Richard Shelby

Mr. SHELBY

Mr. SHELBY. I object.

Mr. SHELBY. I object on behalf of Senator DeMint.

Mr. SHELBY. Mr. President, if I can respond, there is no secret hold here. I am objecting on behalf of myself to his unanimous consent request.

Mr. SHELBY. Mr. President, although I don't necessarily believe I will vote against the Levin-Merkley amendment, if it is brought up and debated, a number of my colleagues are not here on the floor and have asked me to lodge an objection. So on their behalf, I object.

Mr. SHELBY. I object.

Mr. SHELBY. Mr. President, I suggest the absence of a quorum.

Mr. SHELBY. I was objecting on behalf of myself and a lot of other Members.

Mr. SHELBY. I am OK on the first one.

Mr. SHELBY. Objection.

Mr. SHELBY. I object.

Mr. SHELBY. Mr. President, I will be brief. I commend both the Senator from Delaware and the Senator from Tennessee for their hard work in this area. This is very arcane. It is difficult, but it is very important. I was hoping we could bake a whole loaf of bread, not a half. One-half is better than nothing--but a whole loaf. What we are doing thus far is Main Street. We are not worried about Wall Street. Wall Street will take care of themselves, as Senator Corker and others have said on this floor. They always have, always will. But it is Main Street, the smaller banks in our communities, in our towns all across the country. If we could, in the wisdom of the chairman of the committee, if we could move to a whole loaf of bread, that would be commendable. I feel like we are not going to do a whole loaf here today because we don't have the votes. But gosh, a whole loaf is always better than half. I yield the floor.

Mr. SHELBY

Mr. SHELBY. It is 5:30 now.

Mr. SHELBY. Mr. President, a key part of the bill we are considering is title VII, which we all know addresses the regulation of the over- the- counter--OTC--derivatives markets. While there is still debate among us regarding the root cause of the financial crisis, there is no debate that the lack of transparency in the OTC derivatives market was a contributing factor to the financial debacle. When Lehman Brothers failed, there were press reports that banks and other large financial institutions had written credit default swaps--we call them CDSs--on Lehman Brothers that could potentially result in $360 billion in cash payouts. As it turned out, though, the number was less than $6 billion. But a lot of needless anxiety preceded the realization that the cash payouts on Lehman Brothers' CDS contracts were manageable. The regulators simply did not have the information they needed to know about the magnitude of the problem they faced. Limited regulatory information also played a role in the demise of AIG. It is worth remembering that AIG's problems arose both in its regulated insurance subsidiaries, which were exposed to the troubled subprime mortgage market through their securities lending programs, and in its financial products unit, which sold credit default protection for subprime mortgage products and other customized derivatives products. AIG's financial products unit, on the strength of its credit rating, built up an extremely large, one-sided book of swaps transactions. The contracts were written in such a way that when AIG's credit rating was downgraded, AIG, you will remember, was forced to post collateral on all these transactions. Regulators at that time did not have the flow of information about OTC derivatives transactions to see this problem building. Without this information, they obviously could not take steps to address the problem. I believe the AIG bailout and the Lehman Brothers failure provided us with one simple lesson that should serve as the basic test for any OTC derivatives legislation proposal. The lesson is that prudential and market regulators must have the tools to properly oversee OTC swaps markets. The lack of transparency regarding counterparty exposures and the lack of adequate regulatory tools made it difficult for regulators to respond quickly and effectively to this financial crisis 18 months ago. Unfortunately, the Lincoln-Dodd derivatives bill fails that most basic test. The Lincoln-Dodd bill does not provide regulators with access to the information they need to do their job. It requires all other regulators to go through the Commodity Futures Trading Commission to get information. It gives only begrudging access to the Securities and Exchange Commission--the SEC--to data about the swaps markets and thus limits the SEC's ability to get the information it needs to oversee the securities markets. Much of this bill reads more like a jurisdictional power grab to some of us than an honest attempt to ensure that all the relevant regulators have the information and the authority they need to do their jobs. I believe the Lincoln-Dodd bill contains a number of other fatal flaws. For example, key provisions in one title directly contradict key provisions in other titles and also in the current law. One provision in the Lincoln-Dodd bill that has gotten a lot of attention is a prohibition on Federal assistance to any ``swaps entity,'' which includes entities that do not handle any swaps. All clearinghouses, regardless of whether they handle swaps, would be precluded from receiving Federal assistance, which is interpreted to include access to the Federal Reserve's discount window. This provision contradicts language in title VIII, which empowers the Federal Reserve to grant discount window access to clearinghouses. Also, the bill imposes a fiduciary duty on dealers when their counterparties are pension plans, endowment funds, and municipalities. As understood in current law, pension plans cannot engage in transactions with entities with which they have a fiduciary relationship. The proposed regulatory framework also poses new risks to the system. For example, the bill anticipates generally imposing a clearing mandate on most market participants as soon as a clearinghouse will accept a swap for clearing. For-profit clearinghouses will have an incentive to clear as many swaps as possible. If they do not properly assess and collect margin for risks associated with these products or do not have sufficient operational capacity, an unanticipated event in the market could topple a clearinghouse and send devastating shock waves throughout the rest of the system. We witnessed that for a few minutes last week. This bill is also anticompetitive because it further concentrates business within existing dealers. The prohibition on Federal assistance, including FDIC insurance, to swap entities means neighborhood banks will be unable to hedge their own interest rate risks, let alone offer swaps to customers who need to hedge their risks. Bank dealers are given preferential treatment with respect to both capital and margin requirements. Another disadvantage in the bill for nonbank dealers is that even the commercial aspects of their business will be subject to bank-like capital requirements, which is an unprecedented expansion of bank-like regulation to the nonfinancial corporations. Nonbank dealers may simply exit the derivatives business and leave the swaps business more concentrated among a few large Wall Street dealers, which is not a good result from a competitive or systemic risk standpoint. I believe the so-called end user exemption contained in this bill is illusory. Main Street corporations that buy swaps in the ordinary course of business to hedge their own business risks will be subject to the same regulatory treatment as Wall Street banks. This means manufacturing firms, power companies, and even beer producers will be required to hold massive amounts of cash and other collateral simply to engage in risk management. I believe this will work as an anti-stimulus plan to pull resources out of the economy, hurt growth, and slow job creation. It will also lead to price increases and price volatility. For my colleagues interested in increasing their constituents' cooling costs in the summer or heating costs next winter; for those interested in seeing the price of orange juice, cereal, lightbulbs, medicine, office supplies, building materials, cars, and computers rise; for those who would like to make the overall cost of living for all Americans go up and the prospect of getting a job go down, the Dodd-Lincoln bill is for you. Finally, I believe this bill is unworkable as it is now written. The derivatives title is the one piece of this legislation that will be tested every day. The bill would make massive changes in a huge market in 180 days without the usual notice-and-comment rulemaking period that allows for broad public input during that time. Neither agency has the staff it needs to write or implement the rules at this time. There will be enormous operational challenges for the SEC and the CFTC as they gear up to monitor and receive data on all swap transactions for which there is no data repository. Companies all across the United States will face operational, legal, and financial challenges as they strive to come into compliance with record-keeping, reporting, capital, margin, clearing, and business conduct requirements. Don't just take my word for it. Check for yourself. Take the words of a recent Bloomberg article, which was aptly titled ``How `Hard to Fathom' Derivatives Rule Emerged in the U.S. Senate'' or take the words of the National Association of Manufacturers, which warned that the end-user exemption ``is not strong or clear enough. In addition, other provisions in the derivatives title could effectively eliminate the exemption for many companies, and in some cases, subject them to capital and margin requirements or higher costs.'' Take the words of a well-respected lawyer in a memo to his clients which contained the following criticism of the Lincoln-Dodd bill: Ordinarily, in writing with regard to a proposed law, the expected role of the law firm lawyer is to provide a description rather than commentary. In the case of the Lincoln-Dodd bill the law firm lawyer attempting a noncommittal description must confront the following problems: (1) the Lincoln-Dodd bill's substance is inconsistent with its stated purposes; (2) it would give a degree of discretionary power to the U.S. Government that is far out of the ordinary; (3) the Lincoln-Dodd bill is loosely drafted in even its key provisions; (4) it could make for radical changes in the financial system that seem not to have been considered; (5) the Lincoln-Dodd bill would likely motivate institutions to move jobs to Europe, damaging the U.S. economy and particularly the northeastern financial center economy; (6) it would discourage banks' capital market and real estate lending in the United States by increasing their risks; and (7) the Lincoln-Dodd bill would hurt banks' profitability at a time when they are struggling. Or take the words of an industry representative who urged us to change a certain provision that would prevent pension plans and government agencies from getting the services they need, and another provision that could force purchasers of swaps into deals with less creditworthy counterparties. Or take the actions of my colleagues on the other side of the aisle. While several of them have privately admitted that they fear the wrath of the administration for speaking out publicly against the Lincoln- Dodd derivatives bill, their actions speak louder than their silence. They are apparently hard at work, we know that, behind closed doors, trying to make numerous last-minute changes to this flawed bill. Or take the words of my colleague from Connecticut, Senator Dodd, for whom I have a lot of respect, the chairman of the Banking Committee. He was quoted earlier this week saying: We still have work to do on [derivatives]--there's no question. We have always known that. So a lot of people are spending a lot of time trying to come to some common points on this. I agree with the committee chairman; the derivative title needs a lot more work. Fortunately, that work has already been done: the substitute derivatives bill that we offer as amendment No. 3816, the Over-the- Counter Swaps Markets Transparency and Accountability Act of 2010. This amendment was crafted and cosponsored by several members of the Agriculture and Banking Committees. The substitute derivatives bill is a bipartisan product. The bill is built from the framework of the Chambliss-Lincoln bipartisan process. It also incorporates key concepts from the Gregg-Reed bipartisan working group that was formed by Chairman Dodd himself to hammer out real derivatives reform. The substitute derivatives bill is also a multicommittee product. My colleague from Georgia and I appreciate the input from the Agriculture and Banking Committees, as well as the important input from the Judiciary Committee, on provisions that strengthen protections for customer funds in the event of a counterparty bankruptcy. The derivatives substitute amendment addresses five key areas of reform: introducing regulatory transparency and regulatory authority over the OTC swaps markets, mandating clearing for Wall Street dealers, minimizing threats to the financial stability of the United States, preserving Main Street's ability to hedge their business risks, and improving public transparency. I will briefly explain each of the five areas of reform. First, we address regulatory transparency and regulatory authority. I believe we must repeal the statutory provisions that prohibit regulators from overseeing the OTC swaps markets and give them access to the information they need so they can do their job. Second, we mandate in our amendment clearing for Wall Street dealers. We must encourage the clearing of derivative transactions among Wall Street dealers and dealer-like firms in well-regulated clearinghouses. This will account for a combined 80 percent to 90 percent of all OTC derivatives transactions. Third, we minimize threats to the financial stability of the United States. We must prevent the concentration of inadequately hedged risks in individual firms or central clearinghouses. Fourth, we preserve economically beneficial hedging for Main Street businesses. I believe we must ensure that so-called corporate end users can continue to hedge their unique business risks through customized derivatives. Main Street businesses do not pose any threat to the financial stability of the United States. In fact, prudent use of derivatives for hedging makes their businesses, the financial system, and the economy safer. The prudent use of derivatives enables businesses to protect themselves from changes in interest rates, swings in foreign currency, exchange rates, and the changing prices for raw materials that all of our manufacturers use. If businesses in America are not able to use derivatives or if the cost of using derivatives increases, they may choose to move operations overseas or curtail business operations, which will mean the loss of jobs when we really need jobs. If they must refrain from hedging their risks, prices will go up for all our consumers--all of us. Fifth, we improve, in this amendment, public transparency. Without mandating that swap trades must occur on an exchange, we must direct regulators to provide investors and other market participants with information about recently executed transactions for the purpose of helping them to mark existing swap positions to market, make informed decisions before executing future transactions, and assess the quality of transactions they have executed. The Lincoln-Dodd derivatives title does not achieve these reform objectives but, in fact, threatens to stymie real reform. The substitute derivatives amendment we offer represents a change in course from the Lincoln-Dodd bill. The substitute amendment is a strong bill that offers real reform. This is why the National Association of Manufacturers has indicated that all votes related to the Chambliss- Shelby substitute amendment, including procedural motions, may be considered for designation as key manufacturing votes in this Congress. I think it is important to American business that we adopt this substitute.

Mr. SHELBY

Mr. SHELBY. Madam President, that was not the end of the story, though. More than 1 year later, we tried again to pass these important reforms. The Banking Committee held more hearings leading to the markup of S. 190, the Federal Housing Enterprise Regulatory Reform Act of 2005. I will not read my entire statement from this markup, but I will read a part of it that describes the commonsense steps that we were attempting to take with our newest effort to pass then GSE reform. I quote from that markup: My legislation creates a new regulator with combined oversight for both the safety and soundness and the housing mission of Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System. The new regulator will have general regulatory authority over all housing GSEs, including enhanced authority over capital requirements, and enforcement and prompt corrective action authorities that are comparable to those of the bank regulatory agencies. Among other enhanced regulatory authorities, the bill we will consider today includes clear direction on portfolio review for compliance with safety and soundness, mission and systemic risk. Under this proposal, the enterprises are permitted to hold those assets which promote the enterprises' mission in the housing market. The bill also transfers the product review function from HUD to the new regulator and creates a two-tier approval process through which the enterprises must receive approval prior to offering any new product. The bill also establishes new criteria for approval of a product that will ensure the enterprises remain focused on their statutory mission of facilitating a secondary mortgage market. The new regulator will also have the power to conduct an orderly resolution of a failing or insolvent GSE through a receivership process. This clear and definitive process for dealing with a troubled enterprise is a critical tool for the credibility and strength of a new regulator. Madam President, unfortunately, the Democrats did not share my view of increasing regulations on the GSEs, and their comments during the second attempt to pass meaningful reforms are telling. One of my Democratic colleagues stated then, ``When the sink is leaking, you do not tear down the house, especially if the house has served you well.'' Another recalled a critique he read of the bill before the markup, which claimed, ``It is like trying to cure the common cold with chemotherapy.'' In fact, at one hearing, one of my Democratic colleagues expressed an interest in hearing how the roles of the GSEs might be increased, when he explained: I am not only interested in hearing about the role GSEs currently play in the mortgage market, I am also interested in how their commitment to home ownership and affordable housing can be expanded. In the end, the result of our 2005 markup was the same as our 2004 markup--a strict party-line vote with all 11 Republicans supporting the reforms and all 9 Democrats opposing them. Unfortunately, the Democrats once again sided with Wall Street and the special interests by rejecting GSE reform and any attempt to move the legislation beyond the Banking Committee. Madam President, I ask unanimous consent to have printed in the Record a copy of that recorded vote in the Banking Committee.

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

Mr. SHELBY. Madam President, as part of the debate on the McCain- Shelby-Gregg amendment, I wish to take this opportunity this afternoon to discuss the history of Fannie Mae and Freddie Mac from my perspective. By doing this, I want to emphasize past Republican attempts at regulating and reforming these institutions, while also discussing their role in the financial crisis. The government-sponsored enterprises that we call Fannie Mae and Freddie Mac were key players in the collapse of the U.S. housing market. Their multitrillion dollar portfolios gave them the purchasing power to drive markets. In addition, false presumptions about their housing finance expertise and their connections to the government gave them further power to influence the housing market. And let us not forget the GSEs' nationwide lobbying and public affairs apparatus that was designed to keep reformers at bay and their supporters flush with cash. When the GSEs began to buy subprime securities, other firms, including most of the Wall Street banks, took this as a signal that subprime mortgage securities were safe and worthwhile investments. In effect, Fannie Mae and Freddie Mac placed the Good Housekeeping ``Seal of Approval'' on these risky instruments. As a result, the rest of the market engaged in this practice, and the race to the bottom began. Ultimately, the GSEs' collapse lit a wildfire that burned throughout the financial markets. Due to their miscalculations, Fannie Mae and Freddie Mac have been placed in conservatorship and have already cost the taxpayers well over $100 billion. Just last week, we learned that the GSEs will need another $20 billion in taxpayer assistance for their losses during the previous quarter. This did not have to happen. For years, the warning signs were flashing, and Republicans made multiple attempts to adopt the necessary reforms. Unfortunately, those efforts were opposed by Democrats in the Senate Banking Committee and ultimately caused the many efforts put forth by Republicans to stall in the Senate. In 2003, as chairman of the Banking Committee at that time, I held multiple hearings on proposals for improving the regulation of the GSEs. I wish to read a portion of my opening statement from one of those hearings. I quote from that time: The enterprises are large institutions. Collectively, Fannie Mae and Freddie Mac carry $1.6 trillion in assets on their balance sheets and have outstanding debt of almost $1.5 trillion. The Federal Home Loan Bank System is not far behind, with combined assets of over $780 billion and outstanding advances to member institutions of $495 billion. Due to the importance of the housing GSEs' mission, and the size of their assets, I believe that the enterprises require a strong, credible regulator. I further read from the statement then: I remain concerned that the current regulatory structure for housing the GSEs is neither strong nor credible. At this same hearing, it became apparent that the two parties had very different perspectives regarding the need for reform. One of my Democratic colleagues noted--and it is in the record: There is an old expression, if it ain't broke, don't fix it. I think some of us here in the Senate believe that when we try to fix things that aren't really broken, we can end up doing more harm than good. Notwithstanding the mindset on the other side of the aisle, my Republican colleagues and I persevered, and we remained engaged in the effort to reform the GSEs by holding numerous hearings and closely tracking the GSEs' activities at that time. We decided those who believed ``things aren't really broken'' were wrong. In the face of strong Democratic opposition and a relentless lobbying campaign by the GSEs and their supporters, we proceeded with a markup of the Federal Housing Enterprise Regulatory Reform Act of 2004. I wish to again read portions of my brief opening statement from that markup which lays out the issues and the responses we crafted to address the problems of the GSEs then: This afternoon the committee will consider S. 1508, a bill to address regulation of the housing GSEs. Today, we are faced with the most important decisions considered by this committee in years--determining the strength, independence and credibility of regulation of our nation's Government Sponsored Housing Enterprises. The strength, independence and credibility of this regulatory system have tremendous implications for the future health and vitality of our housing markets, our capital markets, and the economy as a whole. I continue to quote the statement: Freddie Mac and Fannie Mae currently have $1.7 billion debt outstanding. To provide some perspective, our nation's Treasury debt in the hands of the public stands at just over $4 trillion. The Federal Home Loan Bank System has also grown significantly since the 1990s and has a vastly expanded membership base. Its current regulator is not up to the task of providing adequate oversight of its significant role. My statement continued: Fannie Mae is the second largest financial institution in the United States. Freddie Mac is fourth. Their debt is held by foreign central banks, insurance companies, money center banks and community banks. Because of the interest rate risk these GSEs must manage, they have an extensive network of derivative contracts. Should one of these institutions encounter significant financial difficulty it could make the S&L crisis pale by comparison. I was here speaking as an early member of the Banking Committee, as was Senator Dodd, during the bailout of the S&Ls. And it was no pretty matter. It ended up costing the taxpayers at least $130 billion. I continue: This experience has only reaffirmed my resolve to ensure such a debacle never revisits the taxpayer. And, quite simply, the real truth is we cannot afford a crisis of the magnitude a failing GSE would pose. I approach this markup today with a firm appreciation of the gravity and relevance of what we do here today. I state again, as I have before--I support the housing missions of the GSEs. Home ownership is the primary source of wealth for many Americans. It fosters strong communities and promotes stability for children and families. But, and I believe there is consensus in this Committee on this one point at least, they are not well-regulated and, therefore, pose significant risk to the taxpayer and the markets they serve. To be clear: they are not well-regulated because the regulatory structures and authorities that Congress created are insufficient and weak by design. And that is what the draft before us is all about. Reaffirming the important mission of GSEs, creating a regulator that has all the tools and independence that other first class financial regulators require, and protecting the taxpayer. These are the guiding principles that animate the draft that I have put forth before the Banking Committee today. Unfortunately for the taxpayers of this country, politics got in the way of advancing credible public policy then. Apparently, the Democrats felt it was better to block necessary change, adhere to the status quo, and ignore the risk to the financial system, all while leaving the taxpayers fully exposed. We, the same Republicans who have been characterized by Democrats as being pro-Wall Street and antiregulation throughout this process, were trying to create a stronger regulator, raise capital standards, reduce risk taking, and put in place a resolution regime that would limit taxpayer exposure in the event of a firm failure. That was a number of years back. I wish to revisit the words of one of my then-Democratic colleagues who made the following statement--and it is in the record--as we debated the merits of the Republican GSE reform bill at that time: Lord only knows where the economy would be today if it were not for the stability of the housing market in the midst of so much turbulence and the ability of Americans to draw down some of their home equity to engage in consumer purchases. Then, as we stood on the precipice of a housing and financial meltdown, my Democratic colleagues were opposing more regulation and promoting more consumer spending. As if that were not bad enough, we were encouraging homeowners to raid the home's equity to finance their purchases. And look where it brought us. Another Democrat took issue with the fact that we attempted to give the regulator the power to place a GSE into receivership: Receivership, first, it does not have to be in the bill, but, second, to allow a regulator who may not like this institution to then sort of dole out little pieces of it one way or another and weaken the fundamental structure of Fannie and Freddie easily leads to its demise. I am not sure whether my colleagues then understood the basic concept behind establishing an orderly resolution process, but I hope the lesson has now been learned. Ironically, Democratic opposition to strong reform actually produced the exact outcome my colleague feared. When reform stalled in the face of Democratic objections, investors once again viewed Fannie Mae and Freddie Mac as ``too big to fail.'' They were confident that Congress and the U.S. Government would never allow them to go under. This, of course, gave the GSEs a significant financing cost advantage which led to their explosive growth and excessive risk taking. Finally, and most telling, one of my Democratic colleagues was concerned about how Wall Street might interpret the regulatory changes that Republicans were advocating, stating: It is a fact that just mere speculation about the prospects of some provisions in the bill is sending shock waves through Wall Street. Really? When Wall Street became concerned that our legislation at that time would provide a stronger regulator, require higher capital standards, mandate less risk taking, and establish a well-designed resolution regime, the Democrats came to Wall Street's rescue, not the Republicans. When the choice was between Main Street and Wall Street, the Democrats made it absolutely clear whose side they were on. They chose Wall Street, and Wall Street ultimately paved the road that led to this collapse. I ask unanimous consent to have printed in the Record a copy of the recorded vote of the proceedings of that day in the Senate Banking Committee. That result was a party-line vote with all 12 Republicans voting for GSE reform and all Democrats opposing it.

Mr. SHELBY. I would like to point out another bit of irony right now. Many of my colleagues who recently complained about the process regarding consideration of this bill were some of the same people who took every measure to block all consideration of GSE reform. Actions have consequences, and in this particular instance, they were almost immediate. As soon as it was apparent that GSE reform was dead, Fannie Mae and Freddie Mac took steps to dramatically increase their risk. The Government Accountability Office, GAO, detailed this in a September 2009 report. The GAO discovered that in 2004 and 2005, the enterprises: . . . embarked on aggressive strategies to purchase mortgages and mortgage assets with questionable underwriting standards. For example, they purchased a large volume of what are known as Alt-A mortgages, which typically did not have documentation of borrowers' incomes and had higher loan-to- value ratios or debt-to-income ratios. Furthermore, purchases of private-label MBS increased rapidly as a percentage of retained mortgage portfolios from 2003 to 2006. By the end of 2007, the enterprises collectively held more than $313 billion in private-label mortgage-backed securities, of which $94 billion was held by Fannie Mae and $218.9 billion held by Freddie Mac. Recently, Daniel Mudd, Fannie Mae's former chief operating officer and chief executive officer, testified: While the market was changing, Fannie Mae struggled to meet aggressively increasing HUD goals. The goals were extremely challenging, increased significantly every year, and permitted no leeway to account for the challenging lending environment. Certain mortgages that may not have met our traditional standards could not be ignored. While Mr. Mudd may be correct that these mortgages aided their ability to meet their HUD goals, it also should be noted that the GAO in this same report did not see these purchases as a benefit to their mission, stating: The rapid increase in the enterprises' mortgage portfolios and the associated interest-rate risk did not result in a corresponding benefit to the achievement of their housing mission. Ultimately, this increased risk played a significant role in the demise of Fannie Mae and Freddie Mac. I would like to read one final section of that 2009 GAO report here this afternoon. According to the Federal Housing Finance Administration, while these questionable mortgage assets accounted for less than 20 percent of the enterprises' total assets, they represented a disproportionate share of credit-related losses in 2007 and 2008. For example, by the end of 2008, Fannie Mae held approximately $295 billion in Alt-A loans, which accounted for about 10 percent of the total single-family mortgage book of business. Similarly, Alt-A mortgages accounted for nearly half of Fannie Mae's $27.1 billion in credit losses of its single-family guarantee book of business in 2008. At a June 2009 congressional hearing, former OFHEO Director James Lockhart said that 60 percent of the triple-A rated private label MBS purchased by the enterprises had since been downgraded to below investment grade. He also stated that investor concerns about the extent of the enterprises' holdings of such assets and the potential associated losses compromised their capacity to raise needed capital and issue debt at acceptable rates. Madam President, we all know what happened once they were unable to raise capital, but let's also remember the consequences that followed our failure to properly regulate Fannie Mae and Freddie Mac. Charles Duhigg of the New York Times, part of a group of journalists who produced ``The Reckoning,'' a series that explored the roots of the financial crisis, wrote in 2008 that: The ripple effect of Fannie's plunge into riskier lending was profound. Fannie's stamp of approval made shunned borrowers and complex loans more acceptable to other lenders, particularly small and less sophisticated banks. James Lockhart supported this conclusion in his testimony before the Financial Crisis Inquiry Commission on April 9 of this year when he observed that the GSEs: . . . indirectly encouraged lower standards by purchasing private label securities. They also encouraged lower standards by not aggressively pursuing the obligations to repurchase mortgages if they did not comply with the enterprises' underwriting requirements. Madam President, during the debate on this bill before us, we have heard numerous times that we need to have a tighter grip on Wall Street to prevent those large Wall Street firms from harming small businesses on Main Street. If only my Democratic colleagues had been less concerned with Wall Street's reaction in 2004 and 2005, perhaps we could have protected not only those less sophisticated smaller banks on Main Street but also the millions of consumers caught up in the resulting inflated housing market and the millions of taxpayers who have had to foot the bill for the resulting debacle. Instead, the stalling of this legislation by Democrats at that time ended any attempts of meaningful GSE reform until mid-2008, when Fannie Mae and Freddie Mac were already in serious trouble. The simple truth is that we didn't act when we could have effected real change. Republicans were ready to enact real reform and-- unfortunately for the taxpayer--Democrats were not. Let's not make the same mistake again here today. The McCain-Shelby-Gregg GSE amendment takes several important steps to reform the GSEs. It provides transparency to the conservatorships of the GSEs by establishing much needed investigative oversight. It also requires Fannie Mae and Freddie Mac to be included in the Federal budget as long as they are in conservatorship or receivership status. It reestablishes taxpayer protections that were abolished by the Obama administration last Christmas Eve, and it requires that Congress be involved in any decision to spend additional resources to stabilize the housing markets. Finally, it establishes a definite end to the ongoing conservatorships of Fannie Mae and Freddie Mac and paves a responsible path forward by refocusing their efforts, installing proper safeguards, and untangling the U.S. taxpayer from this mess. I urge my Democratic colleagues to ignore Wall Street and the special interests lobbying against this amendment. Join the Republicans in doing something good for the American taxpayer--support the McCain- Shelby-Gregg amendment. I yield the floor, and I suggest the absence of a quorum.

Mr. SHELBY. Mr. President, how much time is remaining?

Mr. SHELBY

Mr. SHELBY. Mr. President, reserving the right to object, I ask the chairman, after the Corker amendment is disposed of, is it possible to bring up the Klobuchar-Hutchison amendment and have a debate and vote tomorrow?

Mr. SHELBY. We have no objection to the Bennet amendment.

Mr. SHELBY. Can they have a vote tonight?

Mr. SHELBY. Can we agree on that, to have a vote at what time in the morning?

Mr. SHELBY

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

Mr. SHELBY. Mr. President, I ask unanimous consent that after the McCain amendment is disposed of, the next amendment in order be the Corker amendment--the next Republican amendment--dealing with underwriting.

Mr. SHELBY. I rise today to support the Sanders amendment to bring transparency to the Federal Reserve. I believe this amendment is needed because the Federal Reserve has abused its independence. The Federal Reserve has repeatedly assumed and exercised vast fiscal powers under the guise of ``monetary policy.'' It has sought to escape accountability for these actions by claiming that its independence places it beyond the scope of congressional oversight. To allow any agency, including the Federal Reserve, to exercise the immense powers now wielded by the Fed with so little accountability is simply incompatible with our constitutional system of government. Congress granted the Federal Reserve independence with respect to monetary policy on grounds that ``monetary policy'' was a technical, nonpolitical task that did not put taxpayers at risk. Unfortunately, the Fed has failed to stay within the limits envisioned by Congress. Over the past 3 years, the Federal Reserve's balance sheet has exploded to more than $2.3 trillion, with much of the increase related to actions that had little to do with monetary policy and more to do with bailouts, fiscal policy, and plain politics. Although the Fed likes to pretend it is independent and removed from politics, the reality here is that the Board of Governors of the Federal Reserve is one of the biggest political players in town. Ironically, while the Fed is fighting this amendment, the Fed remains silent about other measures that would compromise its independence. Why? The answer is politics. When it serves its politics, the Fed is happy to selectively sacrifice its independence. For example, the Dodd bill compromises the Fed's independence by having the Fed directly fund the Democrats' new consumer bureaucracy. This establishes a dangerous precedent. Anytime Congress needs a funding source, it can now go outside the budget process and have the Fed print money. Yet the Fed has remained remarkably quiet. Why? Again, politics. The Fed's silence should come as no surprise given the close political ties between the Board of Governors of the Federal Reserve and the Obama administration. The Board of Governors has clearly decided to help the Obama administration advance its legislative goals. The Fed cannot have its cake and eat it too. If the Fed wants to be independent, it should defend its independence consistently but otherwise should stay out of politics. On the other hand, if the Federal Reserve wants to be political, it should not expect Congress to treat it as a so-called independent, nor should the Fed expect that its nonmonetary policy actions are exempt from congressional oversight. These activities, even when conducted by FOMC, are fiscal or regulatory actions that involve taxpayer dollars and policy judgments. They are no different from other policy decisions made by the executive branch. Accordingly, I believe Congress has a constitutional duty to oversee these activities. Unfortunately, the Fed often acts as if Congress should be kept in the dark. It uses this independence as a shield to hide its actions from congressional oversight, including its bailouts of AIG and Bear Sterns. No agency should have the fiscal and regulatory powers exercised by the Fed and not think it has to be fully accountable to Congress. It should. It is my hope this amendment will be the first step in moving the Fed back to its more limited and traditional role in our regulatory and constitutional systems.