Jack Reed

Mr. REED

Mr. REED. Mr. President, I rise to enter into a colloquy with the chairman, Mr. Inouye, and vice chairman, Mr. Cochran, of the Senate Appropriations Committee, as well as my colleague from Tennessee, Mr. Alexander. I want to thank my colleagues who have recognized the needs of Rhode Island, which is struggling to overcome the effects of the worst flooding in centuries in midst of the worst economic environment in generations. Indeed, Rhode Island was among the first States to sink into recession. In the last 2 years it has consistently ranked among the top three States in unemployment, with as much as 13 percent of the workforce without jobs. As my colleagues know, Rhode Island has been fortunate for many decades until now to have avoided the kind of major natural disaster damage that has affected so many other States. When those disasters have occurred in other States, there has been no question about the support of the people of Rhode Island or our State's congressional delegation for Federal disaster assistance. I am grateful that in the midst of challenging fiscal environment that the committee, on a bipartisan basis has included assistance for flood-impacted States, specifically Rhode Island and Tennessee. I am particularly grateful for the inclusion of additional community development block grant, CDBG, and economic development assistance, EDA, grant funding, along with a reduction of the non-Federal cost share for FEMA assistance. I also appreciate the challenge of including this funding while trying to stay within the President's top-line request for emergency funding. In the past, the committee has had greater flexibility in responding to emergencies, including in 2008 when over $20 billion was provided to States with major disasters in that year. Given the comparatively limited funding available, I would like to ask the chairman and vice chairman to help clarify the intent of the funding included in the underlying bill, specifically that the intent with respect tothe CDBG and EDA funding provided in the bill is to assist hard-hit communities in Rhode Island and Tennessee. I would ask my colleagues for their support in maintaining this position in negotiations with the House on the final package.

Mr. REED

Mr. REED. Under a previous order, a Shelby amendment No. 4010 and a Vitter amendment No. 4003 were ordered to be called up. I would like to state for the record that those amendments are still in order to be called up and hope that the Record will so reflect.

Mr. REED. Mr. President, I ask unanimous consent that the cloture vote on the Dodd-Lincoln substitute amendment No. 3739 occur at 2 p.m., Wednesday, May 19; and that Members have until 1 p.m. to file germane second-degree amendments.

Mr. REED

Mr. REED. Mr. President, like many of my colleagues, I have several amendments that have been filed. At this moment, it is not possible to call up all the amendments, but I wish to speak to one of them and hope that prior to the conclusion of our debate, I will have the opportunity, and I hope my colleagues do have an opportunity, to call up amendments that are still important to the legislation and deserve consideration by the body. My amendment would require registration with the Securities and Exchange Commission for private equity funds, hedge funds, and venture capital funds that are larger than $100 million. It recognizes that large pools of capital without any connection to regulatory authority could pose a systemic risk. It is a function, as we found out, in some cases, that if they make erroneous judgments, that could cause a systemic problem. This proposal has been embraced by a wide cross-section of interested and knowledgeable parties. It has the support of the Obama Administration. It has the support of the North American Securities Administrators Association, who represent State securities regulators. It has the support of the Private Equity Council, the Managed Funds Association, Americans for Financial Reform, the AFL-CIO, and AFSCME. It has broad-based support, and I think it is part of the major effort of this legislation to increase transparency and, as a result, to preclude and prevent fraud, particularly when we are dealing with these large pools of private capital. Private equity firms' activities can often make or break companies, resulting in a significant loss of jobs. We have seen of the 163 nonfinancial companies that went bankrupt last year, nearly half were backed by leveraged buyout firms. There are startling examples of companies, going concerns that employ thousands of Americans, that are acquired by private equity companies. Their business model, in many cases, is to leverage that company by borrowing extensively and by using these proceeds to purchase the company and then hopefully to repay themselves handsomely. If they are at a point in which the company is burdened with too much debt, they will either attempt to sell it off or they are forced into bankruptcy. The result, unfortunately, in many cases, is thousands of working men and women in this country lose their jobs. The company goes bust. There is nothing left. This behavior has to, at least, be on the radar screen, if you will, of the regulators. They have to know that these funds above $100 million are operating. There are many other examples we can cite. The bill before us has one category. That is hedge funds. We have to recognize there are other major private pools of capital, venture capital funds and private equity funds that should also have to register. The other thing we have to recognize is that the regulatory capacity of any agency is limited. What we have seen over the last several years is a situation where regulators may have had the authority, but they did not have the resources, or they saw situations where certain activity was regulated and other activity was not. What this amendment argues for is to ensure that we recognize both the potential dangers of large pools of private capital and the limitations of regulations to really differentiate between the pools. That is why the amendment I propose provides no categorical exemptions for these private pools. The rationale is that I do not think, frankly, the regulators can keep up with private funds that can describe their business plan in a way to qualify for an exemption but very well might be conducting the same type of behavior that causes concerns. So I have suggested, and it has been supported by a wide number of individuals and institutions, that we provide this broad-based registration requirement--firms above $100 million would be required to have Federal registration. That is something, I think, that is important. Therefore, we have proposed the amendment. The investors in these firms deserve, I think, our protection as well. The benefits to the financial system outweigh, in my view, the modest associated costs, and as a result I think we could and should move forward. Many of these firms, frankly, if you have $100 million under management or for investment, and if you don't have good financial controls, I think we have to ask ourselves: Should these firms be operating? Should they be allowed to continue to operate? The second aspect of this, too, is that the infrastructure of compliance--the infrastructure of risk management--is built into these firms. If it is not, frankly, we should ask: Why are they still doing business? The cost of registration--and this is simply registration; simply telling the Federal regulators, the SEC, that we are doing business like this; we have a certain amount of assets under management or investments that we are managing, and several other items of basic information--has been estimated to be rather modest compared to the money under management and the other operational expenses of these firms. So again, I think this is a valuable amendment. It is a valuable amendment that reinforces the basic tenets of this legislation-- transparency, accountability, and giving our regulators an overall view of the financial situation--the money that is there, the types of business activities that are there--so that they can develop appropriate information for their regulatory endeavors. The other point I would make is that if we were to stop the camera today and look at the financial scene, we might make judgments that, well, this entity is not very large, this particular entity doesn't do the type of business, et cetera. With the dynamism of our economy, which is a value, going forward 2 or 3 years, those firms could change dramatically, and something that seemed innocuous today could be systematically risky in the future. It might be called the same thing, but its functions are different. I make a final point in this regard. In some respects, legislation that was considered here in the 1990s looked at derivatives, looked at securitization as a phenomenon that would be static and that wouldn't change. But we know it changed, and it changed in a way the regulators didn't anticipate and weren't prepared to anticipate. So mortgage funds in the 1990s were based on those old-fashioned 20 percent down, a FICO score of 680, income sufficient to amortize the mortgage over the lifetime. The mortgages they were securitizing in 2005-2006--no money down, no income statement, liar loans, et cetera--was a different product. And yet we legislated for products and for business entities that transformed dramatically in the subsequent years. We have to provide our regulators with the flexibility to not only deal with the problems of today but to fairly anticipate a dynamic and changing financial situation. That is at the heart of this legislation also. So I hope we have an opportunity to further debate this and to offer it and to ask colleagues for their consideration. With that, I yield the floor to the Senator from Michigan.

Mr. REED

Mr. REED. Mr. President, I request to be recognized in morning business.

Mr. REED. Mr. President, I ask unanimous consent that the Senate proceed to a period for the transaction of morning business, with Senators permitted to speak for up to 10 minutes each.

Mr. REED

Mr. REED. I ask unanimous consent that the reading of the amendment be dispensed with.

Mr. REED. Mr. President, I rise today to urge my colleagues to reject the proposal by Senator Shelby and Senator Chambliss. It is well intentioned. It is designed, as other proposals are, to try to provide some appropriate regulation to a very complex and complicated area of financial transactions--derivatives. Like my colleagues, I have spent some time trying to understand this area. The only major point I can make is that in concept, derivatives are simple. It is a contract that derives its value from reference to another entity such as soybeans or mortgages. That is where the simplicity stops. These financial instruments are incredibly complicated, and they have been made more so by very sophisticated financial engineers on Wall Street. What we have recognized in the last several months is we have to take an appropriate step to regulate their sale in the United States and, frankly, influence the worldwide sale and use of derivatives. The Dodd-Lincoln proposal in this bill is, I think, not only a principled but an effective way to deal with the issue of the sale and use of derivatives. They start off with a premise which is fundamental: We need transparency in the marketplace. There was no transparency in the marketplace when it came to derivatives. Senator Levin held hearings which brought forth individuals from Wall Street, from Goldman Sachs. Frankly, if you listen to the hearings, even they did not understand the products they were selling-- complicated, deduced, created by Ph.Ds in mathematics using supercomputers. We need transparency. People have to know what they are selling. Apparently, some people on Wall Street did not even know what they were selling. But certainly consumers have to know what they are buying. Transparency is the key. The way you arrive at it, in my view, is the way this underlying legislation Chairman Dodd has sponsored, along with Chairman Lincoln, does. First, it establishes the requirement that all derivatives transactions be reported to a repository so that regulators will have a sense of where the market is moving in terms of specific products. Second, there is a requirement that you clear these products. Clearing is absolutely critical because an over-the-counter transaction is bilateral in nature. It is someone dealing directly with another party. What you have there is the danger of counterparty risk, the fact that one side of the transaction cannot perform. They go bankrupt, they do not have the resources, they miscalculated tremendously as to the nature of this transaction. And their failure affects other financial institutions. In those bilateral situations, the danger for counterparty risk is significant. To minimize that, you put it on a clearing platform. You put a party between the two parties of the contract who will assess collateral and margin and do it in a systematic way. These transactions on a clearing platform will be more transparent and there will be reduced risk between counterparties. That is, I think, a sensible and, at this point, nondebatable point because the Chambliss proposal also has a clearing platform aspect to it. But the next step--and I think it is an essential step--is to move to a trading platform because there you further reduce and manage counterparty risk because it is not just an intermediary clearinghouse that is handling the risk, it is participation in a market. It is individuals who broker deals who come in and buy and leave. It is at the heart of price discovery because the key aspect in all of these discussions is what is this instrument worth? Is it worth $100 or $2? If I am betting it is worth $100 and, of course, it is $2, I will lose. If I am betting it is $5 or $6 and it is $100, I lose on the other side. Part of this is essential price discovery. This is an esoteric point. It goes right to the nature of our markets--price discovery. That is why we all claim markets are the best form of economic transaction because in a market, you know the price, and if you can meet the price, you can make the transaction. One of the things that is implied in a marketplace, though, in Econ 101, is perfect information. Buyers and sellers each know what it costs. One of the problems with the derivatives markets is information is asymmetric, it is skewed, it is dramatically skewed to the Wall Street insiders who designed these products. That was one of the lessons of the Goldman Sachs hearings: Who knew what these things were? They did not even know, but they knew a lot more than people they were selling them to. We have to reduce that asymmetric nature of the market, and the best place to do that is not simply clearing a product, having someone say you have to have this much margin if you want to participate, but actually trade in the product. Again, this is not an academic issue. Let me paraphrase a story from Michael Lewis's book called ``The Big Short.'' On February 21, 2007, the market began to trade an index of collateralized debt obligations. They called it the TABX--T-A-B-X. For the first time, everyone in the marketplace could actually see on a screen what these CDOs were worth, what someone was going to pay for them. No longer were they waiting on just the dealer, the Wall Street insiders saying: No, no, these are great, buy them; they are terrific, buy them. There was a price. The price confirmed a simple thesis in a way that as Lewis says no amount of conversations with market insiders ever could ever have. After the first day of trading, those AA-rated tranches closed at 49.25 from a par value of 100. They lost more than half their value in one day of trading. There was now this huge disconnect, and I quote: With one hand the Wall Street firms were selling low interest rate-bearing double-A rated CDOs at par, or 100; with the other hand they were trading this index composed of those very same bonds for 49 cents on the dollar. In a flurry of e-mails, their sales people at Morgan Stanley and Deutche Bank tried to explain to clients that they should not deduce anything about the value of their bets against subprime CDOs from the prices on these new, publicly traded subprime CDOs. That it was all very complicated. Trading illustrates the real value of a product. When the Shelby- Chambliss proposal says, We are not going to trade these, what they are saying is business as usual. Let's let those folks on Wall Street tell us what they are worth. Tell it to the banks, the small community banks, tell it to the farmers, tell it to all those business men and women at the National Association of Manufacturers, this is what it is worth. They will not have to explain the fact that a market might rate it half of what they are claiming the value is. If we really want to reform what is happening on Wall Street, we are not going to abandon the requirement to trade as many products as we can trade. I will admit some products are so unique that a trading market might not be established. But the presumption by Wall Street--in fact, I think the head of J.P. Morgan said practically 70 percent of the derivatives could be cleared and probably a significant fraction of that could be traded. If you want transparency, if you want price discovery, if you want efficient markets, reject the Chambliss proposal, support the Dodd proposal. There is another aspect of the bill, and that is section 716, which does not deal with the mechanics of trading derivatives as much as who can do it. Can it be in a bank? Must it be separated? There are discussions about different approaches. Senator Levin and Senator Merkley have an approach that bars proprietary trading, that would leave that out of the bank but still leave traditional hedging within the bank. That is part of the debate. That, I think, is a seriously significant open question. In my mind, there is absolutely no question that to accept the Chambliss-Shelby approach that doesn't require trading is the wrong way to proceed. There is another issue here, too, and that goes to the nature of these over-the-counter contracts. Some of them could be cleared, but some are so unique they cannot. It goes to the exemption for end-users. In the Dodd bill, they have made a successful attempt to separate those over-the-counter transactions which have an economic rationale--it is an airliner hedging their fuel prices--and they have done it in a way which makes sure that this is not a loophole for the sophisticated financial engineer to exploit but a way in which business can continue to conduct their operations. The exceptions in the Shelby-Chambliss amendment are much too large. In fact, I think this is a drafting error, but as I read the amendment, it could be read as only requiring clearing of swaps between two counterparties under common ownership within the same company, which essentially means there is no requirement whatsoever. I do not think that is what the sponsors proposed but that is what the language says, at least as I read it. If you want huge loopholes to begin this process, support this amendment. If you want to maintain well-structured exemptions for the economic use of derivatives, that is incorporated within the underlying Dodd-Lincoln bill, and it makes a great deal of sense to me. There are issues here we have to be conscious of and we can still debate about the allocation of responsibilities between regulatory authorities with respect to these derivatives. That is an issue that I think is still outstanding. But the underlying architecture of derivative regulation has been accomplished by Senator Dodd and Senator Lincoln in their bill. Again, we have learned a lot. I think we should have learned a bit of collective humility about the ability to deal with these complicated products. So we have to build in multiple lines of defense, if you will. Simply requiring the reporting of transactions to a repository-- that is good but not sufficient. Requiring that the majority of these instruments be cleared unless they have an economic value or they are so unique that the clearing would be inappropriate--that is a step forward, too, but insufficient. It is only when you put together the entire spectrum of reporting, clearing, and trading of appropriately traded derivatives do you have the full panoply of protections we need to deal with these complicated products today. Frankly, there is a sense that maybe we haven't seen nothing yet. The sophistication, the ingenuity of the financial engineers may be absent at the moment, but it will return, and we need these multiple lines of defense. There is another point I wish to make. We have to recognize when we are building this new structure that it, too, has weaknesses. One of the most significant weaknesses is that in a clearing platform, if there is not full transparency and if the clearing platform isn't adept at setting margin requirements and collateral, there is a danger that platform becomes a source of systemic risk. And these platforms are dealing with notional values of trillions of dollars. If they misjudge by a little bit, a clearinghouse could have a significant situation in which it is unable to meet its responsibilities. Once again, I think that is a strong argument for, not a single or a double line of defense, but a triple line of defense with respect to trading also. Because if there is trading and price discovery, they will have a much better idea of what the product really is worth and they will be able to set margin and collateral much more adequately. There are many issues that have to be dealt with as we proceed through this markup and on to the conference, I hope. But in my mind, clearly the superior vehicle to pursue those ends is the language incorporated in the Dodd bill, and I would urge all my colleagues to reject the amendment by the gentleman from Georgia. I yield the floor.

Mr. REED. Mr. President, I call up amendment No. 3943.

Mr. REED. Mr. President, this amendment is very straightforward. It would provide within the new office of consumer financial protection a military liaison, an individual who is charged with protecting the interests of soldiers, sailors, airmen, and marines as consumers. Let me tell my colleagues--and I will elaborate later, but let me be very brief and to the point. We have soldiers, sailors, airmen, marines, and their families who are consistently exploited by unscrupulous car dealers, payday lenders--a whole panoply of people who flock around military bases to exploit these individuals. They are in a very difficult situation. They have stress because they are on constant deployments. In many cases, military families today have one spouse deployed and one military spouse back taking care of children. I don't have to go much further. The Presiding Officer understands this from his dealings with the USO and families across the country. Let me give my colleagues two examples. I could give you 200 examples. If this was not true, it would be almost humorous, but it is sadly true. This is one I like. This is the ``free transportation to the beach'' ploy. True story: A car dealer from Virginia Beach went to Camp Lejeune and offered free round trips to the beach. These are young marines. If you have been to Camp Lejeune, you know it is not the Paris of North Carolina. It is a place where you need a little diversion. They wanted to go to Virginia Beach. They were given this round trip. They got to Virginia Beach. There was no round trip unless they bought a car from this car dealer. Well, he was caught, lost his license, but reappeared later without a license, making the same ploy. I wish to make a point. I am not condemning car dealers. In my home State, they are great. They do wonderful work for the community. But exploitation by car dealers of military personnel is a significant problem. Seventy-two percent of military financial counselors recently surveyed had counseled Servicemembers on auto lending abuses in the past six months. One other example. Fort Riley, KS. Army Specialist Jennifer Howard bought a car while she was stationed there. It turns out the dealership which arranged her financing charged her for features on the car she never got, such as a moon roof and alloy wheels. In her words: The dealership knows that we're busy, we're tired. We don't take the time, because we don't have a lot of time. It's like get in, get out, do what we got to do. If we get taken advantage of later, we'll deal with it then. That is no way to treat soldiers. It is no way to treat consumers. This liaison would be very important, but I should say it has to have the authority within the bill to actually act against the disruptive behavior of auto dealers, payday lenders, and a whole host of individuals. The rent-to-own people, they are trying to scam our troops. They are trying to scam consumers. Frankly, they don't care if you are wearing a uniform or not, they are out to scam who they can. We need to set up a strong consumer financial protection agency, and we particularly have to have somebody in there watching over the troops. I yield to my colleague.

Mr. REED. Mr. President, I propose to make very brief remarks about this amendment. My colleague from Massachusetts, Senator Scott Brown, will make remarks. We would like to expedite a vote, but I would ask that the yeas and nays on a recorded vote be taken when I conclude and when Senator Brown concludes.

Mr. REED

Mr. REED. Thank you, Mr. Chairman. I look forward to this issue being addressed in the final Coast Guard Reauthorization bill.

Mr. REED. Mr. President, I rise to engage in a colloquy with my colleague from Rhode Island, Mr. Whitehouse, and my colleague from West Virginia, Mr. Rockefeller. Mr. President, I want to thank the chairman of the Commerce Committee for his leadership in advancing this bill. As he, Senator Whitehouse, and I have discussed, there is significant concern with respect to the safety and security of proposed liquefied natural gas, LNG, facilities throughout the country. Given the Deepwater Horizon disaster in the Gulf of Mexico, we know that no system for handling volatile substances is fool-proof. Over the last several years, the people of Rhode Island have been greatly concerned about proposals to develop LNG facilities on or in close proximity to Rhode Island's shores, as well as proposals to transit LNG traffic through our waterways. I have come to the floor on many occasions to express my deep concerns about the wisdom of these projects; not as a matter of reflexive opposition to LNG but as a matter of the appropriateness of siting these facilities with little State control. This includes a proposal in the Commonwealth of Massachusetts that will have significant impact on the State of Rhode Island, as it calls for vessels to transit through Narragansett Bay and off-load at an offshore berth in Mount Hope Bay just outside of Rhode Island waters. Over the years, members of the Rhode Island and Massachusetts delegations have raised concerns about this project, but the most severe impacts of the vessel traffic and related safety and security measures will be on Rhode Island, which has very little authority to influence the process. The Coast Guard has the responsibility of issuing so-called Letters of Recommendation to establish the suitability of a waterway to accommodate this type of vessel traffic and operation. Its determination is critical in the siting LNG facilities. Unfortunately, Rhode Island, like other states, has little recourse to object to the findings or conditions laid out by the Coast Guard, even though the bulk of the vessel activity will take place in its state waters. I believe the state should have a say about the appropriateness of activities in its waterways and should be consulted, especially about the broader impacts of LNG facilities and vessel traffic on other waterway users and on communities. Although the underlying House bill includes a port security title, the substitute does not. While I recognize that and that the Committee will be dealing with port security legislation later this year, I think that it is critical that we act on this issue as soon as possible. I would like to work with the Chairman in crafting that bill, but I would also ask for his commitment to work to address the issues related to LNG facilities during conference with the House on the Coast Guard Reauthorization bill.

Mr. REED

Mr. REED. Mr. President, I take the floor today to talk about an amendment which I have been working on with Senator Scott Brown of Massachusetts. I am very fortunate to have Senator Brown's help, insight, and advice because of his extensive experience not only as a public servant but as a member of the Massachusetts National Guard. As a lawyer, as a company commander, and as someone who has served in various capacities within the Guard, Scott Brown knows from firsthand experience that young troops particularly, men and women of our Armed Forces, can be exploited by unscrupulous business practices, and that it is essential when we create a Consumer Financial Protection Agency that there be a particular and explicit liaison for military issues. Many of these young men and women are not in their home towns. In the context of today's operations, they are returning from duty in Iraq or Afghanistan. They have not been spending a lot of money in Afghanistan because there is not a lot to buy, and they come home and they want to buy a new car or they want to do something, and they can be exploited. That exploitation is particularly hard to bear when it is at the expense of a young person who is risking their life in service to his country. Senator Brown and I are working on a joint amendment which would create an office of military liaison within the Consumer Financial Protection Bureau. The office would educate and empower servicemembers and their families to make better and more informed decisions, and it would work closely with existing personnel with the Department of Defense and the particular services so there is not only a place to go with a complaint, but also proactive information to avoid some of these missteps. It would help monitor and respond to complaints by servicemembers and their families, and it would also coordinate efforts among Federal and State agencies, and that I think is absolutely critical. You have local insurance regulators, you have local attorneys general, you have the Better Business Bureau, you have the Department of Defense offices. We have all of these things, but often, particularly for a young soldier, where to go and get comprehensive one-stop help is hard to figure out. Many times they will approach an office and they will be told, well, you have a good case but we don't do that, and they are sent away. Given the time and commitment they have to devote to their service, this is another burden they have to bear, and we hope we can reduce this burden. Senator Brown and I are working to develop the details of this office. I think it is absolutely necessary. We have looked at--and I have been looking at this problem for years now, and communicating with the Department of Defense, Secretary Gates, and others at the Department of the Treasury about how to protect better our service men and women. We think this initiative will help us in that regard. The Department of Defense and the Government Accountability Office have found that servicemembers are particularly vulnerable to expensive and often abusive products. I will take off my Senate hat and put on my old company commander hat in a paratrooper company. You have 18- and 19-year-old men and women. They receive an enlistment bonus of sometimes $20,000. They don't have a home. They have bought the most expensive stereo equipment they already can buy. What they are looking for is something they can call their own, and usually that is a big, expensive car or truck. When they walk in the door, I think some of these dealers are aware of their vulnerability: lack of information, the short time they are back from an overseas deployment, the time before they are moving on to a deployment. So they are vulnerable. They are also vulnerable in another sense, not just with respect to products but there are so many families now where one of the spouses is in the military and the other spouse is in the military, and that other spouse is deployed overseas. So you have a member of the U.S. military with children, with a father or mother overseas, and they are struggling. Even with the pay they receive at the end of the month, it is a tough go. They are looking for good deals. There are too many people out there who are looking for people who are vulnerable to good deals. That is the reality today in the military. It is a different military force in terms of Operation TEMPO where I served where you were rather stabilized in one area for 3 years at least and then moved to another. Now you have families where the husband returns and 3 months later the wife deploys. That is a huge burden on the children, but it creates a kind of uncertainty and turmoil where financial problems are much more likely to occur. That is another factor of vulnerability, and we have to recognize that. We also understand too that some of the more unscrupulous operators out there know these soldiers are getting steady paychecks, but they might not last all the way through the month. So they are a good sort of subject for some of these ploys. They have steady pay. You can go after them legally to try to attempt to do something, subject to the Servicemembers Civil Service Relief Act and all the other laws we try to protect them with. This is a target population in some respects, I hesitate to say, but unfortunately I think it is true. The Under Secretary of Defense Clifford Stanley, who has been charged to be the champion for quality of life for protecting service families, has stated recently: ``The personal financial readiness of our troops and families equates to mission readiness.'' He reports that 72 percent of military financial counselors surveyed--these are the individuals at DOT, all the personnel whose job is to talk to troops about their well- being--72 percent surveyed had counseled servicemembers on auto lending abuses in the past 6 months. So this is not an isolated incident in one part of the country; this is across the country, across the Department of Defense, and that is a significant situation. It is not just auto abuses. Payday loans, for example. As I said, anybody who is working around a military base knows that come the end of the month, that paycheck will probably be deposited into the checking account, so that is a good bet to lend money to. But the interest rates they are lending at, sometimes the APR is up to 800 to 900 percent. That is staggering. But they are doing it, and they are doing it to young soldiers who have their heads, some of them, looking forward to a deployment. Some of them have not even gotten over the last deployment, and we have to be conscious of that. Rent-to-own loans. This is where you go to a shop and you say I would like to rent a TV for 30 days because you am deploying in 45 days. Then you don't deploy so you keep it, and in some cases you end up paying two to three times the retail price of the appliance. At least individual soldiers have to be informed of those practices and know about it. We have to be sure they are getting that information. Refund anticipation loan is a classic. You are going to get your tax refund and if you let us give you a loan right now, we will take that tax refund. These turn out in some cases to have APRs reaching as high as 250 percent as you are borrowing against your prospective tax refund. Automobile title pawns. Short-term loans are given to soldiers--and again, as a company commander, I never--well, let me see. It was more common to see a soldier in debt than to see a soldier investing in bonds and safe investments. It is the nature of being 18 years old, with some money and the feeling that you have to spend it. But automobile title pawns, short-term loans with very high interest rates to give the title of their car to the lender as collateral. Again, the whole notion to some youngsters in the military about what is a title, what is collateral, when they are looking at $2,000 or $3,000 on the table, that is only details. But when the time comes to pay the loan, they don't, and they lose their $25,000, $30,000 car or truck, and then it is a reality. I think we have to be conscious of this. All of this is compelling in the abstract. It becomes even more compelling when you listen to the stories of individual soldiers. Three years ago, Army SPC Jennifer Howard bought a car while she was stationed at Fort Riley, KS. As it turns out, the dealership that arranged her financing charged her for features on the car that she never got, such as a Moon roof and alloy wheels. You may say to yourself, how could anybody be so gullible? If you are a young soldier who just got back or is getting ready to go and you look at a shiny car and you know you didn't order the alloy wheels and Moon roof but you are not going to take time checking the manifest to see what you are charged with--that has been my experience. A dealer should know that, but apparently, in this case, they charged her anyway. She says: The dealership knows that we're busy, we're tired. We don't take the time, because we don't have a lot of time. It's like get in, get out, do what we got to do. If we get taken advantage of later we'll deal with it then. SGT Diann Traina bought her car from a dealership that didn't actually own it. When it was repossessed, she was stuck with a $10,000 bill. She said: Trying to concentrate on my job and the mission in Iraq and then trying to figure out stuff that's going on at home, it was really stressful. She goes on to say: If there's some type of regulation or agency that's out there to back you up, you know who to go to to complain about somebody if you're experiencing a problem. That is what we want to do--coordinate these activities through a military liaison at a consumer financial protection agency. We want to do that because it is the right thing to do and because if we cannot protect the men and women who are protecting us, then we have to ask seriously whether we are doing our job. I know they are doing their job. With that, I yield the floor.

Mr. REED

Mr. REED. Madam President, the Republican side has submitted a consumer protection amendment that can be briefly summarized: Buyer beware because they won't help you. This flows from the very simple premise that they have announced from the very beginning of these discussions and deliberations they do not want an independent consumer protection agency that has the authority to make rules and enforce rules to protect consumers. So what they have suggested is a classic bait and switch. We will create an ``agency'' within the FDIC, and then we will deny them the power to regulate most of the financial sectors and institutions that affect the daily lives of Americans: payday lenders, car loans, all those things. They are just off the table. So it amounts to a gesture, not good legislative policy. We are working, and we have been working--and Senator Dodd has taken the lead--to ensure that there is real consumer protection built into this Wall Street reform legislation. We believe consumers need information to make good choices. The thrust of our efforts is to ensure that the agency is able to provide that information through simplified forms, through simple products, through those mechanisms that allow men and women who are engaged in raising children, keeping jobs, coaching Little League, to understand what they are putting their resources into. That is not what the Republican amendment is proposing to do. They are creating a six-person council within the FDIC with no real independence and even less authority, and one could question why the FDIC is the logical place to put in a council such as this. They would create an oversight agency but exempt, as I said, virtually an entire financial sector or sectors from oversight. It is not like a watchdog; it is like a lapdog. It is bureaucracy with no bite. The Dodd bill, in contrast, contains a very robust consumer protection provision. It creates a Consumer Financial Protection Bureau with resources--I wish to emphasize resources--and authority to prohibit abusive practices and deceptive financial products, ranging from credit card companies to mortgage brokers to banks and to others. For example, it would hold the credit card companies accountable and eliminate unfair lending practices, such as penalty fees for paying off your debt on time. One of the big efforts we are undertaking is increased transparency for Wall Street, and this consumer protection agency will provide that protection to consumers. Basic economics, Econ 101: In a competitive marketplace, one of the presumptions is perfect information. We have seen, frankly, that individuals on Wall Street have made billions of dollars operating on imperfect information; in fact, one could even suggest deliberately manipulating products so they have the information and the consumer doesn't. I think we were all taken aback when we were listening to the hearings conducted by Senator Levin which talked about Goldman Sachs, and their trader, Fabrice Tourre, described the system in rather evocative terms. In his words: More and more leverage in the system, the entire system is about to crumble any moment . . . the only potential survivor the fabulous Fab . . . standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all the implications of those monstrosities. Well, that seems, to me, very chilling--the fact that somebody would admit they didn't even know the products they were selling to consumers--who assumed not only that they knew but also that they would not be deliberately misleading them. That is an example. The example doesn't stop on Wall Street. It extends out to Main Street, to people with credit arrangements, payday lenders, organizations charging huge interest charges, and it is designed to exploit consumers. The Republican proposal does little, if anything, to prevent that. I hope, on a bipartisan basis, as Senator Schumer suggested, we reject this amendment. It is, as they say in some places, all hat and no cattle. We have an agency, but we have no enforcement powers. We have an agency, but they can't enforce their rules and regulations on certain sectors; i.e., most of the sectors. So if we want to protect consumers and if we want to have efficient markets--I think one of the inaccurate premises that some people are suggesting is that consumer protection somehow is bad for business. I argue strenuously that consumer protection is very good for business. If you take care of the consumer, if they feel, and you provide, valued and good service--that used to be the American sort of maxim. That used to be the American byword for business: the consumer is always right; the consumer comes first. In the Republican legislation, the consumer comes last, not first. The consumer should come first. I hope this amendment will be rejected and that we support not only the underlying Dodd bill, but I think it can be improved. I commend the Senator from Connecticut who has done a remarkable job crafting the consumer protection agency. To accept the Republican amendment would be to turn our backs on consumers and reject essentially the old American maxim that the consumer is always right and the consumer comes first, and it will leave everybody in this country where we are today: buyer beware of the monstrosities in the marketplace.

Mr. REED

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

Mr. REED. Mr. President, yesterday we and the nation heard from Goldman Sachs executives indicating they had no regrets about the financial crisis, a crisis that has left 8.5 million people without jobs and stripped billions of dollars of retirement savings from working Americans. In fact, the Pew Institute released a study that indicates the financial crisis and recession have already cost U.S. households $100,000, on average, in lost wealth and income. That is a huge blow to the families who are struggling to pay for their retirement, to pay for their children's education, and provide a better life for themselves and their children. We have seen, in the last five quarters, because of this financial crisis associated with and connected with the recession, $648 billion less in gross domestic product than was projected initially--$648 billion of productive enterprises. The cost of this crisis is something we all should not only recognize but commit to preventing in the future. We also should calculate the cost not just in terms of gross domestic product and how well executives on Wall Street are doing, who are doing pretty well, but how well the average family in this country is doing, and how well they will do in the future. We must consider how much in terms of their wealth has been diminished, if not lost, in rebuilding our economy. One of the major functions of any financial sector in any part of the world is to efficiently allocate capital to grow domestic product--not to reduce it--to invest in productive enterprise and employ people. The financial sector shouldn't undercut companies or force them to lay off workers. All of this, in the last few months, I think has represented a failure in that basic function of making sure capital is accumulated and then efficiently allocated to productive means. So Wall Street, I think, has a lot to regret about their role, and we have a lot to do to improve the situation, to ensure the regulatory structure is in place, and to set clear rules for the conduct of financial business that will protect families, protect consumers, and protect the taxpayers. This is the third time our colleagues on the other side have blocked such efforts to begin the discussion. We recognize this is a complex topic, with many different parts: credit rating agencies, capital requirements, financial institutions, derivatives. You can go on and on and on. So anyone who implies they have all the wisdom, I think, will find themselves sadly mistaken. But we have to get on with this bill because unless we bring the bill to the floor, we cannot begin to, in the open, talk about those policy issues that people can disagree on-- people have different approaches--and ultimately resolve this and create a better regulatory structure and a stronger foundation for our economy. But in the last several days, this has been, again, ``say no and the problem might go away.'' Well, if they continue to say no, the problem will get worse. We are looking across the globe today at a crisis in Europe because of Greek sovereign debt. It is spiraling. Already, Spanish debt has been downgraded. If we think we are immune from these global currents, both good and bad, we are mistaken. If we do not put in a stronger structure of regulation, the next crisis might not be starting on Wall Street, but the impact on Main Street could be the same, and it could be just as devastating. We have to look forward. We have to move on. The notion that we have all the time in the world and we can sort of nonchalantly go about our business--or in some cases, if it is a political judgment that it is better to resist--is not serving the people of this Nation well. We recognize there are principle differences. Let's resolve them, as we do on the floor through debate, through discussion, and through a vote, and let's move on. We have a lot of work to do. The underlying bill Senator Dodd has brought to the floor already incorporates so many of these disparate views, and I think in a very sensible way. Let me, for the record, recall that legislation like this has been pending for months and months and months. The Presiding Officer will recall--because he participated with me in the first markup last November--Senator Dodd brought a bill to the committee, opened it up to amendment, and it was quite clear there was going to be no serious discussion. In fact, our colleagues on the other side said: We need more time. We want to participate with you. I think it was done with great sincerity. Senator Dodd entertained those proposals for months. From November until a few weeks ago, we were working collaboratively and creatively to try to bridge our gaps and bring a bill to the floor. Well, finally--and somewhat in exacerbation--Senator Dodd concluded this was leading nowhere, except to more delay, if not denial of the great problem we face. So we had a committee markup. Again, it was an opportunity for our colleagues on the other side to bring forth their proposals, their ideas, in a markup in which we would be able to consider their views, vote on them, and then move that bill to the floor. But it was a perfunctory session. They had concluded that, no, they were not quite yet ready to offer their proposals, their ideas, and to engage in the business of legislation. So now the bill is before us, months after we started this process, months after we have entertained and incorporated proposals that have been made by our colleagues because they are very good proposals. It was Senator Corker and Senator Warner--who have done an outstanding job--who structured the whole issue of resolution, that there would be an upfront fund so that financial institutions--not taxpayers--would pay for the failure of a financial institution. Yet when that bill was brought to the floor--or we attempted to do it--that provision, that bipartisan provision was singled out for, shall we say, criticism, if not ridicule, as a perpetual bailout bill. That was a misrepresentation of the bill and it, frankly, contradicted the whole effort, the whole bipartisan effort to come up with something that both sides could support. But this bill incorporates so many different ideas and aspects that have been shared. In fact, it was interesting, in the lead up to this floor consideration, so many times on both sides of the aisle, people would say, routinely: well, we agree on 80 percent of the bill. I think if you have 80 percent of the bill agreed to, at least conceptually, you are probably ready to bring the bill up for debate and to vote. Yet again, the Republican side refuses to do that. They are, I think, assuming, I guess, they have a lot of time. But as you look around the globe, at the crises in Europe, at the stock market falling dramatically yesterday because of Europe, I think we have to move aggressively to protect American families, and that means getting the bill on the floor and voting for it. This bill will make changes that are urgently necessary. Again, the issue of too big to fail--through the extraordinary effort, painstaking effort, the hours of discussions by Senator Warner and Senator Corker, there was a proposal for resolution that effectively ends too big to fail. In fact, Sheila Bair, who is the Chairwoman of the FDIC and was appointed by President Bush, says it virtually eliminates the possibility of a taxpayer bailout. So that is part of it. Strengthening consumer protection. There has been, I think, an unfortunate generalization that consumer protections are bad for business. Frankly, we should have discovered in the last several months that good consumer protections are very good for business. Many of those consumer laws-- which would have protected people seeking mortgages--which were ignored or exempted would have, I think, improved dramatically the mortgage situation. It would have improved business. It would have made that overriding issue of efficient allocation of capital much easier. But when you have very little protections for consumers, they are at the mercy of people who will exploit them for a quick buck. And that is what happened. Mortgages were given to people who were not qualified. Why? Because no one was watching out for them. But not only that, the individual issuing the mortgage did not have, as they say, any skin in the game because they simply sent it in to the big securitization process. Someone got a fee for securitizing it. Someone wrapped it up into a big mortgage-backed security. Someone else wrapped it up into a collateralized debt obligation, which is a collection of securities. Then someone else wrapped that up into a synthetic collateralized debt obligation and sold it off. Not a lot of efficient allocation of capital for productive means, but a lot of fees for investment bankers, securitizers, and mortgage brokers. At the very beginning, good consumer protections would have been an effective way to mitigate some of that damage. They are in this bill. We are attempting to eliminate huge gaps and loopholes in financial regulation. Our regulatory scheme has grown up over many years, in fact, through the life of this country. So we have a national bank authority that was created in the 1860s. We have an Office of Thrift Supervision that was created many years later because of thrift institutions. We have the FDIC, which was created in the 1930s by Franklin Roosevelt as a result of the Depression and the need to insure deposits. We have the Federal Reserve System that monitors local banks and large banks that was created in the Wilson administration. All of them have a little different piece of the action, and all of them have been routinely used in what is termed regulatory arbitrage, to move to the most favorable position for your business, which may not be favorable to the overall economy. Some of the big mortgage lenders that ultimately collapsed started off being regulated by the Office of the Comptroller of the Currency, and then they decided they would have a better deal at OTS. Frankly, if they had an opportunity--if they were still with us--they would be looking elsewhere. Hit and run, I think, was probably the business plan. We have to stop that. This bill takes a strong step forward, consolidating that supervision, by consolidating the Office of the Comptroller of the Currency and the Office of Thrift Supervision, by limiting the supervision of the Federal Reserve over a countless number of small banks, and concentrating their efforts at the big institutions, where their expertise and their focus should make a difference. This is a huge improvement over what the present system is. Yet our colleagues are not recognizing the need to improve and the need to move forward. We have been engaged, through Senator Lincoln and Senator Dodd, with derivatives legislation, which, for the first time, recognizes and regulates those derivatives. There was a great debate here in the 1990s, and through that debate derivatives were left unregulated. Today we have to recognize we have to put them back under regulatory supervision. The legislation creates the steps, the architecture, which will go a long way to prevent some of the problems we have seen. It requires reporting all derivative transactions to a data repository which the regulators will have access to so they can see firsthand in real time what is happening out there. Is there a big buildup in Greek debt? Are there huge positions in credit default swaps on Greek bonds? They can quickly get a macro sense of what is happening. Then, with limited exceptions, all derivatives have to be cleared on a clearing platform. That takes away the bilateral nature of transactions. Someone says: I will sell you insurance on this interest rate for a fee. You give me the fee, et cetera. That is bilateral. If one of these parties is unable to carry out its obligations, the transaction fails. In a clearing platform, there is a central party that assumes the risk of one of the parties failing. It is a mutualization, really, of risk, and it is a step forward. But we have to step even farther than that. We have to push as many of these trades onto a trading platform, not just clearing it and holding collateral, but actually pricing it. Because of the complexity of some of these products, unless there is a market, no one knows the real value. On a trading platform, there is a market value and people can value it because basically if someone will buy it, that is the value. So we have to do that. This legislation goes a long way to doing that. With respect to credit rating agencies, one of the great failures is the credit rating agencies. As to all of these exotic mortgage products that collapsed in value, most of them were rated investment grade--AA, AAA, according to whatever the rating is--and yet they failed. Part of it was because of the way credit rating agencies operate. Senator Levin conducted recently some very good hearings on this issue. The familiarity between the investment bank that is bringing the product to the street and the raters, the interconnectedness, the failure to have the appropriate checks on the models that raters were using, an independent risk analysis within the rating agency that is going to look at these models not for the benefit of who is paying for it but for the propriety and correctness of the model. That is in the legislation. We have done something else too: We have inserted language that would allow someone who has invested their savings through a pension plan or other method to go to court and make the case that they should find out what happened within the rating agency with respect to the poorly rated investment that caused them to lose their savings. Today, these cases are routinely dismissed before anyone can question the rating agency. Our legislation would allow them to get beyond the pleadings stage. But it would also give the rating agencies an affirmative defense. They would have to factually check their models. They would have to actually look at some of these mortgages. Frankly, this might be 20/20 hindsight, but if someone drove out to one of those counties in Florida where there were all of these exotic mortgages but no one seemed to be living there and the communities were deteriorating, I think they would pretty quickly check their rating. That appears not to have been done. For the first time, hedge funds are regulated. They would have to register with the SEC and be subject to registration, notifying the SEC of the size of their pool and other basic information. Well, we have had months of opportunities to share additional thoughts and work together to amend the bill in committee, which was not done, but, more importantly, to begin today--in fact, we should have begun last week--this issue of finally passing a Senate bill that responds to the crisis we saw; that builds a stronger foundation of financial expansion; that protects consumers and taxpayers as well as leads to the increase in the wealth of families, not to the dramatic decrease and decline we have witnessed because of some of these forces at work today in the marketplace on Wall Street, which still have to be addressed. There will be parts of the proposals that come up that will be an attempt to weaken some of these provisions, particularly with respect to consumer protection. Again, I think it flows from the false logic that if it is good for consumers, it is bad for business. Actually, I always thought, in smalltown business, the customer is always right. You believed the customer, made sure you provided value for your product, and made sure he or she would come back because they were happy and satisfied. Apparently, that old-fashioned rule has been tossed out, but I think that old-fashioned rule has to be reestablished. We have seen, as a way to deflect attention from the need to reform and the need to move this legislation, misrepresentations about the bill. I mentioned one: It is a bailout bill. Well, I think that has been dropped because it was transparently misleading. Indeed, this bailout mechanism was a bipartisan product of two of our distinguished colleagues, Senator Warner and Senator Corker. Now we are at the old standby: It is going to hurt business. I will tell my colleagues what has hurt business, and that is the behavior on Wall Street. I can recall that several years ago there was a study by the McKinsey Company that said that if we did not loosen further the already, I think, lax rules, we would lose all the securities business; all of Wall Street would go to England or other places; we would lose thousands of jobs. Guess what. They have lost, unfortunately, thousands of jobs there. And it wasn't because regulation was too stringent; it was because it was too lax. Again, if there is any case to be made for what hurts business, it is irrational allocation of capital; lax rules with respect to consumers; a market driven not by value but by compensation, not by long-term growth but by short-term profit. That is what has cost every family in America $100,000. So if we move purposely and with the input of our colleagues, which we have already accepted, we can establish a framework where business will begin to grow again. So I reject the argument that what we are doing will hurt business. In fact, I think this uncertainty of whether we will have this reform or that reform continues to, at least to a degree, impede capital formation and to impede investments in the country. When there are clear rules of the road, then the economy will again begin to pick up, as it is beginning to pick up for other reasons. If we don't take up this bill, work on it, and pass good legislation, who wins? Well, I will tell my colleagues who wins. It is the big banks that have survived this crisis today, that are reporting record profits. What are they making their money on? Giving loans to small business men and women across America? Investing in municipalities? No. They are making huge profits in trading--betting, in some respects, on how the economy is going to do. Well, we need a situation in which capital is dedicated to growth and to investment and productivity. The speculators will continue to reap billions of dollars of profits. I am sure there are several clever people who are doing quite well over the demise of sovereign wealth in Greece, who have taken short positions on Greek bonds and are making a lot of money. That is not helping us, it is not helping the country, and indeed it is not helping our trading partners across the globe. That, unchecked, will continue. The opaque and unregulated market that I just referred to in derivatives, a $600 trillion notional market. When you talk to people about clearing of derivatives, it is not billions, no; it is trillions of dollars. That market is unregulated, and if it goes the wrong way quickly, the consequences can be devastating. We have seen that with the mortgage crisis. So we have to move. We have to move at every level, not just the big banks, but we have to provide appropriate regulation for people in terms of the mortgage industry so those abuses in mortgages will be corrected. We have to go ahead and look at payday lenders who are charging 900 percent interest, who are stripping people of their hard- won resources. We have to look at the credit card companies. We have passed legislation, but we have to look at what they are doing. If those people--the payday lenders and the mortgage brokers--can continue to operate with impunity, the bankers win. Who loses? Well, consumers lose--paying the excessive rates, seeing their homes devalued, all of that. I think we have to stand up and start the work of legislating. The status quo is no longer affordable, and I think the notion that we will never see another crisis is undercut by looking around. If there are not today some steady hands at the tiller in Europe in terms of the European community and their financial arrangements, the cascading effect of Greece to Spain to Ireland, et cetera, could be another problem we have to deal with. We have lots of work to do, and the longer we delay, the more we are neglecting the real needs of our constituents. I urge that on the next vote we get down to business. Mr. President, I note the absence of a quorum.

Mr. REED

Mr. REED. Mr. President, the recent lawsuit by the Securities and Exchange Commission, SEC, against Goldman Sachs underscores that much still needs to be done to improve transparency and restore confidence in our financial system. Indeed, that is why we must have the debate on Wall Street reform. The nearly \1/2\ of all U.S. households that own securities deserve a strong cop on the beat that has the tools it needs to go after swindlers and scam artists, and pursue the difficult cases arising from our increasingly complex financial markets. Our economy's success depends in no small part on restoring confidence in our capital markets and a smoothly operating capital formation process. The bill I am introducing this afternoon, the Modernizing and Strengthening Investor Protection Act, would improve the ability of the SEC to protect investors by strengthening its ability to bring enforcement actions, addressing issues revealed by the recent Madoff fraud, and modernizing its ability to obtain critical information. In particular, it would enhance the ability of the SEC to hire market experts, strengthen oversight of fund custodians, modernize the SEC's ability to obtain information from the firms it oversees, and clarify and enhance SEC penalties and other authorities. This legislation mirrors a bill that Representative Kanjorski introduced and worked to include in the House version of Wall Street reform. I urge my colleagues to take a look at my legislation during the next few days, as I plan to introduce it as an amendment to the Wall Street reform bill that is about to be considered by the Senate. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. REED

Mr. REED. Mr. President, the recent lawsuit by the Securities and Exchange Commission, SEC, against Goldman Sachs underscores that much still needs to be done to improve transparency and restore confidence in our financial system. Indeed, that is why we must have the debate on Wall Street reform. The nearly \1/2\ of all U.S. households that own securities deserve a strong cop on the beat that has the tools it needs to go after swindlers and scam artists, and pursue the difficult cases arising from our increasingly complex financial markets. Our economy's success depends in no small part on restoring confidence in our capital markets and a smoothly operating capital formation process. The bill I am introducing this afternoon, the Modernizing and Strengthening Investor Protection Act, would improve the ability of the SEC to protect investors by strengthening its ability to bring enforcement actions, addressing issues revealed by the recent Madoff fraud, and modernizing its ability to obtain critical information. In particular, it would enhance the ability of the SEC to hire market experts, strengthen oversight of fund custodians, modernize the SEC's ability to obtain information from the firms it oversees, and clarify and enhance SEC penalties and other authorities. This legislation mirrors a bill that Representative Kanjorski introduced and worked to include in the House version of Wall Street reform. I urge my colleagues to take a look at my legislation during the next few days, as I plan to introduce it as an amendment to the Wall Street reform bill that is about to be considered by the Senate. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. REED

Mr. REED. Mr. President, last month, my State was hit by the worst nonhurricane floods in the history of the State, at least in the last 200 years. Our Governor has preliminarily assessed the damage in the hundreds of millions of dollars, which is a significant figure for the smallest State in the Union. This disaster came at the worst moment for my state. Rhode Island is struggling with an economic collapse that has left it with a 12.7-percent unemployment rate and decimated State and local financial resources. Indeed, many of the homeowners and businesses who were hit hardest by the floods were among those already struggling to make ends meet. I toured the State, along with my colleague, Sheldon Whitehouse, and met with constituents from Cumberland to Westerly, from the north to the south, as they worked to clean their homes and businesses. We could see the turmoil, as well as their physical and emotional strain and stress. They are tired. They are frustrated, and they are asking for our help. I admire the spirit of people who are willing to pitch in and help their neighbors, and that was evident throughout the crisis. This significant blow came on top of the economic blows we have already suffered. A flood like this is difficult in good times and it is truly trying in bad times, as we have seen in Rhode Island. I wish to commend FEMA and all the professionals in emergency management who have come to Rhode Island for their help in the recovery. They are doing a marvelous job. The speed of the response, including from Secretary Napolitano, has been tremendous. She was up there on Good Friday looking at the flood damage. The FEMA teams were on the ground. Deputy FEMA Administrator Rich Serino was there. He visited the damage with me. This is emblematic of the commitment of the FEMA task force. It is not only FEMA. It is also the Small Business Administration. The regional EPA director was there, the regional small business administrator was there. We had representatives from the Army Corps of Engineers and the district engineer. The most emblematic story was told to me in Washington by a Rhode Islander who was visiting. She was a visiting nurse. She said her sister was at home on Easter. She had some flood damage. The doorbell rang, and it was FEMA. They said: We work 7 days a week. Here is the estimate of the damages, and we will be able to help you in this way. Even with this dramatic and effective response, the damage was widespread. It covered every corner of the State. This was the first time we have seen, in my lifetime and going back a long time, not only surface water coming over the banks of rivers--there are some areas that perennially flood, similar to anywhere in the country--this was groundwater. We had been so saturated with rain for weeks and weeks. When the final deluge came, there was no place to hold the water. It came up through cellars, through sump pumps, through everything. There were very few parts of the State, very few homes unaffected by at least minor basement flooding; in some cases, very major water damage. The story of the Pawtuxet River is an example of what transpired. Let me also say that in my course of traveling around, I was reeducated in the development of northern industrial communities. I am looking at the Senator from New Hampshire. The development started with a mill on a stream for water power. Then they built mill cottages around that. Those mills are still there. Those cottages are generally occupied today by relatively low- or moderate-income people. The mill owner, I recall now, put his house on the top of the hill, not around the mill. So that is Rhode Island. That is Massachusetts. That is Connecticut. That is New Hampshire. When these waters flood, you perennially get some communities that see damage from surface water. This is the first time we saw this incredible groundwater as well. We are a community of rivers and mill villages. The Blackstone River is where the American Industrial Revolution began, the Pawtuxet River in Cranston, the Pawcatuck River, the Pocasset River in Johnston and Cranston--they all were above flood stage. The Pawtuxet River, in my hometown of Cranston, on March 15, crested at a record high of 15 feet. Remarkable. Neighborhoods along the banks flooded as homes and businesses were evacuated. I toured those neighborhoods later in the week and saw the damage. Again, along with Senator Whitehouse, I worked to support a major disaster declaration which was promptly granted. The people of Rhode Island appreciate President Obama very quickly supporting a major disaster declaration, not only for individuals but also for public entities, the cities and towns. This is something he did with great speed and great efficiency. I thank him personally. Actually, the initial flooding was around March 12 or 13. Then we got the second deluge. It was a two-stage event. As the rains were falling, one woman profiled on local television looked in exhaustion at the new furnace she just installed. In anticipation of the second flood, there was an attempt to move vehicles, furnaces, et cetera around, to shore up or raise equipment on factory floors. But the rapidity and extent of the rain was such that the flood was there before many people could react. Let me try and give a sense of the damage. This horizontal axis runs south-north under the overpass. This is Route 95, the principal interstate running along the east coast. It was shut down for two days because of flooding. The road was completely inundated with water, completely covered. Then, in the next picture, this is the city of Warwick's wastewater plant, totally engulfed in water. In addition to that, the city of Warwick is also home to our airport. So for 2 days, when you got off a plane, you saw a sign that asked you to respectfully use restrooms someplace else or the Porta-John because the airport could not use their toilets. The whole city asked their citizens to suspend flushing for 2 days. So this impact is something we have never witnessed before. The next photograph is the Warwick Mall, one of the major shopping centers in the State of Rhode Island. It is totally engulfed in water and the inside is flooded. These are stores and retail establishments. They are still trying to reopen it. This facility employs about 1,000 people. They are still out of work. When you a have 12.7-unemployment rate and 1,000 people can't work because they have been flooded, that is adding excruciating pain to something that is already difficult. I must commend the owner of the mall, Aram Garabedian. Aram is indefatigable. Nothing is going to defeat him. Immediately, he was in here cleaning up. It is on the road to recovery and return, but this has been a blow economically to the State. As I said, in Rhode Island, because of our small size and community, there are five or six principal malls. Essentially, 20 percent of our mall sector is out of business. The next photograph is typical of the property damage. This is in my hometown of Cranston. Notice the sign: ``Give this land back to the river.'' The river decided for a moment to reclaim it. This is the result of the surface flooding and the subsurface water coming up. This looks like the entire inside of the home has been destroyed and removed. Here is a hot water heater, a toilet. Although the house is standing, what is inside is basically a shell. This is a homeowner who now has to rebuild their house, essentially, and replace water heaters, toilets. One of the issues we have is that in some of these areas, because of the subsurface flooding, they are not a flood zone. Unless they have recently borrowed money on a mortgage, there is probably little requirement for them to have flood insurance. Typically, in these communities, the houses have been occupied for 20, 30, 40 years by one family. They have either paid off the mortgage or they don't require flood insurance. So many people, frankly, don't have flood insurance. Then, of course, there is going to be wrangling with the insurance companies because, in some cases, where it was just subsurface water, that does not fit their definition of a flood. So depending on your policy, or if you have coverage, there are thousands of homes in Rhode Island that are significantly damaged. The owner has no resources to rebuild unless he gets some assistance. Again, FEMA has been very good for temporary assistance, but we have to look more long term. Finally, this is Hopkinton, RI, which is part of our rural area in the west. This photo shows the scope of the flooding there. This structure is totally surrounded by water. I was in other parts of this area, in another community, Charlestown. There was a bridge that was closed. As you walked across the bridge on the other side, because of the water moving under the ground, it looked as if someone had dropped a 500-pound bomb. It was a huge crater. Now the town has to rebuild the bridge. Of course, they don't have the money to do so. All this is indicative of the situation in Rhode Island. A further point. This photograph was taken a week after the flooding. Notice it is sunny. This is a week after the flooding. These owners couldn't even get to their building after a week. This could have been worse in this particular locale because farther upstream there is a dam, the Alton dam. It was overtopped and the waters were going over it. There was so much concern that it was in danger of collapsing that there was an emergency evacuation order for the town of Westerly, which is a sizable community to the south on the coast. They were afraid the dam would give and a major metropolitan area, in Rhode Island terms, would be engulfed with water. Luckily the dam held, and the damage was significant but restricted to flooding along the Pawcatuck. Within the context of jobs, too, several of our facilities and factories were knocked out. Bradford Printing and Finishing has already let go of its employees. They were underwater. They are still trying to literally get back to work. It has been closed for cleanup. Again, workers are on the street, not because they don't have demand for their product. It is because they can't get to the machines where they are flooded. Another company in northern Rhode Island, along the Blackstone River, Hope Global, an extraordinary CEO Cheryl Merchant, they were flooded in 20005. I was there. I had to take a boat into their factory. This time, in anticipation, they literally lifted the equipment. This is a major producer of OEM for the auto industry, webbing and belts, seatbelts, et cetera. They pushed up all that heavy equipment. The water came in, but it didn't reach the equipment. They are back in production, but the preparations and the cleanup are about $1 million. It is hard for the manager of the plant to explain to the board of directors why they are going to spend $1 million every 5 years just to keep the equipment dry. We have to do something in terms of mitigation. Even in the best times, FEMA would have been necessary. But we are in a very difficult situation. The State is, as we speak, trying to fill a $220 million shortfall in this year's budget. Again, this is a State where $220 million is a significant part of the budget. It is not a rounding error. They are already anticipating a $400 million shortfall next year in the 2011 budget. The bond rating has been lowered once in the last several weeks. It may be lowered again, if this economic distress and this flood damage can't be, in some way, mitigated and supported in terms of cleanup or reconstruction. Frankly, my constituents know--and we all have seen similar scenes of flooding from the Midwest, from the Southwest, from the Central part of America--every time, at least in my recollection, this Senate has stood and provided support for those communities. I have supported emergency expenditures for flooding in communities elsewhere in the country, except really up in Rhode Island because we have never had an experience before of this nature, of this size, of this scope. They, frankly, do not begrudge the aid because, as I sense and as my colleagues and constituents sense, someday we might be in that position where we are going to have to ask for it. Well, we are in that position right now. So for everyone who has been here--and it is a significant number--and asked on behalf of their constituents for help because of a devastating flood, I am joining those ranks. We will have an opportunity, I hope, in the appropriations process through the supplementals to provide additional assistance to the State of Rhode Island, for my constituents to deal with this situation, both the economic distress and the physical damage from this flooding. So, Madam President, I again thank you for the opportunity to talk about what happened, and I will be back again because, as we have responded to the needs of other parts of the country, we ask that we be given the same treatment. I yield the floor. I suggest the absence of a quorum.

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

Mr. REED

Mr. REED. Mr. President, I am here today not only to salute these great Americans but also to talk about the urgency of bringing the issue of Wall Street reform to the Senate for open debate and final passage. We have weathered and witnessed the worst financial crisis in the history of the country. We have seen wealth, trillions of dollars of wealth, evaporate because of this financial crisis. To hear people now talking about, well, this is not a good bill--the question is not whether we should delay further or go forward. The question is going forward with purpose, amending the bill on the floor, if necessary, in an open and transparent way so the American public can see we are moving forward on perhaps their No. 1 priority related to the economy, and economic recovery and financial reform are integrated key elements. We cannot have long-run economic success without fundamental financial reform. We are here today essentially to urge that the anticipated vote on Monday to proceed to the bill be affirmed overwhelmingly to send a message to the American people we are on the job for them, we are doing the work we have to do. We have to deal with a complex and significant legislative measure--but we have to do it now. The time for discussion, the time for consideration privately, has passed. Now we have to act. I think we have to act because we should recognize the status quo is unacceptable. Those on the other side who have been saying: Not now, not now, not now, essentially are defending the status quo. We have to ask several questions. Who does the status quo favor? It favors the remaining big banks and other financial institutions. We have seen, over the last several days, that these banks are reporting record profits, mostly based on trading. Here is another irony. Because of the system we have today, we are in desperate need of economic activity at the local level, the infusion of capital, lending--all those things. Where are the banks making their huge profits? On trading, essentially taking their money and other people's money and not investing in new productive capacity, but betting on financial products. That is not, in my view, what we should be doing at this moment. We have to recognize that if we do nothing, the banks will continue to operate as they have. That, I think, has to be corrected. The second question is, what activities are protected by the status quo? I will tell you. Exotic derivative trading. We saw this week where the Securities and Exchange Commission has made allegations against Goldman Sachs. Now, that will be determined in a court of law. However, the complexity of the transaction engaged in by Goldman and others, the creation of a synthetic collateralized debt obligation, to translate, was essentially picking out some representative mortgage funds and then betting on them. Somebody took the side that said they would still pay; some would take the side that they would default. What did that add to our economic capacity? In fact, one of the ironies of this whole crisis is there was such a proliferation of these toxic mortgage bonds that they no longer could sell them at a profit, so they started essentially creating virtual or synthetic securities. Again, what has it added to the economic productivity of the United States? Not much. In fact, some would argue nothing at all. We have to have a financial sector which performs one of the essential functions of any financial sector, the allocation of capital to productive uses: highways, buildings, education support, all of those things that not only return a profit to the investors but also build up our economic capacity and build up our wealth over the long term. Other activities that will be protected by the status quo include not only derivatives trading, but dark pools of capital, huge private equity funds that are shadowy in terms of their investment strategy, even to regulators, and the credit rating agencies. They are continuing to operate, and, frankly, we have to say their performance in the last several years was disappointing, and that is being very diplomatic. But they will continue to operate as they have in the past because we will not get the reform that is so necessary. Of course, the Wall Street salary structure, the incentive compensation, also will continue to be unaffected. So for all of these activities, if you are comfortable with them, then vote against the motion to proceed on Monday evening. If you are uncomfortable with them, if you do not want to see the remaining banks continue to operate as they have, then you have to vote, in my view, to move forward to debate this bill and engage on this issue. Now, the third question we have to ask is, what does the status quo do for consumers and taxpayers? The answer is very little, if anything at all. We saw in this whole situation consumers who were in some cases misled. In some cases it was obvious they could not afford the credit arrangement they were signing on to, but the incentive on the other side was not to look behind the veneer of the borrower but simply to get the loan closed and then sell it off for securitization profits. We have to change those incentives, and if we do not proceed to this legislation, we do not have a chance of doing that. So we have to move forward. Some have claimed, the Republican leader and others, that this is just a partisan exercise. It has not been a partisan exercise. We have been, under the leadership of Chairman Dodd, engaged in this effort for months and months and months. Some people might have forgotten around here, but we started the markup of the financial reform bill November 19 of last year. We had a bill. Senator Dodd brought it to the committee. We started opening statements, and then everyone said: We have not had time enough to do this. We want more discussion. Senator Dodd, even with the urgency of moving on this measure, said: Fine. I respect my colleagues. I respect the process. We will stop. We will start talking. Well, the negotiations went on and on and on. It was clear there was no sense of urgency on the other side to move to a decisive vote. Then he engaged other Members. Senator Corker and others entered the discussion. I have been discussing derivatives in a very thoughtful way with Senator Gregg for months. But we have reached the point now where we have to take deliberate action and make some decisions. We have to move to the floor, to debate and votes and final passage. This is something we have to continue to move forward. The way to move forward is to vote on the motion to proceed on Monday evening. We have heard claims that this is a bailout bill, which I think would be a huge shock to many of my colleagues on the committee who have been working on this for months and months, Senator Corker and Senator Warner particularly, who crafted many of the provisions in this area. The reality is, if we do nothing, which is the effect of voting against the cloture motion--if we do nothing, we could have a crisis next week. Greek sovereign debt--there is huge turmoil in Europe about Greek bonds, the ability of the Greek Government to pay, the need for support. If those talks collapse and suddenly throughout the financial system there is a rush away from sovereign debt, not just Greek debt but other countries, what will happen? We do not quite know, I suspect, who is holding all of this debt and what are the systemic effects. We have to be prepared for something like that. The notion that this crisis has passed and we can go about our merry way without dealing with these issues is naive. The way to deal with it is to establish a resolution mechanism. Senator Warner and Senator Corker have done a remarkable job of crafting one. One of the questions they struggled with the most is who is going to pay for the resolution. Frankly, they stepped up to the plate today and said: Let's put the banks on the line for the first $50 billion. That makes sense to me because it is clear who is going to pay: not the taxpayer but the banks. But, in any case, we cannot engage in this discussion of the mechanism and how it will finally come out until we bring the bill to the floor, debate it, and vote upon amendments or changes. That is what we have to do. But this legislation is clearly not a bailout for the banks. If it was, they would be supporting it. Frankly, all the newspapers I read suggest the intense lobbying effort against the bill is by the banks, which, coincidentally, seems to favor the position of those who do not want to proceed to the bill. So I think we are in a situation where we have to proceed forward. As I said, if we do not move forward, we are going to have a significant issue of confidence by the American people and others in the stability of our financial system. These are complex, intricate issues. They require debate and discussion. I do not think anyone should be presumptuous enough to stand here and say: We know exactly what to do, and we are going to do it without the consent and without the input of all of our colleagues. But that consent and input comes, ultimately, on the Senate floor through debate, discussion, and voting. Now, again, where are we if we do not take up this measure next week? Well, the $600 trillion market in derivatives will remain opaque, complex, confusing, and a potential vulnerability for our financial system. I say $600 trillion because when we talk about derivatives markets, billions are--you know, that is a rounding error. It is trillions of dollars, and a miscalculation, a mistake, a misjudgment in that market has huge consequences. The big banks who sell complex, toxic instruments to pension plans, essentially taking savings and trading them, gambling with them, in some respects, they will continue to do that. They will not only take pension savings, but they will take municipalities' money in fancy bond arrangements that the municipalities never needed. All of these things will continue. Unregulated mortgage lenders will continue to go out and operate under the originate-and-sell model, which has led to so many problems. Payday lenders that are charging, in some cases, 900 percent interest will continue to be unregulated. Credit card companies, even after our efforts with the credit card legislation, will continue to try to circumvent the rules to maximize their profit. The bottom line is, the people who benefit from delay, from taking the course of action of delay and denial, I would say, because this urge to suggest this is a bailout bill is denying the facts of the bill, will be financial institutions and not consumers and not taxpayers. So, as a result, I would urge all of my colleagues on Monday to vote to proceed to this bill. Again, we have to ask three questions. This will be decided on Monday evening. The status quo favors the banks. If you want to favor the banks, then vote against cloture. The status quo operates to allow all sorts of arcane and exotic activities which we know have posed significant threats to our financial system. If you want these activities to continue unimproved, uncorrected, vote against cloture. The status quo disfavors consumers and taxpayers. So if you want to see them continue to be on the short side of the sale, vote against cloture. I would urge we vote for cloture, we move forward to debate real ideas about how to improve our financial system, protect consumers, and strengthen our economy. I yield the floor.

Mr. REED

Mr. REED. Mr. President, first, let me join Majority Leader Reid in saluting these incredible Americans who are with us today, wounded warriors and Bob O'Malley. As someone who served 12 years in the U.S. Army, my appreciation is profound for what you have done and continue to do. Thank you very much. I have a circuitous connection with the 10th Mountain Division. My classmate, Buster Hagenbeck, commanded the 10th Mountain Division in Afghanistan, and I was there to visit those great soldiers several times. Thank you for your service and thank you for your inspiration.

Mr. REED

Mr. REED. Mr. President, today I introduce with Senator LeMieux and Senator Brown of Ohio, the Teacher and Principal Improvement Act, to foster the development of highly skilled and effective educators. We are slated to reauthorize the Elementary and Secondary Education Act--ESEA--this Congress for the first time since 2001. My top priority for reauthorization is to build the capacity of our Nation's schools to enhance the effectiveness of teachers, principals, school librarians, and school leaders. Decades of research have demonstrated that improving teacher and principal quality as well as greater family involvement are the keys to raising student achievement and turning around struggling schools. Studies have found that more than 50 percentile points of the difference in student academic performance is attributed to teacher quality. The world's top performing education systems invest heavily in supporting and developing teachers. Teachers in top-ranking countries such as Finland and Singapore get 100 hours of fully paid professional development training each year. It is clear that the United States must also increase its investments in our educators to stay academically competitive in an ever-expanding global economy. Unfortunately, every year across the country thousands of effective teachers leave the profession--many within their first years of teaching. A 2003 study by Richard Ingersoll found that one-third of all new teachers quit after three years. That turnover rate increases to nearly half--one out of every two new teachers hired--after 5 years. A report by the National Commission on Teaching and America's Future also estimated that the nationwide cost of replacing public school teachers who have dropped out of the profession is $7.3 billion annually. However, research has shown that comprehensive mentoring and induction reduces teacher attrition by as much as half. New teachers need extra support and guidance. As such, our bill would help schools implement the key elements of effective multi-year mentoring and induction for beginning teachers, including rigorous mentor selection; ongoing mentoring with paid release time; training for mentors; and the use of research-based teaching practices such as the National Board for Professional Teaching Standards. The bill also significantly revises ESEA's current definition of ``professional development'' to foster an ongoing culture of teacher, principal, school librarian, and staff collaboration throughout schools. All too often current professional development still consists of isolated, check-the-box activities instead of helping educators engage in sustained professional learning that is regularly evaluated for its impact on classroom practice and student achievement. Effective professional development is collaborative, job-embedded, and data- driven. Research has shown that this type of professional development has a positive impact on student learning. Research has also increasingly emphasized the important role that effective evaluation systems can play in teacher and principal development. Unfortunately, most evaluation systems nationwide have significant flaws, including a lack of: clear standards of expected performance; meaningful differentiation of teacher performance; ongoing evaluations and classroom observations; and rigorous training of evaluators. As such, our Teacher and Principal Improvement Act would for the first time in federal law require school districts to establish rigorous, fair, and transparent evaluation systems to assess whether teachers and principals are having positive impacts on student learning. If evaluation is done right, it provides teachers and principals with individualized ongoing feedback and support on their strengths, weaknesses, and areas in need of improvement. Principals and school leaders also have a critical role to play in leading school improvement efforts and managing a collaborative culture of ongoing professional learning and development. Research has shown that leadership is second only to classroom instruction among school- related factors that influence student outcomes. As such, this bill would provide ongoing high-quality professional development to principals and school leaders, including multi-year induction and mentoring for new administrators. In this way, we will ensure that principals and school leaders possess the knowledge and skills to use student data to inform decisionmaking, communicate with families and local communities, and design and implement strategies for addressing student needs, including for students with disabilities and English Language Learners. Additionally, our bill recognizes the importance of creating compensated leadership opportunities for teachers to take on additional roles and responsibilities outside the classroom, which will increase collaboration and the sharing of expertise among teachers and staff and improve instructional practices throughout the school. It also seeks to include for the first time in law a requirement that districts conduct surveys of the working and learning conditions educators face so this data could be used to better target investments and support. Another precedent set as part of this legislation is that it requires an independent, formal review of professional development, mentoring, and evaluation programs. This review would look at whether these programs are effectively implemented and raise student achievement; retain effective teachers; improve classroom and leadership practice; and increase family and community involvement. We must ensure that our teachers and school leaders not only have access to high-quality professional development opportunities, but also know whether or not those programs are actually working to improve classroom practice and student learning. Lastly, throughout the bill, school district collaboration with teachers and staff is viewed as a key element, particularly in the development and implementation of the teacher evaluation system. Research has shown that true ``teacher buy-in'' is an important factor in ensuring the sustained success of school reform efforts. In Rhode Island, we have seen in recent months an example of this as the Providence School District, educators, and the local teacher's union partnered together to embark on critical school improvement efforts. I am pleased that the Administration also has recently recognized the importance of teacher buy-in when it awarded the first Race to the Top grants to Delaware and Tennessee--both states that had applications with nearly 100 percent local teacher union support. I worked with a range of education organizations in developing this bill, including the Alliance for Excellent Education; American Federation of School Administrators; American Federation of Teachers; American Association of Colleges for Teacher Education; Association for Supervision and Curriculum Development; Center for American Progress; Educational Testing Service; National Association of Elementary School Principals; National Association of Secondary School Principals; National Board for Professional Teaching Standards; National Commission on Teaching and America's Future; National Middle School Association; National Staff Development Council; National Writing Project; New Teacher Center; New Teacher Project; Pi Lambda Theta; and Teacher Advancement Program. I thank them for their input and support for the bill. I urge my colleagues to cosponsor this bipartisan bill and work for its inclusion in the upcoming reauthorization of the Elementary and Secondary Education Act. Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. REED

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