John Garamendi

Mr. GARAMENDI

Mr. GARAMENDI. Well, the big fix is available. The big fix is to reform Wall Street, to stop the kind of greed that has nearly destroyed this Nation's economy and the world economy along with it. The bill that was passed by the House of Representatives in December is a good, strong bill. We beg our Republican colleagues over in the Senate to stand aside. If you don't want to work towards a decent reform, then get out of the way and let the Democratic Party put in place a strong reform that will bring Wall Street to its senses, that will once again make Wall Street a legitimate, honest, transparent place where the financial inner workings of this Nation can take place. That's our plea, and we need to have it done, not next month. We need to have it done this week. Thank you so very much. I yield back my time, Mr. Speaker.

Mr. GARAMENDI. Well, now that's an interesting question. Clearly, we have institutions that are too big to fail. That's where the TARP legislation that was the last act--one of the last acts of the Bush administration--came into being. The Treasury Secretary, Mr. Paulson, who actually was the CEO of Goldman Sachs, as I recall, came to this House, came to the Senate, and said, Oh, my. Oh my. The world is going to collapse unless you immediately cough up a trillion dollars to the banks to stabilize the banks. Fortunately, this House said, Wait a minute. Let's see what we're doing here. Instead of a 1-page bill giving the Treasury Department a trillion dollars, the TARP program was put in place. And it did stabilize the financial institutions but it was a clear sign that Wall Street banks had become too big. AIG. How much have they taken? Twenty-three billion dollars of our money. Are we going to get it back? We don't know. Mr. Driehaus, if you will carry on here. I know that you were involved in that TARP legislation. Share with us.

Mr. GARAMENDI. That's in the bill that you and the other members of the Financial Services Committee put together. It was voted on here on this floor in December, as I recall. I had the pleasure of being elected in November, and I was here for that vote. Very, very important. I am going to just put this up here, and maybe the three of us together can refer to this as we go on. Right there, number one, consumer protection, watchdog with teeth. I know, Mr. Ellison, you were talking to me earlier about some of these things.

Mr. GARAMENDI. It's really very, very important that we do focus on the community banks. This is Main Street. This is where the small businessman--the men and women that own the local grocery store, the shop, the person who is the carpenter, the painter, this is where they will get the money that they need, the loan that they need to carry on their business. It's the community banks. But what has happened in America over the last decade is a concentration of economic strength in the hands of just a few. A very, very few of the large banks, Wall Street banks now, control 80 percent or more of the American financial strength. We need to take that into account, not only because it will give the community banks an opportunity to compete and to have capital available to them so that they can make those loans, but also because of this problem of too big to fail. Too big to fail. That's what happened over the course from 2000--maybe beginning in the nineties--until 2008, when the great collapse occurred. The banks grew bigger and bigger and fewer and fewer so that at one point just a handful controlled most of the financial assets of America. And they grossly mismanaged those assets. AIG, a famous name. Lehman Brothers, another bankrupt company. All of the games that they played, those roosters came home to roost and the droppings were on American homeowners and the hardworking men and women of America that lost their jobs as a result of Wall Street excesses. So now what are we going to do about too big to fail? The Senate, which is now moving a piece of legislation that would accompany the House bill, which we passed 4 months ago, that piece of legislation may be amended to say that no financial institution in America can control more than 10 percent of the financial strength of this Nation. That is something I really like. Back in college, I learned about the need for competition. I took an economics class. You have to have competition. You've got to have a lot of players. You've got to have a robust free market. Well, we don't really have that in the financial institutions anymore because they've grown too big. Well, if we just make them a little smaller: You get to 10 percent, I'm sorry, you're going to have to shed some business. We'll have to have others pick up the rest of it. But this too big to fail is part of the reform bill. Exactly how it's going to come out of the Senate, we don't know for sure. But it is certainly going to deal with this issue. Mr. Ellison, I know that you worked on this.

Mr. GARAMENDI. Mr. Driehaus.

Mr. GARAMENDI. Mr. Speaker, thank you so very much. What we intended to talk about was the Wall Street meltdown and the necessity of the reform of Wall Street. However, having listened to our colleagues on the Republican side carry on for the last hour, there are some things that need to be said about their discussion. Health Care First of all, they started off with this issue of health care, with the government takeover of health care. That is absolutely not true. We have passed major health care reform, and it is not a government takeover. In fact, it builds on the present American system. There is some government--some very, very good government programs. You tell me what senior in America wants to have Medicare done away with. None of whom I know. There is always room for improvement. In every program, there will be problems from time to time, but no senior of whom I am aware anywhere in America wants to do away with that government program. What this bill really does is to help organize the American health care system so that it will be more effective and efficient and so that it will build on the private insurance system, which is much a part of America. I know this business because I was the insurance commissioner in California for 8 years, and I regulated the insurance company. In this legislation, there is heavy-duty regulation of the insurance industry because there was a lot of talk--a lot of talk from our Republican colleagues--about a death panel. I'll tell you what the ``death panel'' is. It is the private insurance company that has heretofore denied coverage for people who have been seriously ill. When people would have illnesses, they would just dump them from the rolls. They would not insure people who had preexisting conditions. I will tell my Republican colleagues and the American people that those days of insurance excesses and that those days of insurance discrimination are over. They are over. For men and women who are working their 8-, 10- and 12-hour shifts every day, they will be able to have their own doctors. That is what this reform does. It is not a government takeover. In fact, it builds upon the American system, which is unique here, and that is a fact. Taxation They also talked about taxation. Well, let's understand that more than 80 percent of the Bush tax cuts went to the top 10 percent of wealthy people in America. They got the tax break, and the other Americans got the shaft. That is not the way we see tax cuts on our side. In fact, my colleague from Minnesota, who will join me in just a moment, was there to vote for the American Recovery and Reinvestment Act. That is the largest middle class tax cut in America's history. The issue here is that Democrats will cut taxes for the working men and women--for middle class America. As for the wealthy, that's where the Republicans are. They will cut the taxes of the wealthy every single time. If you listened carefully to the previous discussion from our Republican colleagues, they said it very clearly. They were talking about taxes for those who have limited liability companies. You tell me. Do small businesses out there in my community--the painting contractors, the plumbing contractors--have limited liability companies? No. No. They are sole proprietors. Their taxes were cut by Democrats, and Republicans cut the taxes for Wall Street. My good colleague from Minnesota (Mr. Ellison), you had some thoughts about this as you were sitting there, listening to them talk about the things that are going on. Please share with us your thoughts. The Reform of Wall Street

Mr. GARAMENDI. Please.

Mr. GARAMENDI. You have raised a very, very important point, and it's the history of how all of this came to pass, about a mortgage industry that had run amok, that had engaged in predatory pricing and predatory mortgages and selling products, mortgages and loans, that they knew the homeowner could not possibly afford, maybe during the teaser rate period, but when that teaser rate was over in a year or two and the rate readjusted and reset, it was all over. That's the history of what was going on. It was Wall Street and its minions out there throughout the United States, the mortgage companies, that were all playing a part of this game. It comes down to basic American values that were not honored. The basic American value. You know, you work hard, you get a wage, you can get a home. But in this case, they were selling people products and mortgages that no way could they possibly afford, and they had no skin in the game. They had no ongoing obligations. You explained it so well, Mr. Driehaus, how that was going on. It comes back to certain values. Wall Street's value was greed is good. That's not an American value. That's a unique Wall Street value. Greed is not good. Greed leads to some real serious problems. You go back through all of the writings in the Bible and other religious writings down through the millennium, and it comes down to the same thing. Greed's not good, folks. Yet Wall Street was engaged in that very un-American practice of extraordinary greed, unbridled greed that led to the creation of these bogus and unsubstantiated mortgage instruments that were--by their own admission 2 weeks ago or a week ago when Goldman Sachs testified here, the guy that created them used some extraordinary language, that these were monsters, these were things that were unintelligible, that couldn't be understood and couldn't be priced, and yet that was Wall Street. Why did they do it? They did it because they wanted the money and they played the games. This was a chart that was used last night by Congresswoman Jackie Speier as she explained one of the things you talked about, Mr. Driehaus, how Goldman Sachs would create a mortgage-backed security. In fact, this one didn't even have mortgages backing it. It was totally ephemeral. It was a figment of the imagination of Wall Street bankers. They created this thing. Then down here at the bottom, these were the less risky portions of it. Each one of these are what they called tranches. They would sell it off, saying this was an A-rated. That's relatively good strength. Then down here at the very bottom, which was pure junk, they managed to get the rating houses, Standard and Poor's and other rating houses, to say, well, maybe this piece of junk is actually of some value if we go back and look not at the ability of the homeowner to pay but rather at the FICO score. Well, they did, and they rated it as an A, and then they sold it to unsuspecting investors, and the result was, at the end of the day, junk is junk and the thing collapsed. So we had the great collapse of 2008. So what do we do about it now? And, by the way, you mentioned the Community Reinvestment Act. I was the insurance commissioner in California for 8 years, and I watched the banks use the Community Reinvestment Act to bring bank offices and branches into the underserved communities. It ended the redlining. It's a very, very good law. If only the insurance industry had a similar law so that they would provide insurance products in those communities, but it doesn't. The Community Reinvestment Act isn't to blame here. Greed, unbridled greed is the problem. And to our Republican friends that ranted for the previous hour about government regulation, we need it, serious government regulation of Wall Street. Let's talk about where we go from here. Mr. Driehaus.

Mr. GARAMENDI. Mr. Ellison, thank you so very, very much for pointing out what was the history of the great 2008 collapse. You saw those enormous job losses that were occurring during the Bush period and then the slow but steady improvement in the number of jobs that were lost so that now we are in a situation where we are actually seeing jobs added. We don't see the unemployment rate coming down as we would like to, but we are on the correct road, and we are making great progress on that. I would like to ask my colleague to join us in carrying on this discussion, if you would.

Mr. GARAMENDI

Mr. GARAMENDI. I think that book is misnamed, ``The Great Short.'' I think probably ``The Great Fraud'' would be a better name for the whole thing.

Mr. GARAMENDI. AIG. Now, they received almost $200 billion of taxpayer money?

Mr. GARAMENDI. I know that the two of you both on the Financial Services Committee spent most of last year, 2009, working on a major reform that actually passed the House in December. Now, I had the good fortune of being elected in November, arriving here just in time to vote for the health care bill and to take some credit by voting for the reform that the two of you and the other members of the committee brought to the House floor. It was a very, very significant reform and dealt with many of the underlying issues that both of you have discussed. Let's spend just a few moments talking about some of the critical elements of that reform bill. As I recall, there was a Consumer Protection Agency in the reform bill, and there were also some definitions about the kinds of things that the banks could engage in. And in most recent days, we've seen the Senate wrestling with this issue. We saw the Republicans trying to stop the Senate from enacting a reform bill by Senator Dodd. Well, they tried for a few days, for a couple of weeks, and ultimately the American public following the Goldman Sachs hearing in the Senate said enough, and the Republican effort to stop the bill collapsed, and now that's moving along. So we're in the final stages, I believe, of passing a very significant reform of Wall Street so that we can focus on Main Street rather than on the excesses of Wall Street, bringing the money back to Main Street, to local banks making loans, and Wall Street getting its comeuppance. So would you share with us some of your thoughts about the reforms.

Mr. GARAMENDI. Well, there certainly ought to be a law. And we're going to spend a few moments talking about the law. But first I would like to turn to our colleague from the great State of Ohio. Please.

Mr. GARAMENDI. Now, when AIG got that money from the taxpayers in the TARP bailout, the Wall Street bailout, what did they do with that money? Did they give it to the homeowner that was going to lose their home, or did they give it to Goldman?

Mr. GARAMENDI. Madam Speaker, tonight, it is really important that America comes to understand how the great collapse of 2008 occurred and what its impact has been. I think they have a pretty good idea as to what the impact is. We see it back home. We see it from our constituents and from our own families as they face layoffs and as they face losing their homes and their mortgages that they are no longer able to afford. How did all of this happen? We want to discuss this tonight, and we want to discuss the effect that it is having on our constituents. At the same time, we want to talk about what we are going to do about it. How are we going to set straight the financial institutions of America? We know that the collapse was largely caused by some extraordinary shenanigans on Wall Street. Shenanigans never should have been allowed to be played, but they were due to a lack of regulation on the part of the SEC and of others and due to an attitude that occurred during the 2000-2008 period of ``anything goes.'' The free market would somehow regulate itself. Well, it didn't. It actually put this Nation and the entire world on the edge of total collapse. Joining me tonight are my colleagues from California and from Ohio. I would like to start with Congresswoman Speier. I was going to introduce Congresswoman Speier as the senate chairman of the California legislature's committee on banking and financial matters where she has gained extraordinary knowledge about the banking industry. She is going to share with us tonight her new position on the House Financial Services Committee. Congresswoman Speier.

Mr. GARAMENDI. The three of us will not take credit for that bill.

Mr. GARAMENDI. There is something I learned long ago at the University of California when I was taking an economics class, and that was the American private system of the economy was dependent upon competition, and that laws were put in place more than a century ago to eliminate concentration so that there are many, many players in the marketplace. It seems as though we have forgotten, or at least the Republican administration in 2000 to 2008, forgot that one of the key ingredients in a free market system is many, many competitors. But what happened during the decade of the nineties and 2000-2008 was a concentration in the banking industry so that now just a handful of companies, huge megabanks, control an enormous proportion of the American economy. And there's a proposal that has now been made by the Senator from, I believe, Delaware to limit all financial institutions to no more than 10 percent of the financial market, so that when they get to 10 percent, they can no longer grow. They would have to shed the business and, in that way, keep many, many players in the business. So there would be good competition and, simultaneously, create a situation in which no one bank would be too big to fail, thereby eliminating the need for a taxpayer bailout. I kind of like that idea. It goes back to something I learned many, many years ago in an economics class about the role of competition and the need for many, many players in the marketplace. We'll see what happens with that, but financial regulation law in its final form has to deal with this issue of too big to fail. I don't want, you don't want, I don't believe the American public want to see another financial bailout with our taxpayer money going to Wall Street so they can fatten their wallets on our hard-earned money. So we'll see what happens here. We know things are coming back. But let's not end this discussion in a down mood. If we take a look at where the American economy is going, these lines here in the red are the Bush years, and this is the unemployment rate actually growing during the final years of the Bush period so that we were losing about 800,000 jobs a quarter in the final quarter of the Bush period. Now, when Obama came in, we see the beginning of the turnaround with the unemployment--monthly unemployment statistics changing so that, yes, the first month of the Obama administration, in January, February, it was the same as the last month of the Bush administration. But now we see a steady decrease in the number of people losing their jobs. This is a result of three things happening. The first is the Wall Street turnaround, the Obama administration getting control of Wall Street in the early months of 2009, followed by a very courageous action taken by Congress, which was called the American Recovery Act. The stimulus bill. That began to put people back to work or keep people employed. I know that in California it was an extremely important piece of the puzzle of keeping our schools open, keeping teachers in place, and then preventing further erosion of the economy. So as that began to take hold, we began to see the number of people losing their jobs on a month-to-month basis declining so that now, in the last month, we are actually seeing the number of people employed rising--getting jobs, rising. We still have an extraordinarily high unemployment rate. We are not even close to being home yet. So we've got a lot of work to do. Part of that work is to make sure that Wall Street doesn't ever again put at risk the job of a family, put at risk home mortgages, put at risk the American economy and, indeed, the international economy. So that's where we are headed. We've got some more work to do.

Mr. GARAMENDI. So what Goldman Sachs was doing was essentially a very dishonest, disreputable, and quite possibly fraudulent scheme to rip off some investors somewhere. They may have been sophisticated, they may not have. But they were told that this was not a B-rated product but rather an A-rated product because Standard and Poor's, perhaps playing a game, and part of the game with Goldman, had reevaluated that particular tranche, that package of mortgages, and said now they are an A because we've taken a look at the FICO score of some of the underlying mortgage people who had taken out the loan. So from the whole thing, where is the honesty in the business? Where is the element of good faith to the customer? Was Paulson the customer on one side of the deal, or was it the investor on the other side of the deal? And where is the good faith obligation that Goldman surely must have had?

Mr. GARAMENDI. Well----

Mr. GARAMENDI. So on the buy side, they would be giving information that was inaccurate, that Standard & Poor's, the rating industries of the world would go out and use some, I don't know, gimmick to re-rate this tranche, this piece of that tower, re-rate it as though it was more valuable and more secure than it really was. So we really had a cabal here, and that is why the regulation of Wall Street is so critically important to us as individuals, in our homes, in our ordinary life, in our ability to keep a job. It is also important for the financial system of America. Banking is crucial to the economy, and when you get a banking industry that is playing financial games rather than simply making loans, we are going to find ourselves in trouble. The creativity of Goldman Sachs, we now know from the hearings. We also know that other major banks and mortgage lending companies were playing similar games. So that is what we are trying to do as Democrats, is to rein in Wall Street, to set new rules in place that will force the banks to be banks; not to play risky financial games, but rather to do the everyday lending, taking deposits, making a loan that is sound, and making those loans on Wall Street. What is happening in Ohio? What do you see from your constituents in Ohio about Main Street? Is Main Street a place where the banks are making loans?

Mr. GARAMENDI. You mentioned the issue of Wall Street pay. The numbers are really astounding. In 2007, before the collapse, Wall Street paid out $137 billion to its employees. In 2008, in the midst of the great collapse, they actually reduced it. They went down to $123 billion. But in 2009, while unemployment in America was hovering well over 10 percent, and in California 12 percent, in 2009, the Wall Street fat cats paid themselves $145 billion. I believe a lot of that money was our taxpayer money that we put in Wall Street to shore up the banks, and instead of making loans to Main Street, to the contractor, to the fellow that wanted to manufacture more ladders, that wanted to improve his business and hire people, instead of making loans to them, it appears to me that they took the money that was used to bail out Wall Street, to stabilize the economy and stabilize the banks, they took that money and they put it in their own pockets. That is reprehensible. There was a bill here circulating, it hasn't passed, but I think it ought to pass, where these Wall Street bonuses, of which this $145 billion is part of, I think it ought to be taxed. I think about an 80 or 90 percent tax on those bonuses in which they used our taxpayer money, that we ought to get that money back, and we ought to take that money back and put it into the local banks so that their financial situation is shored up so that they can make loans to the businesses in our communities, and tell Wall Street, folks, the big ripoff is over. The big short is over. The big fraud is over. There is going to be a law. There is going to be a tough law regulating Wall Street, reining in the excesses of those fat cats on Wall Street who came to the U.S. Senate with such arrogance that somehow they were the kings of the world, that they were the financial managers of the world and they could create out of nothing. Wasn't there an Aesop's fable about spinning gold from wool? Maybe that is what those characters were doing. They were creating something that had the appearance of value, but actually had no value, and it nearly cost us the American and the world economy. It also cost some 10 percent, almost 11 percent of every working man and woman in this country, their job. That is reprehensible. And it is time for Congress, it is time for the Senate--excuse me, Congress did its thing back in December--it is time for the Senate to pass a strong bill, send it back, let's get this thing done, and let's rein in Wall Street.

Mr. GARAMENDI. By lying? By defrauding somebody?

Mr. GARAMENDI. So, this was the packaging of the mortgages that were being sold to people who couldn't afford to pay their mortgages?

Mr. GARAMENDI. We have to find a good adjective, but the tower of shame. Then they took individual pieces of those products, took them out and repackaged them----

Mr. GARAMENDI. Is that the creativity that Goldman Sachs so prided itself on, creating something that was unpriceable, that nobody could figure out what it was and, therefore, it could not price it? But what did they do with this Frankenstein that was created?