Jackie Speier

Ms. SPEIER

Ms. SPEIER. Thank you. I thank the gentleman from the great State of California. You know, today we had a hearing in the Financial Services Committee in which we looked at sort of an autopsy of Lehman Brothers. Lehman Brothers is particularly problematic for California, but also for many other States and local jurisdictions because so many of these local jurisdictions had money invested in what were investment-grade instruments at Lehman, and when Lehman went belly up, they lost everything. So in San Mateo County, for instance, $150 million just gone, even though it was prudently invested in investment-grade instruments at Lehman's. And many people lost their jobs, many classrooms weren't built, many developments that were supposed to take place didn't happen. It was interesting today because Mr. Fuld, who was the former CEO, said that Lehman Brothers was risk averse; ironic when a company had $20, $30 billion that basically just evaporated overnight. I think it's really important as we discuss this issue, though, to take us back to how did we get to where we are today? How did we get to a place where everything came crashing down? I would like to just point to the cracks in Wall Street, which I think explains really well what actually happened. If you recall--this is way before our time, certainly--but in the thirties, the Glass-Steagall Act was passed by this very Congress after a horrendous meltdown on Wall Street when we were in the throes of the Great Depression. The Glass-Steagall Act said never again is this going to happen because we are going to keep the banks and the insurance companies and the securities firms all separate, that there was going to be a wall that separated them. That worked perfectly for almost 60 years, and then all of a sudden, in 1996, Wall Street firms came a calling, and they came a calling with, oh, please, let us just get involved a little bit, let us just become financial supermarkets. And so in 1996, the Federal Reserve reinterpreted the Glass-Steagall Act several times, eventually allowing bank holding companies to earn up to 25 percent of their revenues in investment banking. But you know what? Greed is something that is never enough. That wasn't enough. So in 1999 they came a calling to Congress again. This time they said, take down those walls; take down those walls so that we can become these financial supermarkets so we can be able to compete in Europe and across the continents, so that we can be as effective as they are in making money. So in 1999, the Gramm-Leach-Bliley Act was passed by Congress, signed by then-President Bill Clinton. It was promoted by the Chair of the Fed, Greenspan, by Treasury Secretary Rubin, and by Lawrence Summers. And what that bill did, very simply, was repeal the Glass-Steagall Act; all those 60 years of protection down the drain. Then we move forward to 2000. We had a very smart person who was the head of the Commodity Futures Trading Commission at the time. Her name was Brooksley Born. She had worked for a law firm here in Washington for many years and she knew all about derivatives. All of a sudden, she saw the derivative market just escalate. So she suggested that maybe we should just look at this, maybe there should be some basic form of regulation. Oh, no, Wall Street would have nothing to do with that. So she leaves the CFTC. And then immediately they come a calling again, and this time Congress passes a bill that becomes law that says, Congress is prohibited--do you believe this--Congress is prohibited from regulating derivatives. Still not enough. Then, in 2004, it became obvious that Europe was getting a little nervous. And they basically said if these bank holding companies weren't going to be regulated by their countries, then they would be subject to European regulation. Well, our investment banks wanted none of that, so they came a calling this time to the SEC, and by regulation the SEC passed on their own accord--not with congressional support or evaluation--a voluntary regulation to which all of the investment banks would be subject for regulation purposes called the CSE, the Consolidated Supervised Entities Program. Besides giving them the benefit of having a regulator here in the United States so they wouldn't be subject to more scrutiny in Europe, it also did something that was quite frightening when we look back at it. It lifted the leverage cap that was 12-1. It didn't just lift it to 15-1 or 20-1, it raised it to whatever. It took away the leverage cap completely. So, no surprise that when all of these various investment banks became troubled--like Lehman, like Goldman Sachs--they were at 30-1 and even higher in terms of leverage. So there you have what I believe is a pretty clear crack, as you see, in Wall Street that shows precisely what happened. Now, that crack actually got deeper because there was one more. It was a very simple one basically by the SEC and the courts that said that these investment banks were not fiduciaries, that even though they were selling all of these instruments, that since they were taking a percentage and not a fee, that they were not fiduciaries. And by doing that, they had no legal obligation, no legal obligation to say to anyone that they were shorting the very products they were selling, that they had side deals, that they did the very things that now we look at and we think, oh, my God, how did we allow this to happen? So I think that as we bring back this bill--and hopefully that it doesn't get diluted in what was actually passed by the House--we're going to have something we can show the American people that is going to close all those cracks on Wall Street, that we're going to pave it over so that indeed the American people do have the kinds of protections they deserve.

Ms. SPEIER. Thank you for yielding. I think the important message that we are trying to drive home tonight is if you really want to see reform, then follow the money. Follow the $1.4 million a day that's being spent by Wall Street trying to lobby to keep the status quo. Follow the bonuses and the salaries. Follow how the money was moved from one account to another. Follow the shorting that went on in the industry, where they were selling the same products that they were shorting because it was all about making money. We want to make sure that the average American is protected. And that's why it's important to reform the system.

Ms. SPEIER. If you go back to the student aid issue, what we had was an opportunity to take the $60 billion that was being given, for all intents and purposes, to middlemen, the banks, and say, you know, We don't need to spend that anymore. We're going to spend that kind of money on loans to students and not have those middlemen and just have the banks servicing these loans, and you would have thought that everyone would have been supportive of that. Not true.

Ms. SPEIER. Who was protecting whom? Would you yield?

Ms. SPEIER. If the American people speak up, it will happen, much like anything else in this country, but we've got to make sure that the American people are educated about what is really at stake here. I mean it is our kids' futures. It is whether or not there is going to be the kinds of funds in California that are going to allow our kids to go to college because now there has been such a shrinkage in the number of slots available because there is just no money. With a $60 billion shortfall in the State, with so many people unemployed and with the revenues not coming in to States, I mean it becomes a death spiral, and we cannot allow that to happen again.

Ms. SPEIER. Well, if the gentleman would yield, those statistics make the case better than anything we could say or do. Under Christopher Cox, who was then the SEC Chairman and a former Member of this very body who was appointed during the Bush administration, during those years of 2003-2007, to have that kind of reduction in their actions, whether they're disgorgement or enforcement actions, and furthermore to only have 24 employees in that division responsible for the CSEs that were created in 2004, you can understand they were overworked and that, clearly, there was no intention to provide the kinds of safeguards that we needed.

Ms. SPEIER. It happened in 2004, 2005, 2006, and 2007. It was during the time that the SEC had reduced the number of enforcement actions in this country by 80 percent--now, I said 80 percent--and the number of disgorgement actions by some 60 percent. The SEC was asleep at the switch.

Ms. SPEIER. If the gentleman would yield, in the discussion today in the Financial Services Committee on Lehman's--now, mind you, this is an examiner who has been appointed by the court to go through 5 million e- mails and documents, and his report has been presented to the court and to Congress. It was just unbelievable. Repo 105s are short for what Lehman was doing. At the end of a quarter, they were selling off their liabilities to a third party, paying interest on it so that it looked like they were not leveraged as highly. Then, after the quarter was over, they were buying back those liabilities. Those are called repo 105s. Now, believe it or not, they did that over and over again, and the SEC knew about it and took no action.

Ms. SPEIER. I know where you are.

Ms. SPEIER. Follow the money.

Ms. SPEIER. That's correct. So, to answer your question ``are they supportive of it?'' you bet they're not, because they want the status quo to continue as they continue to reap the benefits of the status quo with billions of dollars in bonuses and salaries that they get to take home.

Ms. SPEIER. Well, I guess the best way to give you a little history is to tell you that the financial services industry is spending $1.4 million a day, right here in Congress, trying to convince Members not to support the regulation reform measure.

Ms. SPEIER

Ms. SPEIER. Madam Speaker, on that I demand the yeas and nays.

Ms. SPEIER

Ms. SPEIER. Madam Speaker, I move to suspend the rules and agree to the resolution (H. Res. 1040) honoring the life and accomplishments of Donald Harington for his contributions to literature in the United States.

Ms. SPEIER. Madam Speaker, I ask unanimous consent that all Members may have 5 legislative days in which to revise and extend their remarks.

Ms. SPEIER. I now yield myself such time as I may consume. Madam Speaker, I rise in support of H. Res. 1040, recognizing the life and work of Donald Harington. This resolution was introduced by our colleague, the gentleman from Arkansas, Representative Vic Snyder, on January 26, 2010. The measure was reported to the Committee on Oversight and Government Reform, which reported it out favorably by unanimous consent on March 18, 2010, and the measure enjoys support from over 50 Members of the House. Mr. Harington was born December 22, 1935, in Little Rock, Arkansas, where he spent much of his childhood. It was there as well as in the town of Drakes Creek that he drew inspiration for his novel, set in the fictional town of Stay More. Though he lost most of his hearing at the age of 12, he had a strong memory of the local voices, accents and intonations he had heard as a boy and incorporated them to great effect in his works. Mr. Harington's daring experiments with literary styles made him hard to pigeonhole in the world of literature. But his stories attracted legions of fans and high praise from critics, particularly his 1975 novel ``The Architecture of the Arkansas Ozarks,'' and the 1972 autobiography ``Some Other Place. The Right Place.'' Donald Harington's talents were not limited to the written word. He also taught art history at Bennett College in Millbrook, New York, from 1960 to 1962; at Windham College in Putney, Vermont, from 1964 to 1978; and at the University of Arkansas from 1986 until he retired in 2008. In addition, he shared his talent and wisdom with students at the University of Missouri Rolla, the University of Pittsburgh, and South Dakota State University. Mr. Harington passed away in Springdale, Arkansas, on November 7, 2009, at the age of 73. He is survived by his wife, Kim, along with three daughters from his first marriage, a stepson, a sister, and four grandchildren. Madam Speaker, let us take time to remember and honor Donald Harington for his great contributions to American literature. I urge my colleagues to support this resolution. I reserve the balance of my time.

Ms. SPEIER. Madam Speaker, I now yield for as much time as he may consume to the gentleman from Arkansas, and the author of this resolution, Mr. Snyder.

Ms. SPEIER. Madam Speaker, I continue to reserve.

Ms. SPEIER. Madam Speaker, I yield 3 minutes to the gentleman from New York (Mr. Serrano).

Ms. SPEIER. Madam Speaker, I yield 2 minutes to the gentleman from Minnesota (Mr. Ellison).

Ms. SPEIER

Ms. SPEIER. Mr. Speaker, I would like to inquire how much time we have left, please.

Ms. SPEIER. Mr. Speaker, I yield 3 minutes to the gentleman from Florida (Mr. Hastings).

Ms. SPEIER. Mr. Speaker, I yield 2 minutes to the gentlewoman from Maryland (Ms. Edwards).

Ms. SPEIER. I yield the gentlewoman an additional 30 seconds.

Ms. SPEIER. Mr. Speaker, I reserve the balance of my time.