Jon Kyl

Mr. KYL

Mr. KYL. Mr. President, I wish to briefly echo the sentiments of both Senators Sessions and Corker. They have both given a great deal of thought to the problems here. These are not political issues that capture the imagination of either the news media or the American people, but they are very important, and they are both working to solve a difficult problem in a very reasonable way that recognizes the importance of the rule of law. One of the great distinguishing characteristics of the United States versus some other countries, many other countries in the world, is that we follow a rule of law. It makes commercial dealings, and therefore expansion of our economy, so much easier when everyone knows what the rules are and they can plan based upon those rules. One of the bodies of law that is most contributory to that is our Bankruptcy Code. For over a couple centuries, we have had a process and a set of rules that governs what happens when businesses can't pay their debts and have to go out of business or be reorganized. Those rules, in effect, set the rules of the road--the things people can count on both at the time a business gets into trouble but also far before that, when people are making decisions on whether to lend to or invest in a business. They know, for example, if they are going to be a secured creditor of a business that, in the event something goes wrong, they will be quite high on the list of businesses that get paid. If they are an unsecured creditor, they are going to be lower on that list. They will probably get more for their lending because they are unsecured, but they will be lower on the list. So people can calibrate the kind of equity investment or lending they want to engage in based upon what they know the rules will be in the event something goes wrong. If you do away with that and just say that in the event something goes wrong, a government bureaucracy--and I don't use that word pejoratively--a group of government employees in an agency are going to decide that something needs to be done and decide what that is and it is basically unconstrained by any set of rules and practices such as the Bankruptcy Code has provided, that is scary to folks. It is going to mean we will have less lending and capital formation for businesses because they are going to be uncertain about the rules of the road. Secondly, it is going to create the potential for unfairness and, frankly, poor decisions if companies do have to get unwound. So what we are giving up by not adopting an amendment such as the Sessions amendment is certainty, predictability, and decades of understanding of what the law is in the event something such as this occurs. What Senator Corker has said is also true; that these financial institutions may present some very unique circumstances, and some of them may be so large and so potentially affecting of other institutions that it may be that the relatively slow pace of bankruptcy--and I don't mean to suggest it is very slow--may mean that we need something more quickly to intervene and ensure that whatever happens with this particular business, it doesn't adversely affect others or that there may be other reasons to have a more immediate infusion of some intervention. I will put it that way. It was for that reason that all of us supported the Dodd-Shelby compromise. Our view was, as Senator Corker said, it is better than the underlying bill, although I don't think it satisfied at least the three of us that it went far enough in creating these rules of predictability. The Sessions amendment, as has been described, does that. I think Senator Corker has it exactly right; we are under no illusion this will replace the Dodd-Shelby compromise. In that respect, we have to just hope, in the further process of legislating on this bill, that compromise can be informed by additional debate and discussion and maybe improved. By supporting the bankruptcy-related amendment of Senator Sessions, what we are trying to do is to send the message that we compliment Senators Dodd and Shelby for what they did, but a little more dose of the predictability and certainty and judicial process of bankruptcy would be very welcomed in this process. Therefore, to the extent that we can have a good vote on this amendment, perhaps they and others will look to other ways in which they can continue to modify this language for the very best result we can achieve. This is a very important issue. It deserves our very best attention. I wished to compliment again both Senator Sessions and Senator Corker, two of the very thoughtful Members of this body, for the way they have approached this issue, without any political consideration but simply to try to make this process better, fairer, more predictable and, therefore, better for the businesses involved and for the economy of the United States.

Mr. KYL

Mr. KYL. The following Senators are necessarily absent: the Senator from Oklahoma (Mr. Inhofe) and the Senator from Alaska (Ms. Murkowski).

Mr. KYL

Mr. KYL. I ask unanimous consent that the order for the quorum call be rescinded.

Mr. KYL. Mr. President, as the debate over Wall Street enters a pivotal stage, we should ask ourselves, what is financial regulatory reform about? We all agree that one of the main objectives of the legislation is to ensure taxpayers will no longer be forced to bail out or subsidize financial institutions that engage in risky behavior. That means ending so-called too big to fail. Unfortunately, the legislation we are now considering does not mention the two institutions that have come to epitomize too big to fail. I am referring to the two government-sponsored enterprises, the so-called GSEs, Fannie Mae and Freddie Mac, which are currently in Federal conservatorship. The egregious behavior of these two institutions has rippled throughout the entire commercial banking sector and our economy as a whole. Let's recall how central the two GSEs were to the housing bubble. Fannie and Freddie represent the dangers of what former American Enterprise Institute president Chris DeMuth has described as ``fusion enterprise,'' or the ``intermingling of politics and power with finance and commerce.'' This is a perverse business model that allows companies to reap enormous private profits while enjoying either implicit or explicit public backing. It is the model that enabled Fannie and Freddie to inflate the subprime mortgage bubble. For years some of my colleagues and I have urged this Chamber to impose stronger regulations on Fannie and Freddie. As chairman of the Senate Republican Policy Committee, I authored several papers on the threats posed by the size of their mortgage-backed securities portfolios. I was particularly concerned that the government's implicit guarantee of these institutions permitted them to operate without adequate capital, to assume more risk than competing financial institutions, and to borrow at a below-market rate of interest. Of course, that is just what happened. Smaller companies got crushed while Fannie and Freddie engaged in increasingly risky lending with the backing of the Federal Government. Wall Street understood how it worked. So when Fannie and Freddie wanted these toxic loans, the mortgage markets would produce them. Between 2004 and 2007, Fannie and Freddie became the largest buyers of subprime and Alt-A mortgages. And although these two institutions had their own dedicated regulator, the Office of Federal Housing Enterprise Oversight still allowed the situation to spiral out of control. Fannie and Freddie made mortgages available to too many people who could not afford them. That easy credit fueled rapidly rising home prices. As prices rose, so did also the demand for even larger mortgages, so Fannie and Freddie looked for ways to make even more mortgage credit available to borrowers with a questionable ability to repay. By 2008, the two GSEs held nearly $5 trillion in mortgages and mortgage-backed securities. They were overleveraged and too big to fail. It was a textbook example of moral hazard on a massive scale. ``Worst of all,'' M&T Bank CEO Robert Wilmers recently wrote in the Wall Street Journal, ``are the tracts of foreclosed homes left behind by households lured into inappropriate mortgages by the lax credit standards made possible by Fannie Mae and Freddie Mac.'' Congress would have done well to support a bill adopted by the Banking Committee in 2005 under then-Chairman Shelby. The bill would have established a new regulator for Fannie and Freddie and given that regulator authority to make sure the GSEs maintained adequate amounts of capital, had adequately liquidity and reserves, properly managed their interest rate risk, and controlled their asset investment portfolio growth. But the legislation was filibustered. Its opponents included then-Senator Obama. As American Enterprise Institute scholar Peter Wallison, who has written extensively on this topic, concluded: If legislation along the lines of the Senate committee's bill had been enacted in that year, many, if not all, the losses that Fannie and Freddie have suffered, and will suffer in the future, might have been avoided. But, of course, we didn't avoid that fate. And today, Fannie and Freddie continue to impose on the taxpayers while accruing massive debt. In fact, their total debt outstanding, the debt held on their balance sheets or as mortgage security guarantees, is an astounding $8.1 trillion. This is debt that is not reflected on the national balance sheet. Last Wednesday, Freddie Mac announced it will need an additional capital injection of $10.6 billion. That is from the taxpayers. That is after it lost $6.7 billion during the first quarter of this year. In 10 of the last 11 quarters, Freddie Mac has lost a total of $82 billion which is twice the amount it earned over the previous 30 years. This morning it was reported that Fannie too has asked taxpayers for more money, $8.4 billion, to cover its soaring losses. The combined government loss for both companies now stands at $145 billion, according to the Associated Press. Where will this end? Weren't we supposed to end taxpayer liability for entities too big to fail? The McCain amendment, which we will be voting on hopefully tomorrow, will provide us with another opportunity to target the problems caused by Fannie and Freddie. The McCain amendment would end the conservatorship within 2 years and place both companies into receivership if they are not viable. It would also reduce the companies' mortgage holdings over the next 3 years, reimpose restrictions on the size of the mortgages they can buy, and force them to pay State and local taxes just as private companies do. As the Wall Street Journal editorialized Thursday: If the housing giants are no longer subsidized, they will become small enough to fail. That means they will stop lending money to people who can't pay them back, and in turn, they will stop endangering taxpayers. This is a genuine anti- bailout vote. They were referring to the McCain amendment. Let's be clear. Every day Fannie and Freddie remain in their current form is a day U.S. taxpayers are subsidizing their activities. Financial regulatory reform must include a restructuring of Fannie Mae and Freddie Mac. That is why I urge my colleagues to support the McCain amendment tomorrow and end too big to fail. I ask unanimous consent to have printed in the Record the Wall Street Journal editorial titled ``What About Fan and Fred Reform?'' by Robert G. Wilmers, to which I referred.

Mr. KYL. I suggest the absence of a quorum.

Mr. KYL

Mr. KYL. The following Senators are necessarily absent: the Senator from Utah (Mr. Bennett), the Senator from Kentucky (Mr. Bunning), the Senator from South Carolina (Mr. DeMint), the Senator from Indiana (Mr. Lugar), and the Senator from Louisiana (Mr. Vitter). Further, if present and voting, the Senator from Kentucky (Mr. Bunning) would have voted ``yea.''

Mr. KYL. The following Senators are necessarily absent: the Senator from Utah (Mr. Bennett), the Sentor from Kentucky (Mr. Bunning), the Senator from South Carolina (Mr. DeMint), the Senator from Indiana (Mr. Lugar), and the Senator from Louisiana (Mr. Vitter). Further, if present and voting, the Senator from Kentucky (Mr. Bunning) would have voted ``yea.''

Mr. KYL

Mr. KYL. The following Senator is necessarily absent: the Senator from Utah (Mr. Bennett).

Mr. KYL

Mr. KYL. The following Senator is necessarily absent: the Senator from Utah (Mr. Bennett).

Mr. KYL

Mr. KYL. The following Senator is necessarily absent: the Senator from Utah (Mr. Bennett).

Mr. KYL. The following Senator is necessarily absent: the Senator from Utah (Mr. Bennett).

Mr. KYL

Mr. KYL. The following Senator is necessarily absent: the Senator from Utah (Mr. Bennett).

Mr. KYL

Mr. KYL. The following Senator is necessarily absent: the Senator from Utah (Mr. Bennett).

Mr. KYL

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

Mr. KYL. Mr. President, let me address the amendment which we are going to be taking up first, I gather, on the so-called financial regulatory reform bill, the Boxer amendment. The Boxer amendment, as I understand it, is a declarative statement that taxpayers will not be responsible for any Wall Street bailouts. My understanding is that it is not a provision that would enforce itself or would in any way be enforceable in the legislation, but it certainly expresses a sentiment I assume every Senator would share. The problem, however, is not just the fact that we are concerned that taxpayers will be responsible for bailouts but the fact that bailouts will exist in any event and how that might affect people who have invested in or lent to an institution, what authority it would give the U.S. Government, and whether such a provision would apply as well to perhaps the biggest miscreants here: Fannie and Freddie, the two government-sponsored enterprises that hold the vast majority of the mortgages that are unsound or on less than strong financial footing--I will put it that way. So the question is not so much whether taxpayers' dollars will be used--though this amendment, while expressing a good sentiment, doesn't operatively prevent that--but just as much whether Wall Street will still be bailed out but in a different way. Will the appropriate policies and institutions that should be in place to prevent this be amended into the legislation? If all we want to do is ensure failing institutions are liquidated, then of course we can have a bankruptcy regime, and many people believe that is the appropriate regime because it is a tradition of law. Everyone knows exactly how it works, where you stand, and it ordinarily has been successful in liquidating firms that cannot pay their obligations. After the Lehman bankruptcy and the contagion effects which surrounded that, some believe bankruptcy wasn't really well suited to these kinds of large financial institutions, and it may well be that traditional bankruptcy would have to be modified in some respects in order to easily apply to the liquidation of a financial institution that large. One of the things, though, we need to do in figuring out exactly what the right process should be is to make sure creditors aren't receiving special treatment--for example, the way they did when the auto companies were bailed out and when other firms were bailed out. Otherwise, we will actually be increasing moral hazard rather than decreasing it, which is, of course, part of the exercise here. A government-compelled fund that takes money from successful firms and transfers it to a failed firm, for example, regardless of how you seek to justify it--as an assessment or a recruitment or a tax or whatever you might call it--is still a bailout. Ultimately, the question is not only who will pay for it but also, how does it scramble the obligations and the prioritization of obligations compared to what bankruptcy would do? The people who bear the cost of propping up a failed firm, for example, have nothing to do with the fact that firm failed or with the poor decisions of that firm. So if, instead of the American people, you are going to make other entities in its area--for example, a bank begins to fail, so you are going to make the other banks prop that bank back up. How is that fair to the shareholders or investors in the bank that has to do the propping up, or the groups of banks? They didn't have anything to do with the poor decisions made by the management of the failed firm, whereas you can argue that the lenders to the failed firm, the people who invested in the failed firm, and certainly the managers of the failed firm all had something to do with the direction the failed firm took. Because of that fact, the bankruptcy laws have set out priorities as to who ends up bearing the risk of the failure of that firm. The lenders and the investors in failing companies lose control of the money they invested, and whatever resources remain are channeled by the bankruptcy court into productive endeavors or to pay the people who have lent the money to the firm. That is exactly the opposite of what a government-sponsored fund does in transferring resources from a productive to unproductive purpose. Here, if it is not the taxpayers who fund it, then it is fellow banks, let's say, or fellow financial institutions--again, people who had nothing to do with the failure of the entity that is being acted upon. Fortunately, there is a process that can address the problem of failing firms, that does move resources into more productive areas and at the same time holds those directly responsible for the mistakes accountable. There are different names for this and it can take different forms. One of them is called speed bankruptcy--in other words, a form of bankruptcy that recognizes that in certain institutions you are going to need to quickly take hold of them and, in order to prevent contagion in the market, shore up their financial situation so they cannot infect others and therefore cause a larger failure than just relates to that particular company. We should describe bankruptcy, first of all, to appreciate what this does. A firm becomes insolvent when its liabilities--which could be payments to bondholders, it could be payments to suppliers, it could be repaying loans--are worth more than the assets the company has, assets such as land, capital, accounts, the value of intangibles, and even things like reputation. Over the last couple of years, we have seen the collapse or near collapse of several well-known firms--for example, the GM and Chrysler auto companies, as I mentioned, Bear Stearns, AIG, the big insurance companies. We have also seen Fannie Mae and Freddie Mac, which are projected to be dependent on government assistance for the foreseeable future--and by government assistance, of course, ultimately we mean the taxpayers of this country. In the examples I cited above, the government response was in effect to prop up the failed firm with taxpayer funds. This so-called speed bankruptcy and iterations of the idea would instead convert a portion of the existing longer term debt of the company into equity. There are a lot of benefits, as you can see, to such a proposal. For example, with a large, complex firm that is in financial trouble, a lengthy process could create the kind of uncertainty that would otherwise undermine the ability of the company to continue once it exits the resolution process and, as I said, could also infect others in these areas. A speed bankruptcy, on the other hand, would permit the firm to remain in operation, to keep running. There is a paper that has been written on this that I think is very interesting. Garret Jones at the George Mason University Mercatus Center writes that this kind of proposal actually leaves bondholders with something of value so they are not entirely wiped out and retain the potential to make up for some of their losses if the equity shares they receive in lieu of their bonds once again gain value. Here is what he writes in this recent paper: Friday's bondholders become Monday's new shareholders, and the banking conglomerate can continue borrowing and lending much as before, with little possibility of a short-run crisis. It is a little bit like debt or possession financing in a bankruptcy, but it matters where you get the financing, and in this case creditors of one kind become creditors of a different kind, trading, in this case, bond for equity in the firm. Second, unlike government-sponsored bailouts, investors directly tied to the troubled firm bear the financial costs of the restructuring of the firm. Third, since many of the bonds are publicly traded and are therefore liquid, the process would be entirely transparent, and the reason the process could occur so quickly is because of that conversion. Fourth, a debt-to-equity conversion leaves deposits untouched, avoiding a potential run on the bank in the case of banks and financial institutions. What steps and operations would be necessary to make this work? First, an insolvent firm would be able to convert an amount of its long-term debt specified in advance into stock in order to recapitalize and strengthen the institution. Under such a proposal, regulators would first need to declare that the institution is the risk. Second, the firm would need to breach a certain specified capital level to actually trigger the conversion. Once this process occurred, the restructured firm would emerge healthier, with less debt, with more equity, without any taxpayer money being used and without any money being used from other banks or other financial institutions. For example, Pershing Square Capital Management released a proposal to convert $75 billion of Fannie Mae's $750 billion senior unsecured debt into equity. For every dollar of senior unsecured debt, the bondholder would receive 90 cents in new senior unsecured debt and 10 cents in value of new, common equity. As a result, the new Fannie could take advantage of its new capital. It has a dollar to expand its underwriting. It can utilize increased cash flow to absorb expected losses and, in the future, once conditions improve, to reduce its balance sheet by gradually selling some of the mortgage assets on its books. John B. Taylor writes today in the Wall Street Journal how to avoid a bailout bill: You do not prevent bailouts by giving the government more power to intervene in a discretionary manner. You prevent bailouts by . . . making it possible for failing firms to go through bankruptcy without causing disruption to the financial system and the economy. Here is the summary of what I am saying. Most of us here do not want to see taxpayer bailouts of these firms that have made poor management decisions, have invested poorly, and have made mistakes for which taxpayers should not be responsible. That is the genesis of the Boxer amendment. But for the Boxer amendment to be effective, two things will have to be done, and perhaps we will have suggestions on how to change it. It would have to be operational and enforceable. As I said, the amendment is oratory language--taxpayer funds should not be used for bailouts. We know that a sense-of-the-Senate resolution is nothing more than that, a sense of the Senate. It needs to have operational and enforcement language to have meaning. It is my understanding that this language doesn't. Second, the real question is whether instead of a bailout, where government--I don't want to use the word bureaucrats--officials representing the U.S. Government in one, two, or three different entities could, on their own, with little direction in congressional legislation, determine that a firm now needs to be taken over or bailed out, and without very much legislative criteria to direct them as to how to do it, or the circumstances under which it should be done, could begin to unwind that firm, using taxpayer money that is later recouped or perhaps funding from a tax or an assessment on other banks, for example, to infuse capital to keep it from going out of business. This is a way in which bankruptcy would ordinarily work, except that bankruptcy works according to a set of rules and traditions that have been developed over a couple hundred years that everybody is familiar with, and which people took into account before they made investments in or lent money to a company in the first place. If they became a bondholder, they knew where the bondholders would be in the order of priority in the case of a bankruptcy. If it is secured, they would have one level of security, and if it is unsecured, they are going to be at the bottom of the totem pole when it comes to distributing the assets of the bankruptcy. Lending is predicated upon their understanding of these well-known rules and principles. Moreover, they understand that a judge will be in charge, and he will put people under oath and cause them to testify so that you know exactly what the assets are, and you can understand what it would take to keep the company running or, in the event it does have to be liquidated, how the funds would be disbursed. A trustee is appointed, who has a fiduciary responsibility, under the court rules, to manage how the company comes out of bankruptcy, or to ensure that the rules of bankruptcy and the judgment are carried out. That is the way a bankruptcy works. It is a proper way to unwind or liquidate most businesses in this country. I think those who say these financial institutions are different, we need a different set of rules, first, have an obligation to tell us why. What is different about these entities that the bankruptcy laws simply don't work? What would cause them to have a different set of treatments? If there are some things--and I can think of a couple things that distinguish them--then how can we modify the bankruptcy rules in effect to take into account those differences? One deficit, one could posit, is the fact that a large financial firm could easily have an effect on others invested in or who they invest in and, therefore, in effect cause a domino effect in markets. That could happen very quickly. Therefore, when you see signs of a problem, you need to deal with that very quickly. That is where this idea of bankruptcy comes from. It doesn't take a government bureaucrat or a government entity set up for this purpose to figure out that is what needs to be done and how to do it. It can be done within the context of bankruptcy today or with relatively modest modifications in the Bankruptcy Code, we could make those changes. The fear a lot of us have is that the people who are not elected or constrained by any particular power, except the limitations Congress imposes upon them--and in this bill those limitations are very general--those people could make decisions and put somebody into this process to decide who gets paid how much, without any reference necessarily, for example, to the Bankruptcy Code, who gets privileged and who isn't, and with whose money. If you look at the example of the two auto companies, you find that labor unions were substantially privileged to the exclusion of other investors. A lot of people thought this was wrong. It was contrary to the way it would have evolved had they been in bankruptcy court. So what most folks would like to see is a process you can count on, that you have rules of law established over time in the bankruptcy law that enable you to rely upon them, and not some unspecified, unclear process that is run by some agency of the U.S. Government. While it is certainly a step forward to say that taxpayers should not be on the hook for this, it is not enough to say that, A, because that is not operational or enforced, but, B, because there are other ways to do it that represent a closer adherence to the rule of law that would be better at promoting investment or lending in the first instance, because of the clarity and predictability of the way the situation would be treated in the event of a bankruptcy; and finally, that people who are not responsible for the bad management decisions would not have any liability when that company is liquidated or comes out of bankruptcy operating again. Rather, the people who had been involved in the company in the first instance would bear that obligation. This is just one idea--one of many--as an alternative to the specific provisions in the legislation. It is my hope that as we continue debate about this portion of the bill, we can come together on a set of principles that would adhere more closely to the rule of law established in the Bankruptcy Code to the concept that those responsible should be the ones who end up bearing the burden and that, in any event, as it appears most of us would agree, taxpayers should not be responsible for the decisions made by the management of a failing firm. I wonder whether my colleagues want to speak. If not, I will suggest the absence of a quorum. The Senator from Illinois wishes to speak.

Mr. KYL

Mr. KYL. Madam President, reserving the right to object, I have no problem with either nomination. I understand they are in the process of being cleared by other Members. I believe that, while I have no specific problem, we want to allow all Senators to sign off before consent is granted. Last week, I objected to some of the nominations to allow the two leaders to work their clearance process on the Executive Calendar. I understand that the two leaders worked to confirm four U.S. attorneys later today. Under the circumstances, as to the specific request of my colleague, I object.

Mr. KYL. Madam President, I objected.

Mr. KYL. Madam President, reserving the right to object, let me explain this process. When a nomination is sought to be cleared by both sides, there is what is called a hotline. All offices receive a quick notice that a particular bill or nominee is being hotlined. If you have a question or a concern, you register that. It is registered as an objection until it can be cleared up. In many cases, it is cleared up very quickly--sometimes overnight. Sometimes the two leaders need to work out a process for it to be cleared. It is, in one sense, a hold. As I said, I have no objection to these two people, so I am not holding them. I am objecting on behalf of the Republican leadership in order to enable the two leaders to clear both of these nominees; that is, to make sure there is no objection on either side, so they can both go forward. That is the basis for my objection.

Mr. KYL. If my colleague will yield first for a minute, I wish to make it clear that it is precisely on the basis that I stated that I am objecting this evening. I believe the two leaders will be able to clear the two specific nominees my colleague asked unanimous consent for tonight. It is truly a matter of the clearance process through the hotline. As a result, what I said is true. It is nothing more than that, to my knowledge. I take all the other points my colleague made. As to my objection this evening, I prefer to have my colleague acknowledge that what I said is what I believe; namely, that this is a clearance process for the two leaders through the hotline and that it is my expectation that these nominees will be cleared through that process. It is simply not completed.

Mr. KYL

Mr. KYL. The following Senator is necessarily absent: the Senator from Utah (Mr. Bennett).

Mr. KYL

Mr. KYL. Madam President, let me begin, first of all, by complimenting my colleague from Kansas, who has been indefatigable in the argument and the cause that he was espousing just now. He has talked to all of us about this problem, and he has made it very clear this shouldn't be an intention within this legislation. We shouldn't be trying to expand the reach of a bill--that was supposed to deal with Wall Street--all the way to our local car dealers on Main Street. I appreciate the fact that sometimes legislation sweeps with too broad a brush, but this is something we can fix and we need to fix it. In fact, it is not just the auto dealers. The National Federation of Independent Businesses, which bills itself as the voice of small business, and frequently does represent small business causes, has written a letter to us, on April 26, describing this unduly large reach of the legislation before us. Madam President, I ask unanimous consent to have printed in the Record at the conclusion of my remarks the letter I have just referred to.

Mr. KYL. Madam President, another word about what is said in this letter. They point out the fact that the consumer protection part of the legislation goes far beyond protecting consumers from Wall Street. It essentially goes to anybody who lends money on an installment basis where you have more than four installment payments. Let me quote from the letter. NFIB is concerned about the overly broad reach of the new Consumer Financial Protection Bureau. Providing consumers with clear and accurate financial information is an important goal, but because of the reach of the Bureau's authority many small businesses will find themselves subject to its regulations. In addition to the many new and duplicative regulatory burdens placed on community banks, the Bureau is charged with regulating any retailer or merchant that finances a purchase subject to a financing charge or written payment plan with more than four payments. Many small business retailers and merchants--such as medical professionals, hardware, electronics, and jewelry stores-- struggling through the current economic climate would be subject to these new regulations. These small businesses had nothing to do with the Wall Street meltdown and should not be faced with onerous new and duplicative regulations because of a problem that they did not cause. The first concern I have with this legislation is this overbreadth in the consumer protections. Wall Street can take care of itself. It's fine to provide protections against Wall Street, but surely we can reach an agreement that we don't intend this legislation to reach into Main Street, to the extent it does. I would urge my colleagues to listen to the concerns expressed by the NFIB and let's try to deal with those concerns in a way that would enable us to be more supportive of the legislation. The second point I would like to make has to do with the so-called too big to fail or taxpayer bailouts. There are different ways of talking about this. I find it interesting that some of my colleagues have apparently a great reverence for a pollster and wordsmith by the name of Frank Luntz. Frank Luntz is a person whom I know, and he is very good with words. He is a good pollster and so on. At one time, he apparently wrote a memo that suggested that one way to attack a bill such as the bill that is before us--I think my colleague, the chairman of the committee, has noted this memo was written by Luntz before there even was a bill--was to use bailout language. I haven't seen the memo, but I understand that is what it said. No. 2, Republicans have used this bailout language; therefore, No. 3, we are blindly following Luntz. Well, if I suggested that to my professor in philosophy 101, I would get flunked out of the course for the basic failure in logic. This is a logic fallacy--something followed something else; therefore, it was because of it. The law that is the famous saying--post hoc ergo propter hoc--obviously, a fallacy. So I defend those of my colleagues who have used language that may be somewhat similar to Luntz on the basis that just because they used the language didn't mean that Luntz caused them to use it. It may be Luntz figured out the same thing the rest of us figured out--this bill does not end taxpayer bailouts. That is the problem. Taxpayers are still on the hook. I can understand the sensitivity of those who helped to write the bill who are subject to the criticism in this language. But the solution to it is obvious: Get the taxpayers out of this so they are no longer on the hook for any bailouts and then the argument will not last anymore, whether Luntz likes it or not. That could be done through a process of negotiation. The bill was supposed to stop additional taxpayer liability. Let's make sure it does. In this regard, I have to object a little to some of the pejorative language used by some Democratic Senators. We have rhetoric about Republicans' motives. I am not going to suggest which Senators are talking about it, but one of them spoke specifically with respect to the Republican leader by name. When you are questioning the motives of someone, suggesting the only reason they did it is because they read somebody's memo or because some lobbyist from Wall Street has been visiting them or suggesting it was because of campaign contributions, that gets very close to a violation of Senate rules. Senators can take responsible positions on bills irrespective of what a lobbyist might have said or somebody might have written in a memorandum. I would like to have an honest debate about the bill rather than suggesting the motivations of Senators with respect to the positions they have taken. One of my colleagues--in fact, it was the Senator from Illinois-- asked the question, with regard to the vote we are about to take here, What are Republicans afraid of? In effect, are we afraid of going to the bill and then having votes on amendments? Let me answer that question very specifically. One thing at least I am concerned about is that we will not get to have votes on amendments. We were promised, in the health care debate, this 2,400- or 2,700-page bill, that we would get lots of amendments to try to deal with the concerns we had. I believe it was seven--after seven amendments, once the leader got his 60 votes, there were no more votes. There was no more amendment process. There was no more debate. At that point, cloture was filed, the vote was taken, and he had his 60 votes. End of discussion. There is nothing to suggest that if we go to this bill, we are going to have a fair amendment process. If that were made very clear by the majority leader, by the distinguished chairman of the committee, and Republicans had some sense that we would fare better than we did during the health care debate, then that would be one thing. But with the experience of the health care debate behind us, I think you can understand why we would be a little bit wary of ``just trust us, go to the bill, and we will let you have all the amendments you want to try to fix the bill.'' That is the first point. Let me get back just a little bit to this issue about the bailout because I made an assertion and I need to back it up. I really don't think any of us want to continue to have taxpayers on the hook. But this is complicated, and it may well be that the continuing authority, for example, of the FDIC that is specifically written into the legislation, while not intended to result in taxpayers being on the hook, it nevertheless does. Let me refer to a couple of articles. One is by a visiting professor, a Georgetown University business school professor, Phillip Swagel. The head of the article is ``Yes, It's a Bailout Bill.'' He says: . . . [T]he discretion given to the government in the Senate proposal opens the door to undesirable actions such as allowing the administration to write checks to favored parties. This concern is not theoretical: such mischief took place in the bankruptcies of Chrysler and General Motors, as the two auto companies were used as conduits to transfer billions of dollars from TARP to the president's political supporters. He is talking there about labor unions. A better approach would be a resolution regime centered on bankruptcy. There is a lot of debate about exactly how to do this liquidation process, unwinding process, quasi-bankruptcy process, and so on. There are a lot of good arguments. It is difficult to do, and I appreciate that the chairman of the Banking Committee has had to deal with a lot of different ideas from different Senators about how to do it, as well as a lot of columnists, and so on. But it is a fact that under the existing legislation, there is still liability for taxpayers here that concerns some of us. We would like to see a genuine discussion about taking that out. If it is a concern of all of us and we all agree that should not be, let's have a little good faith here and get it out before we come to the floor and have to try an amendment where there are 41 Republicans, 59 people who organize with Democrats, and we are not at all assured of being able to get it out of the bill. Here is another article. It is in the National Review Online, April 26. The article is entitled ``The Case Against the Dodd Bill.'' They make several points in here, but one of them is this resolution authority. But the resolution authority designed by the Dodd bill might actually create more moral hazard than it would eliminate, because it would give the FDIC too much flexibility in how it resolves a failed firm. It goes on to say: As structured, this authority would allow the Government to bail out nonbank creditors, and worse, to play favorites among them, just as we saw when the Obama administration gift-wrapped large stakes in the automakers for its union allies at the expense of secured creditors. My point here is simply that there are a lot of people who have looked at this and have come to the conclusion, as I have, that the bill is not tightly enough written; that, as written, it has too much in it that would allow various Federal entities, including the FDIC, pretty unlimited authority to use taxpayer money to resolve or liquidate or deal with companies that are deemed necessary to deal with. I won't say ``too big to fail'' because allegedly we are eliminating that. Surely we can get together and try to resolve this issue in a way that leaves no doubt that the ultimate conclusion is there is no more taxpayer liability. I think we would all like to see that. It is a legitimate debate to have, and I don't think we should criticize those of us who are raising these questions as somehow doing so because some lobbyist told us to. I don't care about the lobbyist or Wall Street here. What I care about is my constituent taxpayers being on the hook for a bailout of one of these entities or the creditors of these entities or the shareholders of these entities. This is the final point I wish to make. This is like the Sherlock Holmes story of the dog that didn't bark. There is something missing from this legislation. If you look through the entire bill--and probably the biggest reason for the failure of our financial system was the fact that Fannie Mae and Freddie Mac were allowed to go whole hog, take on a bunch of bad loans, and end up with an implicit guarantee that ultimately became an explicit guarantee by the taxpayers of America. You won't find any resolution of that problem in this bill. Why is it that, when everybody knows this problem began with a lot of loans being made to people who could not afford them--those loans then being acquired by Fannie and Freddie and then sold off in fancy, esoteric instruments on the market here--why is it that there is nothing in here about the risk of Fannie and Freddie and the risk they still pose? It is way north, apparently, of $400 billion--I have heard in the trillions of dollars--and this would be a taxpayer liability. If that is the case, shouldn't we be focusing reform on the entities that actually created the problem, Fannie Mae and Freddie Mac? Why isn't that being done? The former chairman of the Banking Committee has explained. The Senator from Alabama, when he was chairman of the committee, tried to get more regulatory authority over Fannie and Freddie. Members of the then-minority, now-majority party stopped him and said: No, we don't need any more regulatory authority. I especially remember a quote from the chairman of the House banking committee that was especially colorful in this regard, that he thought we could give them a little bit more latitude here, that he didn't think any more regulation was necessary. So the question is, If we knew there was a big problem a-brewing here, we didn't do anything about it at the time and after the fact discovered, of course, that is exactly what the problem was, why wouldn't we want to make sure that it will never happen again and that we somehow resolve the problem? One of the answers given is that it is an awfully big problem to try to tackle. This is an awfully big bill. If we can reach into Main Street, to your local car dealer or dentist because your kid's orthodontia takes more than 4 months to pay on installments, surely we can deal with Fannie and Freddie, the biggest culprits of all in this deal. Why aren't Fannie and Freddie dealt with here? Let's not think we will do that next time. I think it is pretty clear that whatever we do here, we are probably going to be stuck with for a long time, and the failure to deal with this is a glaring omission in the legislation. Nor do I think that if we grant the motion to proceed to the bill and one of us offers an amendment to cover Fannie and Freddie, that it would fare too well in this body. I will not specifically ask the chairman of the committee or anybody else whether they would support such an amendment, but the reality is that it is unlikely this body would actually regulate Fannie and Freddie. That is a reason why some of us oppose the legislation. Unless there is some ability to negotiate something in advance of the bill actually coming to the floor, with very little likelihood that it would be done on the floor, it seems to me that this is another reason why those of us who have opposed cloture have every basis for coming here and saying that until we get some satisfaction, some suggestion that this problem is going to be dealt with, why would we want to proceed to legislation which obviously isn't even going to fix the biggest part of the problem that was created in the first place? That is a third reason why I think at least up to now Republicans have said we are not prepared to go to this legislation. Exhibit 1 National Federation of Independent Business, Washington, DC, April 26, 2010. Dear Senator: On behalf of the National Federation of Independent Business (NFIB), the nation's leading small business advocacy organization, we urge the Senate to vote against cloture on the motion to proceed to S. 3217, the Restoring American Financial Stability Act of 2010. The current bill is too far reaching and imposes major new costs on small businesses. After the near collapse of many financial firms and the impact this had on the overall economy, small business recognizes the need to ensure that our laws address the problems that can arise from such excess and to protect the broader economy from the failures of one sector. But these changes to financial services industry should be focused on the specific problems caused by Wall Street and the lessons learned from these events. New laws that target industries and businesses on Main Street that did not create the problem would not solve the problems and potentially creates new ones. NFIB is concerned about the overly broad reach of the new Consumer Financial Protection Bureau. Providing consumers with clear and accurate financial information is an important goal, but because of the reach of the Bureau's authority many small businesses will find themselves subject to its regulations. In addition to the many new and duplicative regulatory burdens placed on community banks, the Bureau is charged with regulating any retailer or merchant that finances a purchase subject to a financing charge or a written payment plan with more than four payments. Many small business retailers and merchants--such as medical professionals, hardware, electronics, and jewelry stores-- struggling through the current economic climate would be subject to these new regulations. These small businesses had nothing to do with the Wall Street meltdown and should not be faced with onerous new and duplicative regulations because of a problem they did not cause. Further, as the most recent NFIB Small Business Economic Trends (SBET) survey shows, small businesses continue to struggle with lost sales and such regulations could make these problems worse--stifling any potential small business recovery. Placing more restrictions on the ability to attract and keep customers to small businesses will inhibit a strong recovery. NFIB also has concerns with a provision in the bill that reduces the pool of angel investors that can provide start-up capital or invest in a small business. The provision sets higher wage and asset minimum requirements on angel investors, thus eliminating many highly qualified angel investors from providing needed financing. This provision would hamper the entrepreneurial opportunities for angel investment opportunities for many small and start-up businesses, thus adding another road block to finding alternative capital financing when bank lending and other sources of financing remains hard to get in this economy. Small business still has not recovered from the economic downturn and has paid the price for the bad decisions and subsequent bailout of many large financial institutions. Addressing problems in the financial services sector makes sense, but such regulations should not overreach to include small business or leave small business owners paying for the excess of companies deemed too big to fail. Thank you for taking into consideration our concerns, and we ask the Senate to oppose the motion to proceed to the current bill. Sincerely, Susan Eckerly, Senior Vice President, Public Policy.

Mr. KYL. Mr. President, might I inquire how much is remaining on our side?

Mr. KYL. There is 10\1/2\ minutes on our side? I will yield to the chairman of the committee for a moment.

Mr. KYL. What I might do is yield the floor and reserve the remainder of the Republican time. In that way, if one of my colleagues comes and I have to leave, that time will be remaining.