a market economy would decide to go down this route, which is the antipathy of a market economy, but that is where we are. That is what has happened here, and that is the direction we are going. It is unnecessary, by the way, as I said earlier; unnecessary, because derivatives can be made safer and sounder by simply restructuring the transparency and the manner in which they are put on clearinghouses, limiting the amount of those that are subject to exemption, and pushing people toward exchanges, to the fullest extent possible and to the extent it will work. All that can be done without this type of language which is so destructive and, as the Fed has said, will have the exact opposite effect of what it is alleged to be doing. Mr. President, I yield.

Mr. GREGG

Mr. GREGG. Madam President, I rise to talk about the same issue the Senator from Georgia has discussed. First, I congratulate him. This is a point we have been making on our side of the aisle. He has come up with a thoughtful and appropriate way to address what was one of the core drivers of our fiscal meltdown. If we look at what caused the financial crisis of late 2008, which has caused this significant recession, which has caused us to go through all these expenditures as a government and which has caused so many American people to suffer the consequences of the recession, there were three or four major events that generated this. One was money was too cheap for too long. That was a Federal Reserve decision. But right at the essence of it was the issue of underwriting, the fact that there was a decoupling of the people making the loan from the people who were responsible for the loan. We had this whole service industry built up that was making money off of the fees for originating the loan and wasn't that concerned about the ability of the person to repay the loan or the underlying asset. What the Senator from Georgia pointed out--and the proposal he has brought forward is a very responsible way to address this fundamental problem, which is the failure of underwriting--is a point we have been making on our side of the aisle. We have a whole series of what we think are pretty good ideas as to how we can make financial reform work better. Certainly one of them is the idea of the Senator from Georgia. I was impressed today to hear both leaders say they want to have a bill that is bipartisan, that is comprehensive, that is thoughtful, and that addresses the issues we confront in this regulatory arena. Unfortunately, that is not the atmosphere around here that has been created. Regrettably, there has been a huge amount of hyperbole, especially in the last couple weeks. Most of it has not been directed at moving down the path of a thoughtful and mature and substantive approach to this issue. Most of it has been addressed at raising anecdotal events which then have been hyperbolized into single one- liners as to how you address them. This issue of financial reform is far too complicated for one-liners. That is a fact. It is an extremely complex undertaking to make sure we accomplish what we need to accomplish in regulatory reform. Our goals should be two. First, we should do whatever we can to restructure the regulatory arena so we reduce, to the greatest extent possible, the potential of another systemic risk event. I will talk about what we need to do in that area in a second. Second, while we are doing that, we have to make sure the regulatory environment we put in place keeps America as the best place in the world to create capital and get a loan for people who are willing to go out and take a risk, be entrepreneurs, and create jobs. One of the great uniquenesses of our culture, what makes us different from so many other places in this world, what gives us such vibrance and energy as an economic engine, is that we have people who are willing to go out and take risks. We have people who are willing to be entrepreneurs. And we have a system of capital formation and credit which makes capital and credit readily available to those individuals at reasonable prices. So as we go down the road of regulatory reorganization, we have to make sure we do not suffocate that great strength of our Nation. There are four basic issues before us today in regulatory reform, and none of them are partisan. Yet in the atmosphere around here, you would think they are all partisan, especially the President's recent speech, which was over the top in its partisan dialog. First is how you end too big to fail. We cannot allow a system to exist where there is a belief out there in the markets that the taxpayers are going to back up a company that has taken too many risks and has gotten itself in trouble. Why is that? Because if that happens, if there is a belief in the market that the taxpayers will step in and back up companies that are very large and systemic when they have taken too much risk and put themselves in dire economic straits--if there is a belief that the taxpayer is going to step up and back up that company--capital will get perverted. Capital will not be efficiently used. Capital will flow in an inefficient way to companies which have proved themselves not to be fiscally responsible. That is not a good way for an economy to function--certainly a market economy to function. So we have to end too big to fail. This is not a partisan debate. Senator Dodd has brought forward a bill which he thinks ends too big to fail. In my view, it has some serious flaws. It is a good attempt, but it does not get there. Senator Corker and Senator Warner, from two different parties, have actually put together a concept--we call it resolution authority around here-- which actually does end too big to fail and does it the right way. It essentially says if a company, if an entity--which is a huge entity-- gets out of whack, overextends itself, gets too much risk, is no longer viable, well, then, we are going to resolve that company. The stockholders will be wiped out, unsecured bondholders will be wiped out, and the company will basically flow into bankruptcy and will not be conserved. That is a good approach, and it is a bipartisan approach. Another big issue: how you address regulatory oversight to try to anticipate a systemic event. Again, the Dodd bill makes an attempt in this area, but there are ways we can improve it. We need to have all the different regulators who have an important role in this sitting at a table, most likely led by the Fed, who take a look at the broad horizon of what is happening in the marketplace and saying: OK, in this area we have a problem arising. We have too many people doing too many things which are at the margin of responsibility here. We are going to empower the agency which is responsible for that--the FDIC or the OCC or one of the other regulatory agencies--to go out and make sure that activity ceases or is abated, and they are going to come back and report to us so you have some oversight here. That is the concept. It can be fleshed out in better terms. It goes to this issue which is raised by the Senator from Georgia--we should have better underwriting standards as part of this exercise so in the marketplace, real estate especially--residential real estate--we get back to the approach we should have taken to begin with, which is that we know the asset value that is being lent to exists and that the person can pay the loan back as the loan is adjusted over the years. Thirdly, we have the issue of derivatives. Derivatives are a huge part of the market--massive. The number is $600 trillion of notional value--something like that; massive numbers. What do they do? They basically make it possible for American companies especially to sell their products around the world or to take and put their products into the market in a way that they are able to address issues which they do not have control over. For example, if you are Caterpillar equipment and you are selling something in China, you do not know if the currency value is going to change--well, you do with China; that is a bad example--if you are selling something in Brazil, you do not know if the currency value is going to change, you do not know if there is going to be a change in the cost of your materials you are building that tractor with, you do not know a lot of different factors you do not have control over. So derivatives allow you to ensure over that. That is a simple statement of what derivatives do. But that goes to all sorts of different activities--from financial entities, all the way across the board to producers of goods. So there needs to be a regime put in place that makes these derivatives sounder, where we do not get an AIG type of situation where basically we are backing up what amounts to an insurance policy for a company with a name but actually no assets. Senator Jack Reed from Rhode Island and I have been working for months--literally months--on a daily basis to try to work out such a regime. We think we are pretty close. We think it is going to be a good proposal. Nobody is going to like it, which we know means it is going to be a good proposal. But it is going to accomplish what we need to do, which is to get more transparency and liquidity and margin in the market. There will be the opportunity to have end users who are exempt, but there will also be a primary incentive to put people on a clearinghouse. To the extent you can move from a clearinghouse to an exchange, that will happen also, without undermining the market. But the key here is to put in place a regime which does not force companies to go overseas to do their derivative activity. This is a very fluid event. If we come forward with an overly regressive approach and an overly bureaucratic approach--one which basically responds to a hyperbole of the moment, which is that all derivatives are bad and not transparent and therefore must be put on exchanges, something like that--we are basically going to push offshore the vast amount of derivative activity that is critical to our industry in America being competitive. As a very practical matter, if we can develop a sound market--and we can develop a sound market--we want to be the nation where most people go to develop their derivatives because it is a big industry and it is something we should keep onshore. The fourth issue: consumer protection. My time is up?

Mr. GREGG. Madam President, I see the Senator from Louisiana wants to speak. But the point here is pretty obvious. This is not a partisan issue. We can resolve the issue of financial regulatory reform if we sit down and do it in a constructive, thoughtful way, step back, be mature, and take an approach that is thoughtful versus wrapped in hyperbole and popularism of the moment. I certainly hope we will take that process and go forward. I yield the floor.

Mr. GREGG

Mr. GREGG. Mr. President, I wish to thank and congratulate Virginia Beecher for her years of service to the people and State of New Hampshire. Kathy and I have known Gini for so long, it is best not to mention the specific number of years. She is a friend, confidant, and someone we greatly admire for her extraordinary commitment to public service. Gini completes her work for New Hampshire as the director of Motor Vehicles, a position she has held for 15 years. Her leadership of this critical agency, which affects so many New Hampshire citizens, has taken it from the dark ages to a highly computerized, customer-friendly department. She has focused on providing the citizens of New Hampshire with their licenses and car registrations in an efficient and pleasant way. Her commitment has always been to bring the highest standards and a professional approach to the department. This is only one stop in her exceptional career of service to New Hampshire. Kathy and I had to convince her to leave her beloved Department of Safety for a brief tenure in the Governor's office when I began my term as Governor. It was her unique knowledge of how the State government works that helped us get up and running effectively and quickly. After she straightened out the Governor's office, she returned to continue to be the force that made the Department of Safety one of the most professional and well run agencies in the State. You cannot talk about Gini's influence without mentioning her total commitment to the North Country. It has always been a part of her being. Gini has a commonsense, no nonsense approach that characterizes that part of our great State. New Hampshire government will obviously miss Gini's talent and enthusiasm. Kathy and I wish her the best as she moves on to other challenges. We are honored that our paths have been so intertwined over these many years and that she is our friend. Thank you, Virginia Beecher, for your many years of service to the State of New Hampshire.

Mr. GREGG

Mr. GREGG. Mr. President, I ask unanimous consent to proceed as in morning business for 15 minutes.

Mr. GREGG

Mr. GREGG. Mr. President, I rise to speak a little bit about one of the major issues which we are about to take up here in the Senate and which has been discussed at considerable length throughout this country, and especially here in Washington, over the past 2 years as we have dealt with the financial crisis, and that is the issue of fiscal reform and financial reform. The country went through a traumatic experience of inordinate proportions. We were on the verge in the fall of 2008 of having our entire financial industry implode, and not only the big financial systems in New York City and around the country, but Main Street America was clearly at risk and had the potential to suffer massive damage. That cataclysmic event didn't occur because we as a Congress and the administrations of President Bush and of President Obama took some very bold and aggressive action in the way of coming in and stabilizing the financial industry of this country. As a result, we did not have the type of events that were predicted. Some had said if the financial institutions had been allowed to unravel, we would have been into another Depression-like period. One former Secretary of the Treasury projected that unemployment could have gone as high as 25 percent. Obviously, we have been through a difficult time. The recession has caused great harm. Americans have been under tremendous financial stress. But the damage that might have occurred has been muted to some degree by the actions we took. Now we are at least getting the TARP money back with interest from the banking industry. We are not getting it back from the automobile industry or AIG, but from the banking industry we are getting it back with interest, and we are going to actually make money for the American taxpayer, the stockholders in these various entities we had to support. The question remains, how do we avoid this type of event occurring again. That involves a lot of different actions that should be taken, because the causes of this event were multiple. One of the causes was clearly that the Federal Reserve kept interest rates too low for too long and made money too readily available. Another cause was the Congress's own decision throughout the 1990s and the early part of this decade to basically promote--and in some instances force--lending for the purpose of buying homes, when the people buying the homes didn't have the wherewithal to support the obligation they were undertaking. The homes in many instances didn't have the value at which they were assessed. There was an assumption of appreciation that would occur that never occurred. A third cause was plain, old-fashioned, horrible, and sometimes illegal underwriting, where people were essentially putting out loans in a totally inappropriate manner. Then those loans were being securitized. I have described it as an inverted pyramid, where possibly the person who was giving the loan was just interested in the servicing fees of making the loan, in the origination fees of making the loan, not in the actual obligations of the loan, and then the loan ending up being securitized out in the market. You had all sorts of counterparty liability and multiple structure built on top of this one loan that basically didn't have either the asset value or the capacity of the individual to pay it back. That was the systemic event that was a function of bad underwriting. So what can we do to correct this? Well, one thing we can do, obviously, is reform our financial structure in this country. It clearly wasn't up to the regulatory needs that were necessary, and there was clearly a lot of activity occurring in the financial markets that was wrong and inappropriate. There is this huge discussion going on now, bills have made their way through the House, and there has been a proposal from the administration--in outline form at least--and there is one from Senator Dodd and specifics that have been brought forward in the Banking Committee. There is going to be a major attempt to reorganize our financial institutions. I think that as we go down this path we have to be thoughtful and constructive. There is this fervor of populism sweeping across our Nation on this issue. The fires have been fanned by the White House and a lot of other people in a very inappropriate way. Populism isn't a good way to try to address something as complex as this type of issue. It is sort of like a beach ball bouncing down the beach that is caught up in the wind. That is the way this financial reform effort seems to be going forward. There is not a lot of thought behind it--just a lot of energy and talk, with ideas that may be politically attractive but in the end will probably do more harm than good. Our goal should be three things: One, we should reform the systems. We need to put into place, to the fullest extent we can, changes in the way we regulate the financial structure so we avoid a future systemic event. It is pretty hard to project what the next systemic event will be, but we know what the last one was and we should be able to correct those problems. We can anticipate to some degree what the next events may be, and we should try to do that. Second, we should recognize that we are in a competitive world, and that what we do in the United States to structure our financial system is going to determine whether the United States remains competitive with other nations that have sophisticated financial systems. It is very important that in doing this we not push offshore American jobs and American capital, because it becomes too onerous to manage capital and create jobs in the United States in the financial sector. We, in fact, should have as one of our goals--the first goal being addressing the system's risk--the desire to make America the best place in the world and the soundest place in the world to create capital and credit, so that the engine that drives our economy--remember, our economy is driven not by the government. I know the President says the more you grow government, the more prosperity you get, and he is certainly trying to prove it, but that is not what drives our economy. What drives our economy is entrepreneurs, people willing to take risks, the initiatives by Americans to create jobs. You cannot do that unless you have credit, and you cannot do it unless you can get capital. One of the great geniuses of our system, which has made us more competitive than the rest of the world, is that we have always been a place where capital and credit have been readily available to responsible people and risk-takers. We need to keep that atmosphere. When we are finished with this process, we should have a regulatory regime that addresses the issue of systemic risk and at the same time says to the world: bring your capital here; this is the best place to make a loan and underwrite entrepreneurial spirit. Third--and this is tied to the second--we need to remember this is about Main Street, about making sure that on Main Street in America people have the wherewithal to take that risk, and to get that job, and to buy that house, but that they have it in a context of a sound banking system, one that is a supportive and strong one, and a sound financial system--not one that has been forced to retract as a result of excessive regulations being put on it here in Washington. If we approach this in a thoughtful way, a pragmatic and constructive way, rather than this populist fervor, where we say everybody on Wall Street is evil, and everybody in banking is evil, and everybody who makes loans is evil--which seems to be the philosophy or theme around here--if we take a more constructive and thoughtful way, we will actually end up with a much stronger and better nation. Often these periods of populist fervor--and we have had a lot of them--Huey Long, William Jennings Bryan--the list is long. Those folks usually end up cutting off their nose to spite their face. These ideas sound good and have a nice jingoistic ring to them, but in the end it undermines the ability to do the basic purpose, which is to make America more prosperous and create more opportunity for Americans and create more jobs. This is not an issue that needs to be partisan. We have a lot of big, complex questions here to address. With the exception of one, as far as I can tell, none of them has any partisan flavor to them of any significance. First, of course, is what do you do about ``too big to fail.'' First, it should not exist. There should be no business in this country that is too big to fail. Basically, any company, any business that makes bad decisions should not have some implied guarantee that it is going to be bailed out by the Federal Government or the American taxpayer. If you make a bad decision and put your financial house at risk, your stockholders should pay the price; your secured bondholders should pay the price, not the American taxpayers. I think there is agreement on that. On our side of the aisle we have some good ideas on how you end ``too big to fail.'' As a practical matter, they are better ideas than have been put out by anybody else so far. But they are not partisan ideas. They are just good, sound policies as to how you accomplish this. It could be done. The best ideas have been put forward in a bipartisan way, by Senator Warner from Virginia and Senator Corker from Tennessee. That is the first issue. We should be able to reach a comprehensive agreement on that. Second, of course, is how do you manage risk and structure our regulatory regime so they can see that risk coming and take action. I think there is consensus on both sides of the aisle. Basically, you set up some sort of risk council, where you bring key regulators in and make sure there is communication, you try to end the stovepipes, and you try to cross-fertilize the information, and you don't allow arbitraging regulators so people don't go out and hire the cheapest or weakest regulator. There is not much difference of opinion on that. We can reach agreement on that. Third, of course--which is huge here--is the question of derivatives, which are very complex. There is no simple answer to this question, on this issue, when you look at the detailed language. What is the purpose of derivatives? It is to basically give the market liquidity, to make sure you have the ability to put out the credit, to make sure that when some business in America needs to protect itself from a downside risk it sees coming at it, it has the capacity to buy that type of protection in the market, that type of insurance. They are extremely important instruments for the purpose of basically being the insurance and the oil that makes the American machinery of entrepreneurship and job creation work. Big companies and smaller companies need them, but especially big companies need these instruments. They need to have them readily available in a way and in a form that makes them usable. I have been working with Senator Reed from Rhode Island for a number of months on almost all the technical issues of how to make the derivatives market stronger, better, and more sound, basically get more liquidity and transparency. On almost all issues we have a pretty good agreement and sense of where we can go. If we continue to work on it, hopefully, we can reach a complete agreement. We do have an issue on the question of mandated exchange treatment of derivatives, which I think can be resolved--I hope. It is not a partisan question. It is a question of how you do it best. That is the approach we should take. Last is the issue of regulatory structure. Who should regulate what? That is a question of how best you line up the regulators to make sure there isn't regulatory arbitrage where people try to shop for the best regulator. I strongly believe the Fed needs to be a major player in the regulatory structure. The Fed has shown itself to have the depth and professionalism and the resources to regulate effectively. I hope we would end up with a structure that would recognize that fact. I think there is general agreement on structure that can be reached here. Again, I think we can reach an understanding. The issue where we have significant differences is consumer protection and how you deal with that. On our side, most of the folks strongly believe you cannot separate consumer protection from safety and soundness. The regulators who have the responsibility for safety and soundness should have the responsibility for consumer protection, and it should be at the same level so there is no question that the consumer receives the same type of attention and support that the regulators put into trying to make sure the banks the consumers get their loans from are safe and sound. When you separate the two and set up a freestanding, autonomous consumer agency, you create significant issues on safety and soundness. The purpose is to make our financial system stronger, not weaker. A separate independent consumer agency with potentially a political agenda or social justice agenda, which has nothing to do with safety or soundness, could easily undermine safety and soundness of the banking industry, especially the community banks-- remember, these are the folks on Main Street--essentially creating an atmosphere where loans have to be made to people not based on safety and soundness but based on a social or political agenda of whoever runs the consumer agency that is independent and autonomous. It makes no sense. But, again, this is an issue that can be resolved. There have been good ideas put forward by Senator Shelby. At one time, we almost had an understanding between Senator Shelby and Senator Reid on this issue. So this is no reason, in my opinion, to stop the progress on getting a bipartisan, comprehensive bill. The only thing that stands between us getting a bipartisan, comprehensive bill, stopping that progress, is this political issue; the fact that the administration has two paths it can take. It can take the path where we reach a comprehensive, thoughtful, constructive bill that basically does what we need to do in the area of protecting the financial structure of this country from systemic risk and make sure we have the most competitive financial markets in the world and protect Main Street and make Main Street viable, allow people to get loans on Main Street, it can pursue a bill such as that or it can pursue a political bill, carrying the banner of populism forward on the theory that somehow they win points by doing that. They may win short-term political points. I don't think they do, actually. But in the long term, the effect that will have on our capacity to produce credit in this country for Americans who need credit in order to do things such as buy houses, send their kids to colleges, or basically just start a business and create jobs, it will be dramatically chilling, to be kind. We will see a lot of the institutions which compete in this Nation having to go overseas. We will see a lot of companies that need to use derivatives in order to make their products salable and make sure they are not hit with unexpected cost increases or events which are out of their control unable to buy those instruments or obtain those instruments in the United States, so they will have to go overseas. We will see credit markets where consumers will end up paying higher interest rates because they are basically paying for people who are not paying back their loans at a much higher rate, so the good performers end up paying for the bad performers, which inevitably ends up costing the good performers much more in the way of their credit. These are the results of a populist tact, and they are not good results, in my opinion. They are not constructive. They are so unnecessary because we really have within our grasp the capacity to reach an agreement, pretty much across the board, on all the major issues that affect the question of financial stability and to try to address what happened in late 2008 in a constructive way. I am hopeful that will be the course that is taken, that we do have a consensus approach rather than a confrontational approach, and that we do have an approach which understands that our first obligation is not to get votes, not to win a political fight, not to have a jingoistic saying that resonates at election time but, rather, to make America stronger, more economically sound, more vibrant, and a place where when one wants to create a job, one has the capacity to get the credit to do it. That should be our goal. I hope we will pursue this regulatory reform effort in that manner. Mr. President, I yield the floor and suggest the absence of a quorum.

Mr. GREGG

Mr. GREGG. Madam President, I wish to take a moment to thank my staff who helped make this bill go as smoothly as it could have gone. Usually people start with the chief of staff and go down the list. But I would like to single out my health policy director, Elizabeth Wroe, for her extraordinary commitment of energy and time on these issues starting over 1 year ago. Of course I have a whole team on my Budget Committee staff who have been working on issues related to this reconciliation bill for nearly as long. A special thank you goes to staff director Cheri Reidy who has been assisted by her colleagues: Jim Hearn, Allison Parent, Gordon Gray, Matt Giroux, Jeff Gonzalez, Greg D'Angelo, Roger Mahan, Nicole Foltz, Giovanni Gutierrez, Dan Kowalski, Betsy Holahan, Dave Myers, Winnie Chang, Adam Hechavarria, Mike Lofgren, Kim Proctor, Greg McNeill, Jim Carter and Andrea Wuebker.

Mr. GREGG

Mr. GREGG. Madam President, the Senator from Nevada is going to be recognized to offer an amendment at this time. I note that after the Senator from Nevada, the plan is to go to Senator Coburn, Senator Sessions, Senator Cornyn, Senator Grassley, Senator Brownback, Senator Vitter and Senator DeMint, and then maybe Senator Coburn again and then maybe Senator Ensign again.

Mr. GREGG. Madam President, I understand we will now be having 10- minute votes. Is that correct?

Mr. GREGG. I ask unanimous consent that all additional votes on this bill be 10 minutes.

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

Mr. GREGG. Mr. President, if the Senator will allow me to make a quick statement just for the edification of our colleagues.

Mr. GREGG. This is our last amendment, I believe and hope--genuinely hope. After this amendment is completed, I understand there will be a colloquy between the ranking member of the Finance Committee and the chairman of the Budget Committee. Then we will proceed to raising points of order relative to the bill.

Mr. GREGG. Then we will proceed to final passage at 2 o'clock. That is the general outline of where we are.

Mr. GREGG. I join the chairman of the Finance Committee in thanking so many people who participated in the process. I especially thank the staff on the dais and staff in the cloakroom who were here so late last night and do such an exceptionally professional job; otherwise, we could not move this type of legislation in a coherent way. Obviously, I thank the chairman and I thank his staff and I thank the chairman of the Budget Committee and his staff because really there has to be cooperation across the aisle to handle something this complicated and do it in a reasonably efficient way, by Senate standards, which we did. I especially, of course, thank the people on our side who played such a large role, our leadership but especially my staff on the Budget Committee--Cheri Reidy, who runs the committee, who does such an exceptional job; Jim Hearn, her partner; and Allison Parent. I will submit for the Record, as the Senator from Montana has, other members of our committee staff who have done such an exceptional job. But it seems you have to be named ``Liz'' around here to really understand health care because I have Liz Wroe on my staff, who really did such an extraordinary job for us here. Again, I thank everyone who was so cooperative. There were an awful lot of amendments, and we could not have been successful without cooperation on both sides of the aisle.

Mr. GREGG. Yes, I will.

Mr. GREGG. Mr. President, let me acknowledge the majority leader also because he has been under tremendous stress. We all know that, with what has happened relative to Landra and his daughter. We appreciate the fact that he has been so professional and worked so hard while confronted with this extraordinarily difficult situation. We obviously wish everyone in his family well. Mr. President, at this time I will make two points of order. I submit for the Record a statement of those points of order. The following provision of the pending bill, H.R. 4872, the Health Care and Education Affordability Reconciliation Act, on page 118 at line 15 through 25 does not produce changes in outlay or revenues and thus is extraneous. Therefore, I raise a point of order under section 313(b)(1)(A) of the Congressional Budget Act of 1974.

Mr. GREGG. Mr. President, the following provision of the pending bill, H.R. 4872, the Health Care and Education Affordability Reconciliation Act, on page 120, lines 3 through 5, does not produce changes in outlays or revenues and is extraneous. Therefore, I raise a point of order under section 313(b)(1)(A) of the Congressional Budget Act of 1974.

Mr. GREGG. I thank the Chair.

Mr. GREGG

Mr. GREGG. I am recognized, correct?

Mr. GREGG. I ask unanimous consent at this time to withdraw the amendment of the Senator from--on behalf of the Senator from Tennessee, I ask to withdraw his amendment.

Mr. GREGG. Mr. President, at this time I yield such time as he may take off the bill to Senator Alexander to discuss his amendment, which he is not offering at this time, while retaining the right to the floor.