Hedge Fund Registration Act of 2007

Madam President, as to that last unanimous consent agreement, let me translate that into English. Sometimes these unanimous consent agreements get a little confusing. What we are going to try to do over the remaining 3\1/2\ hours or so is to divide the time equally. The minority side has agreed to limit their Members to 10 minutes each. I have not made a similar request here, but I will at some point if Members are not understanding of the desire of everyone to be heard--or almost everyone--on this matter.

At a point in the next few minutes, I will share some remarks that will explain how this bill has arrived to the point that it has and why I think it is important we support this effort this evening.

Again, I am very grateful. I will have some comments to make about Judd Gregg, my colleague from New Hampshire. Certainly, Max Baucus, the chairman of the Finance Committee, has been an incredible ally and supporter over these last 2 weeks trying to fashion something that would give us a sense of confidence about emerging from this economic crisis. But I will reserve some comments in a few minutes about all that.

I see my colleague from Tennessee, who I would like the Record to reflect, while he is, I think, the most junior member on the minority side in the Banking Committee, his contribution should never be calibrated by the seat in which he sits in terms of seniority. I want my colleagues to know while Bob Corker has not been a longtime Member of this body, his contribution is that of a very senior Member of this body. It has been invaluable.

He is knowledgeable, thoughtful, pragmatic, and made wonderful and comprehensive suggestions to the product we have before us today. I want my colleagues to recognize that. So I thank Senator Corker of Tennessee for being a very good Senator in a moment such as this, which is a sad day, as I said earlier, but a day which we must address.

So with that, let me yield the floor for Senator Corker to make some comments.

Madam President, I thank my colleague from Tennessee. Again, I appreciate his tremendous efforts that have brought us to this moment.

Amendment No. 5685

I have an amendment at the desk and ask for its immediate consideration.

Madam President, I ask unanimous consent that the reading of the amendment be dispensed with.

Madam President, I wish to take a few minutes to describe this amendment to my colleagues at this hour. I wish to talk as well about some of my colleagues who have helped us get to this point.

There is a crisis in our country. That has been said so many times now. I hope the impact of that statement is not being lost because of the repetition of it. We need to address it swiftly and forcefully. That is why we are here today.

Normally, when you talk about bringing up a bill, there is a certain amount of joy involved in putting something together that you think is proactively going to make a difference. In this case, we are coming together around a proposal and a bill that is in response to a situation that has angered millions of Americans and angers most of us here to be in this situation but also heightens the sense of responsibility that requires us to act. Therefore, we will spend the next few hours sharing with each other, as well as with the American people, why we are in this situation, to some degree, but clearly what our response is to it and our hopes that this proposal will make the difference that many Americans expect.

If Americans doubt we are living in perilous times in our Nation's history, they need to look no further than at what is happening in the financial markets over the last few days. Clearly, this is no ordinary time, no normal economic downturn. This is a day unlike other days. This crisis, and the choice it demands, is unlike few we have ever seen before, even those who have served in this Chamber for several decades. This Chamber may not be full, but millions, in time, will hear the words we speak, and millions will feel the vote we cast around 7 p.m. this evening. In the end, once the reputations we stake, for good and ill, have long since gone to dust; once this day has turned from flesh and blood to textbook page for a child who is not yet born; one of two things will be said about us and how we acted on this heavy day. They will say the Senate did what was right, or they will say the Senate washed its hands of this problem and walked away.

If this bill could be written as starkly as that, the vote would be unanimous. But bills never are. They are full of jargon and verbiage and compromise, and as necessary as they are, they can crust over and obscure the essence of our choice. We read stories of foolish choices in our history books and from our safe distance, it is so easy to shout: Why didn't they know any better? But up close, in the flesh and blood of the moment, even on a day such as today, making the wrong choice can be supremely easy.

Nearly eight decades ago, the men who sat in these chairs--and there were only men in those days--were faced with a crisis not unlike the one we face today. They faced a recession that threatened to turn much worse. They did what was easy. They lashed out at the world and threw up huge barriers to trade. They found someone to blame--not because it was good economics but because it felt good. President Hoover signed the 13 letters of his name with six gold pens and launched a trade war. The world retaliated. Commerce shut down. And passing a bill that felt good drove us deeper and deeper into depression.

This week, on both sides of the Capitol, I could imagine how pleasant it would feel to vote no. In that respect, those who stand on the other side of this issue will have a much happier week. What a rush of affirmation they will get as they stick a finger in the eye of the bankers and the tycoons whose greed brought us to this crisis. Believe me, I can sympathize.

But after the vote has been cast for pique and for spite, what then? After the rush of righteousness fades, what then? It has been said: ``Let justice be done, though heavens fall.'' It is a noble thought, but it is much easier to say when the heavens are in no danger of falling on you. Who will they fall on? They will fall on the million or more families who can lose their homes. They will fall on the mothers and fathers telling their children that the college loan isn't coming through and struggling to explain why. They will fall on workers laid off all over this country as credit dries up and as businesses fail to make their payrolls and as they send their employees home with pink slips through no fault of their own.

We are one Nation, one economy, and one body. We can take a cut at Wall Street, but Wall Street will not feel the worst of the pain--not by a long shot. The blood will not come from them. My colleagues know who will feel the pain, who will be bled the most by this crisis: those whose economic world is made up of credit cards and mortgage payments, not hedge funds and credit default swaps. The men and women and families we represent will feel the pain of a ``no'' vote.

The world will feel the pain, too, I might add, men and women and families just like ours who don't speak our language, who are asleep on the other side of the world as I speak these words right now but who are bound to us in a web of commerce more tightly than ever before in world history. They are watching, too, I might add.

Today's Washington Post quotes a banker in Germany, a man who did nothing to cause this crisis but who will suffer from it as much as if he did. And his faith in America, even now, even today, ought to inspire each and every one of us in this Chamber.

Let me quote him for you:

All I can say is that I simply cannot imagine that the

Americans will not come up with some sort of a solution.

Anything else is outside the realm of my imagination.

Outside the realm, Madam President, of his imagination that this Senate of ours will not solve this problem, in conjunction with the work of the other body. He is speaking of a nation of doers, of fixers, of problem-solvers, of people with optimism and confidence in our future. We can be that Nation again. In fact, we must be.

Madam President, I love my job here in the Senate. I normally sit in the seat right behind me here, my father's desk. I sit it in every day, have for 28 years. I love that desk, love this Chamber, and today there is not a place I would rather be. I am sure my colleagues, each one of them, have their own stories, 100 of them, of their love of this job and of this place and what it means to be a Senator. But how can we possibly weigh those hundred jobs, if you will, against the 600,000 or more that have been lost in America just this year alone and the million more that could follow if we could save those jobs by giving up our own? How could we not? Who could come to this floor and say with a clean conscience: I will save my job but put hundreds of thousands of jobs at risk all across this great country of ours. I don't believe a single Member of this body, regardless of party, would ever make that trade. They would be willing to give up their job to save that of others.

As Edmund Burke said to his constituents centuries ago:

The legislator's ``unbiased opinion, his mature judgment,

his enlightened conscience, he ought not to sacrifice to you,

to any man, or to any set of men living. These he does not

derive from your pleasure; no, nor from your law and the

constitution. They are a trust from Providence, for the abuse

of which he is deeply answerable.''

I am answerable today, as are all of us in this Chamber, and I intend to answer correctly. I intend to answer yes, we ought to do this to get our country back on its feet again. That is the job of a Senator.

By now, it is well known how we arrived at this critical moment. Years of what Secretary Paulson himself has called bad lending practices went essentially unchecked by a regulatory system that was not on the job. These bad lending practices have been primarily in the area of mortgage lending.

As we all know, culpability for these practices exists in every link of the lending chain, from mortgage brokers to lenders to the investment banks. Certainly there are many borrowers who acted irresponsibly. They should not be excused for the consequences of their actions but neither should those whose culpability was significant and catastrophic in terms of their impact on mortgage lending and on the credit markets.

Almost 2 years ago, the Senate Banking Committee held the first congressional hearing of the new Congress on predatory lending. At that hearing, I and others of that committee, Democrats and Republicans, warned of a coming wave of foreclosures that could devastate millions of homeowners and have a devastating impact on our economy. Some, unfortunately, scoffed at those predictions. Well, no one is scoffing anymore. Financial market turmoil is affecting families and businesses all across this country, and the contagion has spread beyond the shores of our own Nation.

A paper in my State, the Connecticut Post of Bridgeport, CT, reported that, at Sacred Heart University, Julie Savino, dean of student financial assistance, is fielding calls from parents who never before sought financial aid. Laid off or without medical insurance or unable to secure a home equity line of credit, parents are suddenly on the hunt for alternative means to pay for their children's education. Some students have had to walk away from their educations all together, she points out.

Reuters News Service reported that Kansas City cabinetmaker Anthony Gallo had no debt 18 months ago. None. Now he is being forced to borrow just to make payroll.

Let me quote Mr. Gallo:

My line of credit has been cut to nothing. We are all

hurting and wondering what is going to happen. They have got

to do something to save the banks. They can't kill our

economy.

The fact is, the banking and financial system is an essential part of our Nation's economy. A halt in the flow of money threatens not only Wall Street firms--which would not bring us here today--but endangers the way of life for millions of Americans far beyond Lower Manhattan. Right now, banks are afraid and in some cases unable to lend money, money companies need to make payroll, money families need to pay medical bills, money students need to pay for college, money small businesses need to stock their shelves with inventory, money a gas station needs to supply its pumps with gas, and money investors provide to entrepreneurs to start new businesses and create new jobs. We know that money isn't moving. That is what the credit crunch means.

Very few Americans have ever heard of something called the LIBOR, which stands for the London interbank offered rate. This is a rate banks charge when they make loans to other banks. It is also the rate that is used to calculate the cost of home loans, student loans, auto loans, and small businesses. Yesterday, LIBOR jumped over 400 percent in just 1 day.

In many ways, this is the canary in the coal mine, if you will. It is a sign of the strains that are threatening the essential flow of credit to the people of our country and, indeed, the industrial world.

Another canary in the coal mine is the rate on Treasury bills. Several days ago, fearful investors rushed into safe Treasury securities, sending yields on Treasurys into negative territory for the first time in at least half a century. When people see that the money they have placed in banks and money market funds is earning negative interest, they may feel compelled to pull their money out of such financial institutions. This could result in even further erosion of the supply of money in our economy.

Our economy is on a precipice--and that is not an exaggeration, that is not hyperbole--and we must do what we can to move it back from that brink. The legislation before us and the amendment I have offered, this comprehensive amendment before the Senate today, represents an effort to do just that.

Just 10 days ago, the administration--if I may just remind my colleagues, this is the bill, I hold it in my hands, three pages long-- the administration sent to us a bill that called for $700 billion to go out without any questions asked, without any oversight, any accountability, or any taxpayer protection. Three pages. I might point out, as I said to some, a no-documentation loan for $100,000 to a subprime borrower a few years ago was four pages long. Here is a request for $700 billion that is three pages long. And my colleagues on both sides here said no to that, we are not going to do that.

As a result, over these last 2 weeks, we have put together a piece of legislation that gives us much more heightened protection about how this program would work. There are a lot of people who deserve tremendous credit, but I thank my colleagues for rejecting this offer of three pages for $700 billion in return for drafting a comprehensive bill that I believe will provide the kind of security people are looking for with a plan of this magnitude. I refused, along with my colleagues, to provide a blank check on this not just for this administration--I would do it with any administration, and my colleagues did as well. This crisis demanded we bring together Members of the House of Representatives, the Senate, Republicans and Democrats, and hammer out a better solution for the American people.

Our leader, Senator Harry Reid, the majority leader, deserves incredible credit for his determination to stick with it and not walk away and demand each and every day, when things began to fall apart, that we stay and work at it. He was joined by the minority leader, Senator McConnell, equally committed, I would point out, to the same efforts, as well as a number of others who played significant roles.

Judd Gregg of New Hampshire I have been talking about and spending a lot of time with over these last 2 weeks, working out this particular bill that we brought together, and I thank him for his efforts.

Jack Reed of Rhode Island was the principal author of the warrants in this bill, to make sure the American taxpayer comes first. If these instruments turn out to be more profitable and they actually are sold and we make our money back, the people who will get the benefit of that first are the American taxpayers, and Jack Reed demanded that.

Pat Leahy looked at the provision of this original proposal which suggested that no court of law, no agency could ever question how this $700 billion was going to be used, and the chairman of the Judiciary Committee said that passage will not last and struck it and offered new language that provides judicial protection in this bill.

I have mentioned Bob Corker already, Senator Corker of Tennessee, who was valuable over the last 2 weeks, and Mel Martinez and Chuck Hagel.

My colleague from New York, Chuck Schumer, who is knowledgeable about this subject matter and who represents the State of New York--I can't begin to describe how valuable Chuck Schumer has been in this process. From the very beginning, there hasn't been a meeting that has occurred or a discussion held where he hasn't played an invaluable role in seeing to it that we stayed with it.

Dick Durbin, the majority whip, and Bob Bennett of Utah--again, the ranking Republican on the Banking Committee historically has played a very important role on so many issues during his tenure here and again was tremendously helpful.

Max Baucus, whom I have mentioned--chairman of the Finance Committee--played a critical role as we fashioned this together.

My dear friend and colleague, Kent Conrad, the chairman of the Budget Committee, was incredible in his determination that this package be fiscally sound, that we have provisions that would guarantee our debt would be retired as part of the effort here when resources are sold and the profits are gained. So I thank my friend. He is here, in fact, on the floor. My colleague has been a tremendous help in all of this, Madam President.

I want to also mention, from the other body, Barney Frank of Massachusetts, my counterpart on the House Financial Services Committee, was, again, tireless over the last couple of weeks in this effort, and Congressman Roy Blunt, Speaker Pelosi, Representative Boehner as well, and Rahm Emanuel.

There are so many people, and I want to be careful, but clearly this was a huge effort. I wish in many ways that the American people could have been a witness to these gatherings that went on day after day. I think they would have been proud of their Congress at a time when Congress's reputation is not great. I think they would have been proud to see the effort that was being made, not where people were running to a political corner wearing a Republican or Democratic hat but coming together as Senators and Congressmen, along with those from the Treasury Department, to make a difference. All of these Members of Congress undertook the enormous and in many respects thankless but nevertheless vital task of crafting this proposal which we offer to our colleagues this afternoon--the Emergency Economic Stabilization Act of 2008.

This legislation would address, we hope, our Nation's economic emergency in three key ways: economic stabilization, taxpayer protection, and home ownership preservation.

This bill gives the Treasury Secretary the authority to respond quickly, forcibly, but responsibly to the current crisis. It authorizes him to buy a total of $700 billion in troubled assets, broken down into three separate tranches, with the final tranche subject to congressional review and approval.

Madam President, $700 billion is a staggering amount of money. We all understand and share the anger of the American people that they are being asked to commit that sum. But in a $14 trillion economy, this is the kind of financial firepower that must be brought to bear to contain the financial crisis.

Secondly, in consideration of the extraordinary burden this bill potentially places on the taxpayer, we maximize, to the extent possible, protections of the taxpayer.

The bill establishes an oversight board to review and shape the policies of the Treasury Department in carrying out this program. Unlike the original Treasury proposal, this bill subjects the actions of the Treasury Secretary to strong judicial review that would prohibit actions that are arbitrary, capricious, or otherwise unlawful. It places firm limits on executive compensation to help ensure that corporate executives whose companies receive taxpayer benefits do not walk away with golden parachutes and are not otherwise rewarded for wrongdoing.

We require taxpayers to receive warrants so that they can benefit when a company benefits from taxpayer assistance. In addition, we require that any profits generated from the sale of these assets purchased with public funds go to reducing our national debt.

We provide for extensive reports so that Members of Congress and the public at large will know how every dime of this program is being used. Within 48 hours of any transaction, the Treasury Secretary will have to report the amount, the terms, and the participants associated with that transaction. The General Accounting Office will have immediate and ongoing audit authority and report to Congress every 60 days. A special inspector general will be established to monitor and police the program's activities and its participants.

The third priority advanced by this legislation is home ownership. This is not an ancillary objective; it is inherent, in my view, to our efforts to resolve this economic crisis.

Chairman Bernanke himself has spoken forcefully on this point. Our economy will recover only when we put an end to the spiral of foreclosures that are pulling down our entire financial system. To that end, the legislation requires that all Federal agencies that own or control mortgages or mortgage-backed securities preserve home ownership. In addition, the legislation expands eligibility for the HOPE for Homeowners program, which allows lenders and borrowers to access Federal mortgage insurance in order to put homeowners on a path to security, not financial ruin.

This is not an easy vote. There will be no balloons or bunting or parades for Members at the end of this process, only the knowledge that at one of our Nation's moments of maximum economic peril we acted, not for the benefit of a particular few but for all Americans so that they and those who come after them may enjoy the full blessings of life in this great Nation of ours.

We are a nation of optimism and confidence. Americans deserve to have that restored. Our job tonight will give them a chance to do that. I urge my colleagues to support this amendment.

I yield the floor.

Madam President, I want to recognize the Senator from North Dakota.

I ask unanimous consent that the Senator from Rhode Island be recognized for 6 minutes, the Senator from Pennsylvania for 5 minutes, and then my colleague and friend from New York for 6 minutes.

Madam President, for how long would the Senator from Illinois like to be recognized?

I am in control of the time. How much time?

Madam President, I yield the Senator from Illinois 10 minutes.

I ask unanimous consent that the Senator have as much time as he would like to have.

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

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

Yes, under current law and under the provisions in this bill, that authority exists.

Yes.

I thank the Senator from Vermont for his passion, eloquence, and commitment. He is never shy. This institution could use a little bit more of similar expressions of feelings for constituents. I thank him for that speech.

I see my colleague from Alabama. We are going back and forth. At that point after Senator Sessions, Senator Schumer is next in line.

Madam President, the Senator from New York is next.

I will give the Senator an additional minute.

Madam President, I yield 5 minutes to my distinguished friend and colleague from New Jersey.

Madam President, I have a unanimous consent that has been cleared on both sides. I ask unanimous consent that an additional 30 minutes be allocated for debate with respect to H.R. 1424, equally divided and controlled between the leaders or their designees, and that the debate with respect to the House message on H.R. 2095 be delayed accordingly, and that any other provisions remain in effect.

I yield 5 minutes to Senator Nelson of Florida.

Madam President, one quick thought. We are all entitled to our opinions. Pat Moynihan used to say everyone is entitled to their own opinions but not to their own facts.

As I listened to my friend from Florida, Senator Nelson, talk about the executive compensation section of this bill, I must respond.

As to this legislation, section 111, negotiated by Senator Max Baucus, myself, and others, let me be very clear. When Treasury buys assets directly, the institution shall observe standards limiting incentives allowing clawback and prohibiting golden parachutes. When the Treasury buys assets at auction, an institution that has sold more than $300 million in assets is subject to additional taxes, including a 20-percent excise tax on golden parachute payments triggered by events other than retirement. And also we eliminated the deduction for compensation above $500,000, and we prohibit golden parachutes at other certain institutions--anything but mild. It is the first time ever in the history of the Congress that we are actually going to pass legislation dealing with golden parachutes. More will be done, but this bill does take very concrete, specific actions in that regard.

Again, you are entitled to your own opinions but not your own facts.

I yield 5 minutes to Senator Kerry of Massachusetts.

I yield 1 additional minute.

Madam President, I thank my colleague from Massachusetts for an eloquent statement and a strong one.

Madam President, I yield to my distinguished friend and colleague from California 5 minutes.

If I may inquire of my good friend and colleague who has been very generous, I may ask for a little generosity in terms of time. I am running into a crunch, and I have a couple Members who may wish to speak for a couple minutes. But let me get to that point.

I yield 5 minutes to the Senator from Washington.

Mr. President, the Senator from Illinois wishes to speak. I ask for 5 minutes.

Mr. President, I yield 3 minutes to my colleague and friend from California.

I absolutely agree with the gentleman from New Jersey. The scale of this undertaking is vast, and the exposure to the taxpayer must be well managed. Therefore, I urge the Secretary to look broadly for the best expertise in assisting him in managing this program.

I would say to the distinguished chairman of the Judiciary Committee that is what we intend.

M. LEAHY. And the provision we have included in section 119 of the Senate's legislation, to ensure that this review is available, the word ``law,'' as it is used, means any State or Federal law, or common law interpreting such State and Federal laws?

Yes. The Senator from Vermont is correct. My understanding and intent is that this section would allow for review in the event any action by the Treasury Secretary was in violation of any State or Federal statute, or common law interpreting a statute.

Mr. LEAHY: I thank the Senator. It is not our intent to permit the Treasury Secretary to quash or alter any private right of action on the part of shareholders of entities from which the Secretary purchases assets, nor allow the Secretary to confer immunity from suit any participating financial institution.

I would say to the Senator from Vermont that is correct as well.

It is. That is what we intend.

Mr. LEAHY. And by agreeing with the administration's request to automatically stay on appeal injunctions issued against the Treasury Secretary for actions taken under the authority of this legislation, we have assured that existing waivers of sovereign immunity under the Tucker Act, the Contracts Dispute Act, the Little Tucker Act, the Federal Tort Claims Act, and relevant civil rights laws would apply to the Treasury Department's new responsibilities, just as these laws have applied to the Treasury Department's actions prior to the bailout measure. Is that correct?

I say to the chairman of the Judiciary Committee that is what we intend with the savings clause.

I do.

I agree with the chairman of the Judiciary Committee.

Yes, for purposes of this act, I agree that financial institution may encompass auto financing companies.

Yes, should the Treasury Secretary, after consulting with the Chairman of the Federal Reserve System, determine that purchasing auto loans is necessary to promote financial market stability and transmits such determination in writing to the Congress, then the Treasury Secretary could engage in such purchases.

I am keenly aware of these issues as Chairman of the Banking Committee, which has jurisdiction over financial aid to commerce and industry and which wrote the Chrysler Corporation Loan Guarantee Act of 1979.

This is correct. As previously stated, an auto financing company could be included in the definition of financial institution and auto debt could be included in the definition of troubled assets after the appropriate steps are taken.

Yes, I completely agree that this would include holding companies of such companies listed and other companies that the Secretary may determine are eligible for this program.

Yes, it is the intent of the committee and of the Congress that this section intends that the securities of the parent or holding company of such a subsidiary would be used in the warrant. Nothing in this language is intended to exclude holding companies of subsidiaries and warrants should be exercised to the greatest extent possible for the benefit of the taxpayer.

Yes, I agree that this is the case and that it was the original intent of the committee and of the Congress to ensure that warrants are exercised to the greatest extent for the benefit of the taxpayer, to include recovery of losses and administrative expenses along with a premium set by Treasury.

tax credit investments

Mr. President, I want to assure my colleague from Maryland that I read that language as allowing such purchases, if necessary, to maintain liquidity in this particular market. I want to commend him for bringing this important matter to my attention as soon as we received the original Treasury proposal. My staff informed Senator Cardin's staff that Treasury officials believed the proposal they sent to Congress authorized the purchase of such credits, and we concurred.

Mr. President, my colleague from Maryland has made an excellent suggestion for how Treasury ought to maintain liquidity with regard to the LIHTC. I thank him for his concern. The housing crisis in this country affects nearly everyone in some respect, including lower income individuals and families who cannot afford to buy homes and depend on the steady supply of affordable rental housing. My amendment to H.R. 1424 gives Treasury the authority, flexibility, and resources it needs to address this critical issue.

Mr. President, I agree with the Senator from Hawaii's interpretation of that provision.

I thank the leader for his question and for his leadership in helping guide us through this crisis. He is exactly right. I have been saying throughout this process that foreclosure prevention has been one of the key reasons we need to move forward with the Emergency Economic Stabilization Act.

The legislation has a number of key provisions dealing with foreclosure prevention:

First, it requires that the Secretary of the Treasury ``implement a plan that seeks to maximize assistance for homeowners'' in keeping their homes. This means Congress has rejected an ad hoc approach by the Treasury in favor of a programwide system to keep families in homes.

In the case where the Secretary owns whole loans, we expect him to modify those loans to ensure long-term affordability for American families. The legislation outlines that this should be done by a reduction in principal, a reduction in the interest rate, a refinance through the HOPE for Homeowners Program, or any equivalent method that ensures that these hard working Americans are restored to sustainable home ownership.

I want to remind my colleagues that millions of Americans were sold loans that the mortgage brokers and lenders knew or should have known the borrowers could never afford. These ``exploding'' adjustable rate mortgages, ARMs, interest-only loans, and payment-option ARMs were designed to entice borrowers with low initial payments. Yet, after a couple of years, the payments would explode, increasing by 20 percent, 30 percent, or more. This is driving delinquency and foreclosure rates to historically high levels and driving home prices down, creating the economic downturn we are now facing.

Second, all other Federal agencies that own or control mortgages, including the FDIC, the Federal Housing Finance Agency, FHFA, and the Federal Reserve Board, must also implement plans to maximize assistance to homeowners. The FDIC, under the leadership of Chairman Sheila Bair, has already started down this road with the assets it has taken from IndyMac Bank, and we expect the other agencies to work with the FDIC in developing their own programs. The FHFA, which is the conservator for Fannie Mae and Freddie Mac, now oversees hundreds of billions of dollars of mortgages and mortgage-backed securities, MBS, which they will now be obligated to aggressively modify as a result of this legislation.

Third, one of the serious complications the modern mortgage market has created is the difficulty of doing modifications for loans that have been pooled and securitized into a host of MBS. It is often difficult to get the various investors in the numerous MBS backed by a particular pool of mortgages to all agree to do a modification.

This legislation, however, mandates that the Treasury and the other Federal agencies that own or control MBS must aggressively pursue loan modifications with other investors and must consent to all requests from servicers for reasonable modifications. In fact, it is our hope that the Federal Government will gain control of sufficient percentages of these pools that their ongoing pursuit of modifications and reasonableness in their willingness to accept offers that ensure families can keep their homes will tip the balance and lead to more modifications.

Finally, this bill includes three new provisions for the HOPE for Homeowners that should expand its reach and allow us to help many more homeowners avoid foreclosure and get into affordable, stable, FHA- insured mortgages.

As I have been saying for well over a year, the epicenter of the current financial and economic crisis is the housing crisis and the heart of the housing crisis is the foreclosure crisis. I understand the need to move to stabilize the financial system as a whole--that is why I have devoted countless hours over the past weeks to negotiate this final package.

But I would not support this bill, nor ask my colleagues to do so, if I was not convinced that it adds important new tools to address the core problem--rising delinquencies and foreclosures. Obviously, this bill does not include everything I would want but it is an important step forward.

I wish comment on certain parts of the Emergency Economic Stabilization Act of 2008.

Section 132 reauthorizes the Securities and Exchange Commission to suspend Financial Accounting Standard 157 if it ``is necessary or appropriate in the public interest and is consistent with the protection of investors.'' That is a very high standard. I do not expect or encourage the Commission to take action in this regard.

Vital to the health of U.S. capital markets is financial information that is reliable. Accounting rules should produce financial data that faithfully depicts economic reality and is neutral, not favoring either the supplier or user of capital, either the buyer or seller of securities. The formulation of accounting standards is best left to the accounting experts. Congress should not be in the business of setting accounting standards.

Furthermore, it is critically important that we respect the independence of the Financial Accounting Standards Board, so that they can observe a fair and open process and arrive at the most appropriate accounting standards. Congress should not chill or override that independence and does not do so in this legislation.

With respect to mark to market, I understand concerns that have been raised. However, many experts object to the suggestion of suspending it. For example, the Council of Institutional Investors, the Center for Audit Quality, and the CFA Institute have said they ``are united in opposing any suspension of `mark to market' or `fair value' accounting.'' They stated: [Suspending fair value accounting during these challenging economic times would deprive investors of critical financial information when it is needed most. Fair value accounting with robust disclosures provides more accurate, timely, and comparable information to investors than amounts that would be reported under other alternative accounting approaches. Investors have a right to know the current value of an investment, even if the investment is falling short of past or future expectations.]

Section 133 directs the Commission to conduct a study on mark-to- market accounting. The study is to be completed within 3 months, which will necessarily limit its scope and depth. Within these limits, I will be particularly interested in the findings on the impact of such standards on the quality of financial information available to investors and on the fairness of the standard setting process.

Section 118, ``Funding,'' states that the purposes for which securities may be issued include actions authorized by this act, including the payment of administrative expenses. This would include such reasonable expenses as are incurred in the preparation of reports, such as the study mandated by section 133.

Section 3 states that the term, ``financial institution,'' ``means any institution, including, but not limited to, any bank, savings association'' or other specific types of institutions. The latitude of the definition is intended to include the parent holding companies of one of the identified types of institutions that are established and regulated under the laws of the jurisdictions set forth in the definition. Thus, for example, if a wholly owned securities subsidiary of a public-traded financial holding company sells assets to the Treasury Department, it would be subject pursuant to section 113 to providing a warrant to the Secretary to receive stock in such holding company.

With respect to section 119, I want to associate myself with the remarks of Senator Leahy on the savings clause.

Section 101 of the legislation gives broad authority for the Treasury Secretary, in consultation with other agencies, to purchase and to make and fund commitments to purchase troubled assets from eligible financial institutions on terms and conditions that he determines. This legislation does

not limit the Secretary to specific actions, such as direct purchases or reverse auctions but could include other actions, such as a more direct recapitalization of the financial system or other alternatives that the Secretary deems are in the taxpayers' best interest and that of the Nation's economy.

Section 129 requires the Federal Reserve to submit regular written reports to the Senate Banking and House Financial Services Committees whenever it uses its authority under section 13(3) of the Federal Reserve Act. The periodic updates to the reports are meant to keep the committees informed of the specific details of any loans or the aggregate details concerning programs the Federal Reserve establishes that are covered by this requirement.

Section 131 requires the Treasury to reimburse the Exchange Stabilization Fund, ESF, for any losses that result from the temporary guaranty program that they recently established. It is the intent of the Treasury that the temporary guaranty program that they recently established will not last longer than 1 year, and while the final version of the act does not mention this time-frame, it was because the Treasury Department has publicly stated that this temporary program will last no longer than 1 year, which is consistent with the intent of this legislation. Further, the act forbids the Secretary from using the ESF for the establishment of any similar fund in the future. The ESF has never been used for loans or guarantees for domestic purposes, and it is important that the money in the fund continue to be available for the ESF's stated purpose.

Section 136 provides a temporary increase in the coverage limit for nonretirement accounts in insured depository institutions. It is the intention of the legislation that this increase be temporary and this increase is not a statement of any intent for changes in the permanent deposit insurance level.

Mr. President, I ask unanimous consent that a letter from the Treasury Department be printed in the Record.

Mr. President, I first thank my colleagues for their generous comments. This has been an incredible 2 weeks. It began exactly 2 weeks ago tomorrow night when the Chairman of the Federal Reserve and the Secretary of the Treasury, in words that were as chilling as any I have heard in 28 years here, describing the condition of our economy.

We heard the words ``credit crunch.'' I was educated in high school by Jesuits, and the word ``credit,'' the derivative, comes from the Latin word ``to believe.'' What is more important to me at this moment than any financial loss that Wall Street suffers or other institutions or shareholders, as much as I am concerned about it, but the biggest loss we run the risk of is Americans believing in their country, that sense of confidence and optimism that has been at the base of our success for more than two centuries.

I say to my colleagues who are wondering whether at this moment we ought to embrace this plan to move us to the right footing, this is the moment which we must take this opportunity to get back our economy, and simultaneously, more important than anything else we achieve, to restore Americans' confidence, their optimism, and their belief that this country can provide a better day for their children and their grandchildren than the one in which they were raised.

Nothing less than that, in my view, is at stake in the vote we will take in a matter of minutes; maybe the most important vote any one of us will ever cast in this body. It will determine the future and the well being of our country. I beseech my colleagues, not as Democrats or as Republicans, but as Americans, and as Members of this remarkable institution, to cast a vote for the future believability in our economy and our country.

I urge a ``yes'' vote.

Exhibit 1

Department of the Treasury,

Washington, DC, October 1, 2008.

Hon. Christopher Dodd,

Chairman, Committee on Banking, Housing and Urban Affairs,

U.S. Senate, Washington, DC.

Dear Mr. Chairman, I am writing regarding the Emergency

Economic Stabilization Act of 2008.

It is the intention of the Department of the Treasury that

all mortgages or mortgage-related assets purchased in the

Troubled Asset Relief Program will be based on or related to

properties in the United States.

Sincerely,

Kevin I. Fromer,

Assistant Secretary for Legislative Affairs.

Mr. President, I am introducing today, along with Senator McCaskill, the Stop Unfair Practices in Credit Cards Act.

Credit cards are a fixture of American family life today. People use them to buy groceries, to rent a car, shop on the Internet, pay college tuition, and even pay their taxes. In 2005, the average family had five credit cards. American households used nearly 700 million

credit cards to buy goods and services worth $1.8 trillion. Credit cards fuel commerce, facilitate financial planning, help families deal with emergencies. But credit cards have also contributed to record amounts of household debt. Some credit card issuers have socked families with sky-high interest rates of 25 and 30 percent and higher. They have hit consumers with hefty fees for late payments, for exceeding a credit card limit, and other transactions. In too many cases, credit card issuers have made it all but impossible for working- class families to climb out of debt.

That is why in 2005, the Permanent Subcommittee on Investigations, which I chaired, on which Senator McCaskill serves, initiated an in- depth investigation into unfair and abusive credit card industry practices.

In the fall of 2006, the Government Accountability Office, the GAO, released a report which I had requested, which for the first time in years provided a comprehensive examination of the interest rates and fees being charged by credit card companies. Following the release of that report, and continuing through today, the subcommittee has been deluged with calls and letters from Americans expressing anger and frustration at the way they have been treated by their credit card companies, and sharing stories of unfair and often abusive practices. The subcommittee has been examining those allegations of unfair treatment and has identified many troubling credit card industry practices which should be banned or restricted.

Our first hearing in March focused on industry practices involving grace periods, interest rates, and fees. It revealed a number of unfair, often little-known, and sometimes abusive credit card practices, which prey upon families experiencing financial hardships, and squeezed even consumers who pay their credit card bills on time.

The legislation we are introducing today is aimed at stopping abusive credit card practices that trap too many hard-working families in a downward spiral of debt. American families deserve to be treated honestly and fairly by their credit card companies. Our bill would help ensure that fair treatment. Here are a few things our bill would do. It would stop credit card companies from charging interest on debt that is paid on time. It would crack down on abusive fees, including repeated late fees and over-the-limit fees, and fees to pay your bill.

It would also prohibit the charging of interest on those fees. It would establish guidelines on interest rate increases, including a cap on penalty interest rate hikes at no more than 7 percent. It would require that increased interest rates apply only to future credit card debt and not the debt already incurred.

Our bill will be referred to the Senate Banking Committee, which has primary jurisdiction over credit card legislation, and which has been holding its own hearing on unfair credit card practices. Our friend, Senator Dodd, the committee chairman, has a long history of fighting credit card abuses. Senator Shelby, the ranking Republican, as well as many other members of the committee, has also expressed concern about a number of credit card problems.

It is my hope our bill and the legislative record being compiled by our Permanent Subcommittee on Investigations will help the Banking Committee in its deliberations and help build momentum to enact legislation halting the unfair credit card practices that outrage American consumers. Credit card abuse is too harmful to American families, our economy, and our economic future to let these unfair practices continue.

Let me describe the key provisions of our bill in more detail. The first section of the bill would put an end to an indefensible practice that imposes little known and unfair interest charges on many unsuspecting, responsible consumers. Most credit cards today offer what is called a grace period. Cardholders are told that, if they pay their monthly credit card bill during this grace period, they will not be charged interest on the debt for which they are being billed. What many cardholders do not realize, however, is that this grace period typically provides protection against interest charges only if their monthly credit card bill is paid in full. If the cardholder pays less than 100 percent of the monthly bill--even if the cardholder pays on time--he or she will be charged interest on the entire billed amount, including the portion that was paid by the specified due date.

An example shows why this billing practice is unfair and should be stopped. Suppose a consumer who usually pays his or her credit card account in full and owes no money as of December 1 makes a lot of purchases in December. The consumer gets a credit card bill on January 1 for $5,020, due January 15. Suppose the consumer pays that bill on time, but pays $5,000 instead of the full amount owed.

Most people assume that the next bill would be for the $20 in unpaid debt, plus interest on that $20. But that commonsense assumption is wrong. That is because current industry practice is to charge the consumer interest not only on the $20 that wasn't paid on time, but also on the $5,000 that was paid on time. Let me say that again. Industry practice is to force the consumer to pay interest on the portion of the debt that was paid on time. In other words, the consumer would pay interest on the entire $5,020 from the first day of the billing month, January 1, until the day the $5,000 payment was made on January 15, compounded daily. So much for a grace period. After that, the consumer would be charged interest on the $20 past due, compounded daily, from January 15 to the end of the month.

The end result would be a February 1 bill that more than doubles the $20 debt. Using an interest rate of 17.99 percent, for example, in just one month, the $20 debt would rack up interest charges of more than $35.

Charging $35 of interest over one month on a $20 credit card debt is indefensible, especially when applied to a consumer who paid over 90 percent of their credit card debt on time during the grace period. Our legislation would end this unfair billing practice by amending the Truth in Lending Act to prohibit the charging of interest on any portion of a credit card debt that is paid on time during a grace period. Using our example, this prohibition would bar the charging of interest on the $5,000 that was paid on time, and result in a February balance that reflects what a rational consumer would have expected: the $20 past due, plus interest on the $20 from January 1 to January 31.

The second section of our bill would address a related unfair billing practice, which I call ``trailing interest.'' Charging trailing interest on credit card debt is another widespread, but little known industry practice that squeezes responsible and largely unsuspecting consumers for still more interest charges.

Going back to our example, you might think that once the consumer gets gouged in February by receiving a bill for $55 on a $20 debt, and pays that bill on time and in full, without making any new purchase, that would be the end of that credit card debt for the consumer. But you would be wrong. It would not be the end.

Even if, on February 15, the consumer paid the February 1 bill in full and on time--all $55--the next bill would likely have an additional interest charge related to the $20 debt. In this case, the charge would reflect interest that would have accumulated on the $55 from February 1 to 15, which is the time from when the bill was sent to the day it was paid. The total interest charge in our example would be about 38 cents. While some credit card issuers will waive trailing interest if the next month's bill is less than $1, a common industry practice is to fold the 38 cents into the next bill if a consumer makes a new purchase.

Now 38 cents isn't much in the grand scheme of things. That may be why many consumers don't notice this extra interest charge or bother to fight it. Even if someone had questions about the amount of interest on a bill, most consumers would be hard pressed to understand how the amount was calculated, much less whether it was correct. But by nickel and diming tens of millions of consumer accounts with trailing interest charges, credit card issuers reap large profits.

This little known billing practice, which squeezes consumers for a few more cents on the dollar, and targets responsible cardholders who pay their bills on time and in full, goes too far.

If a consumer pays a credit card bill on time and in full--paying 100 percent of the amount specified by the date specified in the billing statement--it is unfair to charge that consumer still more interest on the debt that was just paid. Our legislation would put an end to trailing interest by prohibiting credit card issuers from adding interest charges to a credit card debt which the consumer paid on time and in full in response to a billing statement.

A third problem examined by the subcommittee involves a widespread industry practice in which credit card issuers claim the right to unilaterally change the terms of a credit card agreement at any time for any reason with only a 15-day notice to the consumer under the Truth in Lending Act.

As the National Consumer Law Center testified at our hearing, this practice means that smart shoppers who choose a credit card after comparing a variety of card options are continually vulnerable to a change-in-terms notice that alters the favorable terms they selected, and provides them with only 15 days to accept the changes or find an alternative. By asserting the right to make unilateral changes to credit card terms on short notice, credit card issuers undermine not only the bargaining power of individual consumers, but also principles of fair market competition. Such unilateral changes are particularly unfair when they alter material terms in a credit card agreement such as the interest rate applicable to extensions of credit.

That is why our bill would impose two types of limits on credit card interest rate hikes. First, for consumers who comply with the terms of their credit card agreements, the bill would prohibit a credit card issuer from unilaterally hiking an interest rate that was represented to, and included in the disclosures provided, to a consumer under the Truth in Lending Act, unless the consumer affirmatively agreed in writing to the increase at the time it is proposed. This prohibition is intended to protect responsible consumers who play by the rules from a sudden hike in their interest rate for no apparent reason--a complaint that the subcommittee has heard all too often. Under our bill, issuers would no longer be able to unilaterally hike the interest rates of cardholders who play by the rules.

The bill's second limit would apply to consumers who, for whatever reason, failed to comply with the terms of their credit card agreement, perhaps by paying late or exceeding the credit limit. In that circumstance, credit card issuers would be permitted to impose a penalty interest rate on the account, but the bill would place a cap on how high that penalty interest rate could go.

Specifically, the bill would limit any such penalty rate hike to no more than a 7 percent increase above the interest rate in effect before the penalty rate was imposed. That means a 10 percent rate could rise no higher than 17 percent, and a 15 percent rate could not exceed 22 percent. This type of interest rate limit is comparable to the caps that today operate in many adjustable mortgages. The effect of the credit card cap would be to prohibit penalty interest rates from dramatically increasing the interest rate imposed on the cardholder, as happened in cases examined by the subcommittee where credit card interest rates jumped from 10 percent or 15 percent to as much as 32 percent. Penalty interest rate hikes that double or triple existing interest rates are simply unreasonable and unfair.

If a credit card account were opened with a low introductory interest rate followed by a higher interest rate after a specified period of time, it is intended that the penalty rate cap proposed in the bill would apply to each of those disclosed rates individually. For example, suppose the credit card account had a 0 percent introductory rate for 6 months and a 12 percent rate after that. Suppose further that, during the 6-month introductory period, the cardholder exceeded the credit limit. The bill would allow the card issuer to impose a penalty interest rate of up to 7 percent for the rest of the 6 month period. Once the 6-month period ended, it is intended that the 12 percent rate would take effect. If the consumer were to again exceed the limit, it is intended that any penalty rate imposed upon the account be no greater than 19 percent.

If a card issuer were to analyze an account and conclude that a penalty rate increase of up to 7 percent would be insufficient to protect against the risk of default on the account, the issuer could choose to reduce the credit limit on the account or cancel the account altogether. If the card issuer chose to cancel the account, it is intended that the consumer would retain the right to pay off any debt on the account using the interest rate that was in effect when the debt was incurred.

The point of the bill's penalty interest rate cap is to stop penalty interest rate hikes which are disproportional; which too often stick families with sky-high interest rates of 25 percent, 30 percent, and even 32 percent; and which too often make it virtually impossible for working American families to climb out of debt.

Still another troubling practice involving credit card interest rate hikes is the problem of retroactive application. Industry practice today is to apply an increased interest rate not only to new debt incurred by the cardholder, but also to previously incurred debt.

Retroactive application of a higher interest rate means that pre- existing credit card debt suddenly costs a consumer much more to repay. Take, for example, a $3,000 credit card debt that a consumer was paying down each month with timely payments. Suddenly, the cardholder falls ill, misses a payment or pays it late, and the card issuer increases the interest rate from 15 percent to 22 percent. If applied to the existing $3,000 debt, that higher rate would require the cardholder to make a much steeper minimum monthly payment and pay much more interest than originally planned. That is often enough to sink a working family into a deepening spiral of debt from which they cannot recover.

By making it a common practice to institute after-the-fact interest rate hikes for existing credit card debt--in effect unilaterally changing the terms of an existing loan--the credit card industry has unfairly positioned itself to reap greater profits at consumers' expense. Our bill would fight back by limiting the retroactive application of interest rate hikes to lessen the financial impact on American households. Specifically, our bill would provide that interest rate hikes could be applied only to future credit card debt and not to any credit card debt incurred prior to the rate increase. Instead, any earlier debt would continue to accrue interest at the rate previously in effect.

The first set of provisions in our bill addresses unfair practices related to interest rates. The next set of provisions targets unfair practices related to fees imposed on cardholders by credit card companies.

The need for proconsumer fee protections is illustrated by the story of Wes Wannemacher of Ohio, a witness featured at the subcommittee's March hearing. In 2001 and 2002, Mr. Wannemacher charged about $3,200 on a new Chase credit card to pay for expenses mostly related to his wedding. Over the next 6 years, he paid about $6,300 toward that debt, yet in February 2007, Chase said that he still owed them about $4,400.

How could Mr. Wannemacher pay nearly double his original credit card debt and still owe $4,400? As he explained in his testimony, in addition to repaying the original debt of $3,200, Mr. Wannemacher was socked with $4,900 in interest charges, $1,100 in late fees, and 47 over-limit fees totaling $1,500, despite going over his $3,000 credit limit by a total of $200. These facts show that Mr. Wannemacher paid $2,600 in fees on a $3,200 debt. In addition, those fees were added to his outstanding credit card balance, and he was charged interest on the fee amounts, increasing his debt by hundreds if not thousands of additional dollars. There is something so wrong with this picture, that Chase didn't even defend its treatment of the account at the subcommittee hearing; instead, Chase forgave the $4,400 debt that it said was still owing on the Wannemacher credit card.

It is no secret that credit card companies are making a great deal of money off the fees they are imposing on consumers. According to GAO, fee income now produces about 10 percent of all income obtained by credit card issuers. The GAO report which I commissioned on this subject identified a

host of different fees that have become common practice, including fees for transferring balances, making a late payment, exceeding a credit limit, paying a bill by telephone, and exchanging foreign currency. According to GAO, late fees now average $34 per month and over-limit fees average $31 per month, with some of these fees climbing as high as $39 per month. As Mr. Wannemacher discovered, these hefty fees are not only added to the credit card's outstanding balance, they also incur interest. The higher the fees climb, the higher the balances owed, and the higher the interest charges on top of that.

Charging interest on money borrowed is certainly justified, but squeezing additional dollars from consumers by charging interest on transaction fees goes too far. Steep fees already deepen household debt from credit cards; those fees should not also generate interest income for the credit card issuer. Our bill would ban this industrywide practice by prohibiting credit card issuers from charging or collecting interest on the fees imposed on consumers.

Mr. Wannemacher exceeded the $3,000 limit on his credit card on three occasions in 2001 and 2002 for a total of $200. Over the following 6 years, however, he was charged over-the-limit fees on 47 occasions totaling about $1,500. In other words, Chase tried to collect over-the- limit fees from Mr. Wannemacher that were seven times larger than the amount he went over the limit.

At our March hearing, Chase did not attempt to defend the 47 over- the-limit fees it imposed; instead, it announced that it was changing its policy and would join with others in the industry in imposing no more than three over-the-limit fees in a row on a credit card account with an outstanding balance that exceeded the credit limit. While Chase's voluntary change in policy is welcome, it doesn't go far enough in curbing abusive practices related to over-the-limit fees.

First, if a credit card issuer approves the extension of credit that allows the cardholder to exceed the account's established credit limit, the issuer should be allowed to impose only one over-the-limit fee for that credit extension. One fee for one violation--especially when the card issuer facilitated the violation by approving the excess credit charge.

Second, the fee should be imposed only if the account balance is over the credit limit at the end of the billing cycle. If a cardholder exceeds the limit in the middle of the billing cycle and then takes prompt action to reduce the balance below the limit, perhaps by making a payment or obtaining a credit for returning a purchase, there is no injury to the creditor and no justification for an over-the-limit fee.

Third, a credit card issuer should impose an over-the-limit fee only when an action taken by the cardholder causes the credit limit to be exceeded, and not when a penalty imposed by the card issuer causes the excess charge. The card issuer should not be able to pile penalty upon penalty, such as by assessing a late fee on an account and then, if the late fee pushes the credit card balance over the credit limit, also imposing an over-the-limit fee.

In addition, the bill would require credit card issuers to offer consumers the option of establishing a true credit limit on their account--a credit limit that could not be exceeded, because the account would be programmed to refuse approval of any extension of credit over the established limit. In too many cases, credit card issuers no longer provide consumers with the option of having a fixed credit limit, preferring instead to enable all of their cardholders to exceed their credit limits only to be penalized by a hefty fee, added interest, and, possibly, a penalty interest rate.

There is more. Another unfair but common fee is what I call the ``pay-to-pay fee.'' It is the $5 to $15 fee that many issuers charge consumers to pay their credit card bill on time by using the telephone. To me, charging folks a fee to pay their bills is a travesty. My bill would prohibit a credit card issuer from charging a separate fee to allow a credit cardholder to pay all or part of a credit card balance.

Another fee that has raised eyebrows is the one charged by credit card issuers to exchange dollars into or from a foreign currency. A number of issuers today charge an amount equal to 2 percent of the amount of currency being exchanged in addition to a 1-percent ``conversion fee'' charged by Visa or Master Card, for a total of 3 percent Our bill responds by requiring foreign currency exchange fees to reasonably reflect the actual costs incurred by the creditor to perform the currency exchange, and requiring regulators to ensure compliance with that standard.

In addition to unfair practices involving interest rates and fees, the subcommittee investigation uncovered several unfair industry practices involving how credit cardholder payments are applied to satisfy finance charges and other credit card debt. One such practice that has caught the subcommittee's attention is the industrywide practice of applying consumer payments first to the balances with the lowest interest rates.

Right now, a single credit card account often carries balances subject to multiple interest rates. Credit cards typically use one interest rate for purchases, another for cash advances, and a third for balance transfers. Many card issuers also offer new customers low introductory interest rates, such as 0 or 1 percent, but limit these ``come on'' rates to a short time period or to a balance transferred from another card. Moreover, many of these interest rates may vary over time, since it is a common practice to offer variable interest rates that rise and fall according to a specified rate or index.

When a consumer payment is made, credit card issuers currently have complete discretion on how to apply that payment to the various balances bearing different interest rates. Consumers are typically given no option to direct where their payments are applied. Today, virtually all credit card issuers apply a consumer payment first to the balance with the lowest interest rate. After that balance is paid off, card issuers apply the payment to the balance with the next lowest interest rate, and so on.

This payment practice clearly favors creditors over consumers. It allows the card issuers to direct payments first to the balances that provide them with the lowest returns, and minimize payments to the balances bearing the highest interest rates so those balances can accumulate more interest for a longer period. Consumers who want to pay off a cash advance bearing a 20 percent interest rate, for example, are told that they cannot make that payment until they first pay off all other balances with a lower interest rate.

Our bill would replace this unfair industrywide practice with a proconsumer approach. Reversing current industry practice, the bill would require cardholder payments to be applied first to the balance bearing the highest interest rate, and then to each successive balance bearing the next highest rate, until the payment is used up. The bill would also require credit card issuers to apply cardholder payments in the most effective way to minimize the imposition of any fees or interest charges to the account.

In addition, the bill would prohibit credit card issuers from imposing late fees on consumers if the issuer was itself responsible for the delay in crediting the payment. For example, if a card issuer changed the mailing address for payments, had to shut down its mail sorting equipment for repairs, or mistakenly routed a consumer payment to the wrong department, the issuer would not be allowed to assess a late fee on the cardholder for the resulting late payment. Instead, if the card issuer caused the late payment, it would be barred from assessing a late fee on the consumer.

In addition to provisions to improve practices related to interest rates, fees, and consumer payments, the bill would add two new definitions to the Truth in Lending Act, intended to further address concerns related to unfair credit card practices.

The first definition involves use of the term, ``prime rate.'' Many credit card issuers today use variable interest rates that are linked to the ``prime rate'' or ``prime interest rate'' and vary over time. For example, a disclosure may indicate that a credit card will bear an interest rate equal to the prime rate plus a specified number of percentage points. Since the 1950s, the term ``prime rate'' has been commonly understood to mean the lowest interest rate offered by U.S. banks to their

most creditworthy borrowers. That is how the term is defined, for example, in Webster's Collegiate Dictionary.

The problem, however, is that no current statute or regulation defines the prime rate referenced in credit card disclosures under the Truth in Lending Act, and some card issuers have stated expressly that the prime rate used in credit card agreements does not necessarily match the lowest interest rates they provide to their most creditworthy borrowers. Litigation has also arisen between cardholders and card issuers as to what is meant by the term and whether cardholders are being misled. A cite is Lum v. Bank of America, 361 F.3d 217 (3d Cir. 2004).

To remedy this gap in the law, the bill would require credit card disclosures under the Truth in Lending Act that reference the prime rate to use the bank prime loan rate published by the Federal Reserve Board. This published rate is widely accepted in the financial community as an accurate depiction of the lowest interest rate offered by U.S. banks to their most creditworthy borrowers, and the rate is readily available to the public on the Federal Reserve Web site. By mandating use of this published rate, the bill will ensure that consumers are not deceived by a credit card issuer using a misleading definition of the commonly used term ``prime rate.''

The second definition added by the bill to the Truth in Lending Act involves specifying the ``primary federal regulator'' of a credit card issuer. Today, many credit card issuers are federally chartered or regulated banks subject to one or more Federal bank regulators. The bill would make it clear that when a card issuer is a Federal bank, its primary Federal regulator is the same primary regulator assigned to the bank under Federal banking law. The provision would also make it clear that the primary Federal regulator is responsible for overseeing the bank's credit card operations, ensuring compliance with credit card statutes and regulations, and enforcing the prohibition against unfair or deceptive acts or practices in the Federal Trade Commission Act. Another provision in the bill would make it clear that Federal regulators are expected to conduct at least annual audits to ensure card issuer compliance with the statutes and regulations seeking to ensure fair and effective credit card operations.

The next section of the bill would improve current credit card data collection efforts. Right now, credit card issuers file periodic reports with the Federal Reserve providing information about credit card interest rates and profits. This data plays a critical role in credit card oversight efforts, as well as financial and economic analyses related to consumer spending and household debt. The bill would strengthen current data collection efforts by requiring more specific information on interest rates and fees. For example, current data reports cannot be used to determine how many credit card accounts have interest rates of 25 percent or greater, what types of fees are imposed on consumers, or how many cardholders are affected by such interest rates and fees. The new bill would ensure that regulators, credit card users, and the public have the information needed to answer those basic questions.

The bill would also require the development of credit card industrywide estimates of the approximate relative income derived from interest rates, fees imposed on cardholders, fees imposed on merchants, and any other material source of income. GAO provided this information for the first time in its 2006 report, estimating that the credit card industry now derives about 70 percent of its income from interest charges, 20 percent from interchange fees imposed on merchants, and 10 percent from fees imposed on consumers. This valuable information should continue to be collected so that regulators, credit card users, and the public gain a more informed understanding of the credit card industry.

The bill's data collection requirements are largely modeled upon and intended to replicate key interest rate, fee, and revenue data presented by GAO in its 2006 report, ``Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers.'' Credit card experts were also consulted to determine what information would be most helpful to strengthen credit card oversight.

The final provision in the bill would provide a 6-month transition period for credit card issuers to implement the bill's provisions.

Credit card issuers like to say that they are engaged in a risky business, lending unsecured debt to millions of consumers, and that's why they have to set interest rates so high and impose so many fees. But the data shows that, typically, 95 to 97 percent of U.S. cardholders pay their bills. And it is clear that credit card operations are enormously profitable. For the last decade, credit card issuers have reported year after year of solid profits, maintained their position as the most profitable sector in the consumer lending field, and reported consistently higher rates of return than commercial banks. Credit card issuers make such a hefty profit that they sent out 8 billion pieces of mail last year soliciting people to sign up.

With profits like those, credit card issuers can afford to stop treating American families unfairly. They can give up charging interest on debt that was paid on time, give up charging consumers a fee to pay their bills, give up hiking interest rates from 15 percent to 32 percent, and give up imposing repeated over-the-limit fees for a single over-the-limit purchase. As one Michigan businessman expressed it to the subcommittee, ``I don't blame the credit card issuers for putting me into debt, but I do blame them for keeping me there.''

Some argue that Congress doesn't need to ban unfair credit card practices; they contend that improved disclosure alone will empower consumers to seek out better deals. Sunlight can be a powerful disinfectant, which is why I have strongly urged the Federal Reserve Board to expedite its regulatory effort to strengthen credit card disclosure and help consumers understand and compare how various credit cards work. But credit cards have become such complex financial products that even improved disclosure will frequently not be enough to curb the abuses--first because some practices are so complex that consumers can't easily understand them, and second because better disclosure does not always lead to greater market competition, especially when virtually an entire industry is using and benefiting from practices that disadvantage consumers.

So when we find credit card practices that are inherently unfair, consumers are often best served, not by greater disclosure, but by stopping the unfair practices that take advantage of them. Among those practices identified in this bill are unfair interest charges that squeeze consumers who pay their credit card debt on time; unilateral and retroactive interest rate hikes that deepen and prolong credit card debt; unreasonable fees; and payment allocation practices that prevent consumers from paying off the credit card debts bearing the highest interest rates first.

Congress needs to enact proconsumer legislation that puts an end to unfair credit card practices. I am afraid that these practices are too entrenched, too profitable to the credit card companies, and too immune to consumer pressure for the companies to change them on their own. Our bill offers measures that would combat a host of unfair practices that plague consumers and unfairly deepen and prolong their debt. I look forward to working with my colleagues to address these problems.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, although long overdue, I am very pleased that the Senate has incorporated a bipartisan agreement to renew expiring tax provisions in the Emergency Economic Stabilization Act of 2008. These tax provisions are critical to families across America, and provide incentives for the production of clean energy and conservation that could create 100,000 new jobs. As working families are struggling to put food on the table and gas in their cars, I am especially grateful that the package assists the least fortunate among us by including a proposal to lower the income threshold for the refundable child tax credit that Senator Lincoln and I have championed.

I would especially like to thank Senators Baucus and Grassley as well as their staffs for working days, nights, and weekends in forging this agreement. These two leaders exemplify the bipartisan tradition of the Senate and how this body can get its work done if Members are willing to reach across the aisle to find the middle ground.

Unfortunately, partisan gridlock too often ties the hands of even these Senate stalwarts. I find it hard to fathom that, in what could potentially be the closing hours of this Congress, we are only now moving a step closer to enacting this legislation. At a time when renewable energy projects are being mothballed because of this uncertainty and Americans are demanding action on energy policy, I cannot believe that we have been abrogating our duty to serve the American people by our inaction on this time-sensitive issue. It seems to me that these tax extensions should have been the low-hanging fruit that we could have done much sooner.

We could have unleashed sooner renewable energy projects creating jobs, provided targeted tax relief to low-income working families struggling to pay the high cost of food and fuel, encourage an infusion of capital into rural and urban communities, provide tax incentives for retail businesses looking to grow their business, and help keep the jobs associated with film production within our borders.

This is occurring at a time when our economy teeters on the brink of recession; when we have seen the collapse of a banking institution founded in 1850, when the U.S. government has seen no other way but to take over major financial institutions; when unemployment surged to 6.1 percent last month--the highest rate since 2003; when gasoline at the pump is near $4 a gallon; when oil costs remain at $100 per barrel; and when foreclosures have hit historic levels, do we really want to say that we can't extend a renewable energy tax credit that caused 45 percent growth in wind energy production last year and that we can't adopt energy efficiency tax credits that create necessary incentives to reduce energy demand?

Consider the economic impact of inaction. Dr. Mark Cooper of the Consumer Federation of America estimates that from 2002 to 2008 annual household expenditures on energy increased from about $2,600 to an astonishing $5,300! In my state of Maine, where 80 percent of households use heating oil to get through winter, it's going to be even worse.

Last year at this time, heating oil prices were at a challenging $2.70 per gallon--for a Mainer who on average uses 850 gallons of oil, that is $2,295. With current prices at $3.80 per gallon, the cost per Mainer to stay warm will be at least $3,230, and that is not even considering gasoline costs. That is the difference between a burden and a crisis.

Now is not the time to allow energy efficiency tax incentives and the renewable production tax credit to expire. But that is what we are doing unless we pass this bipartisan package

today. Energy efficiency is by far the most effective investment that our country can make to address the calamity of an absent energy policy. Jerry Howard with the National Association of Home Builders states:

Our members build homes that are significantly more energy

efficient than those of a generation ago. But in today's

economic climate, home builders need incentives to spur them

to even more action.

It constitutes a dereliction of duty if Congress allows energy efficiency tax credits to expire. In fact, some tax credits already have expired, and as a result, there are currently no incentives to purchase efficient furnaces. At a time when Americans are worried about paying heating bills this winter, we must provide the assistance to encourage investment in energy-efficient products that will reduce our collective demand for energy, and save Americans money.

Yet we have jettisoned a $300 tax credit to purchase high-efficiency oil furnaces, which would produce more than $430 in annual savings for an average home--according to calculations based on Department of Energy data and recent home heating prices. We have sidelined an extension of a tax credit for highly efficient natural gas furnaces that would save an individual $100 per year. However, this tax credit ended at the beginning of this year--when oil prices began their historic rise.

That is why it is so critical that the extenders package that earlier passed the Senate included a significant portion of my EXTEND Act, which I have championed with Senator Feinstein. This legislation, supported by a sizeable group of businesses and environmental advocates, would revolutionize our building infrastructure and save our country expensive energy. My legislation included a long-term extension for energy-efficient commercial buildings, as well as an extension for energy-efficient residential buildings and new homes, investments that will reduce energy consumption for generations. This legislation would save our country $25 billion annually in utility bills by 2018.

I also wish to highlight the important provision that provides a tax credit for biomass stoves, a proposal initially introduced by Senator Sununu. When the costs of other heating sources are excessively high we should be providing options to consumers. I look forward to publicizing this tax credit to ensure that it can be utilized by homeowners this winter.

And for businesses that are competing against countries that subsidize oil, the situation is untenable. Earlier this summer, Katahdin Paper Company in my State announced that the cost of oil used to operate its boilers has caused the company to consider closing the mill's doors. Talks are underway to find alternative solutions to restart the mill's operations and revive its 208 jobs, but it is undeniable that these jobs hang in the balance because of unprecedented energy costs.

One remedy would be to create more renewable energy jobs that would help right a listless economy and boost investment in a secure energy future. Indeed, more than 100,000 Americans could have been put to work this year if clean energy production tax credits had been extended. We earlier could have unleashed renewable energy projects creating jobs, but instead, projects currently underway may soon be mothballed. Rhone Resch, president of the Solar Industries Association, says ``It is scaring away investment, just as our industry is beginning to get a toehold.'' Can you believe that? We are actually ``scaring away investment'' during these unprecedented economic times. Gregory Wetstone of the American Wind Energy Association said recently:

If Congress fails to act, it's a real blow to renewable

energy. It means that fewer wind turbines will be used to

generate pollution-free power in the United States.

Clean energy incentives for energy-efficient buildings, appliances, and other technologies, as well as additional funding for weatherizing homes, would similarly serve to stimulate economic activity, reduce residential energy costs, and generate new manufacturing and construction jobs. It is irresponsible to allow a bright spot in our economy, the renewable energy industry and energy efficiency industries, to falter when the output of these industries is so essential to the future of this country.

Extending these expiring clean energy tax credits will ensure a stronger, more stable environment for new investments and ensure continued robust growth in a bright spot in an otherwise slowing economy. I am encouraged by the bipartisan agreement that is before us today. We must not lose yet another opportunity to raise the bar for future domestic energy systems and energy efficiencies, benefiting our economy, our health, our environment, and our national security. I hope that the House of Representatives will quickly take up and pass this package.

Some may argue this is an election year and we must lower our expectations for getting things accomplished. I could not disagree more. And I met a remarkable woman from Maine earlier this year who could not disagree more--because time is quickly running out on this Congress to take necessary steps to help Americans like her. She told me she had three jobs--the first to pay for the mortgage, the second to pay for heating oil, and the third to pay for gas to be able to drive to her other two jobs--and this was back in April.

Solving this crisis is not about party labels. It is not about Republicans or Democrats--or red States or blue States. It is about what is good for America, and what unites us as Americans under the red, white, and blue. We must move in that direction as a country.

But, there is much more in this package beyond energy tax incentives. The legislation before us will extend the New Markets Tax Credit through 2009. Based on the New Markets Tax Credit Extension Act of 2007, which I introduced with Senator Rockefeller, this provision will help to ensure that investment dollars continue to flow to underserved communities.

Additionally, the tax extenders package will enable retailers who own their properties to depreciate over 15 years, instead of 39 years, improvements to those structures. Based on my legislation, this Main Street-friendly provision levels the playing field between owner- occupied and leased retail space and will help to generate additional construction and renovations to stores nationwide by lowering the cost of capital in a tightening credit market.

Also included is a provision that will allow companies to claim accelerated depreciation for the purchase of recycling equipment. This provision is based on my Recycling Investment Saves Energy, RISE, Act and will save energy, create jobs, strengthen local recycling programs, and improve the quantity and quality of recycled materials.

So as you can see, this package is more than just extending expiring tax provisions. This legislation will create jobs, move us closer to energy independence, encourage investment in low-income communities, and provide much-needed relief to low-income families struggling to meet basic needs. For these reasons, I strongly urge my colleagues in the House to swiftly take up this legislation and finally send it to the President for his signature.

I hope that when the Second Session of the 110th Congress adjourns, we can say we extended this critical tax package. I would also hope that at the beginning of next year, when a new Congress is sworn in, we will commit ourselves to serving those who have entrusted us with their votes, where reaching across the aisle is the norm, not the exception-- where looking for consensus is viewed as the answer, not an aberration.

Mr. President, I rise today with respect to the unprecedented financial rescue legislation that is before us in the U.S. Senate. And let me begin by first applauding Senator Dodd, Senator Gregg, Senator Bennett and Senator Corker for their perseverance in negotiating and developing a package, as well as the Republican and Democratic leaders' bipartisan work in what are most assuredly the most difficult of circumstances.

Where we stand today is at the precipice of a financial crisis, the magnitude of which is already of historic proportions--threatening future economic growth, jobs for hardworking American families, retirement savings for our seniors, and the ability of Americans throughout the country from all walks of life to access credit for attending college, purchasing a

house or automobile, and running their small businesses. Indeed, the very underpinnings of our economy are imperiled.

This is where we are. The options we face looking forward are not ones that any of us here would choose--far from it. The American people are angry--and I share that anger. Indisputably, the dimensions of greed that precipitated this crisis are unconscionable and outrageous-- and there should be no debate whatsoever that those responsible must be held fully accountable.

The question before us now is, Should the Federal Government intervene in our financial institutions? Does the current situation's gravity necessitate an action that would, under almost any other circumstance, run counter to our fundamental economic tenets? Or do we allow this current crisis of confidence, liquidity and solvency to continue, with the attendant fear it perpetuates, undermining the functional future of our economy? What would be the consequences if we failed to attempt to stem the financial hemorrhaging when we had the opportunity to do so, before the sequence of corrosive events truly becomes unstoppable and irreversible?

So, it is little wonder that people in my home State of Maine and in every State in the Union are rightly asking, How could this have happened? How could some possess such a voracious appetite for wealth combined with a stunning lack of moral fiber that they would so cavalierly allow their wanton financial wagers to cripple our economy-- to the extent that every American family is now steeped in anxiety and fear about our future?

And how exactly could nearly $3 trillion worth of toxic financial securities that were previously rarely used and little known have been swapped around like betting parlor wagers--with no transparency, no oversight, and no questions being asked by those who should have an obligation to do so?

We have already witnessed the dramatic beginnings of the dangerous tailspin this investment shell game has produced. The recent bankruptcy of the 158 year old institution Lehman Brothers, the Federal takeovers of American International Group and Bear Stearns, the implosion of Fannie Mae and Freddie Mac and their entry into Federal conservatorship, the $557 billion in losses and write-downs on subprime investment worldwide, the single largest bank failure in the history of the United States with Washington Mutual following the collapse of IndyMac, the firesale of nearly insolvent Wachovia--the fourth largest bank in the country--to Citigroup all demonstrate the expansive reach of the crisis. They illustrate at the very least a catastrophic failure to accurately calculate the risk of these investments and the resulting, paralyzing lack of confidence and solvency currently crippling our financial system.

According to Treasury Secretary Henry Paulson, this is the first time we have ever had the failure of AAA-rated bonds--the most highly rated bonds outside of Treasury bonds. This is unheard of, and has sent shockwaves throughout the markets, leading everyone from large corporations to the retirees living on their interest payments to ask, what can they trust if they can't trust AAA-rated bonds? But we now know that many of those bundled, subprime securities were passed-off as high, investment grade securities when in fact they were anything but. So we must ask where were the rating agencies in fulfilling their vital role in accurately identifying these risks?

Moreover, as the instability and loss of value in mortgage securities has become crushingly apparent, investment firms have now ceased extending short-term loans to investment banks--which sounded the ultimate death knell for those firms that have already gone under. And because subprime assets can no longer be valued or sold, banks continue to carry these nonperforming loans on their books--and therefore they cannot move forward in generating the credit that is the lifeblood of our economic growth.

Small firms--which have generated 60 to 80 percent of net new jobs annually over the last decade, are finding it difficult to access credit as existing credit lines are shut down and loans canceled. One owner of a small firm had his business credit card limit severely reduced the day before payday. This reduction may force him to temporarily close his business, leaves him unable to pay his workers, and in arrears to the IRS for $20,000. Further, the National Small Business Association just released their findings that, this past February, 55 percent of small business owners believed their business had been affected by the credit crunch--and as of August, that number had jumped to 67 percent.

The crunch is even affecting the ability of States to implement transportation projects that enhance economic competitiveness and create jobs--at a time when America is already suffering under a 6.1 percent unemployment rate, with 605,000 jobs so far this year and another 100,000 estimated lost in September. Last week, incredibly, my home State of Maine was unable to sell a $50 million, AA-rated transportation bond because frozen credit left officials with no market for these bonds. And I am told that when Maine is finally able to issue the bond, the liquidity crunch will have driven up rates compelling Maine taxpayers to pay millions of dollars in extra interest payments on these necessary road projects.

As further evidence our capital markets are clogged, one need look no further than the London interbank offered rate, LIBOR, which is the benchmark rate at which banks will loan unsecured funds to one another. Prior to yesterday, the LIBOR had reached 3.93 percent--near an 8-month high. Then in the last 24 hours, the LIBOR surged more than four percentage points to 6.9 percent--to the highest level ever! This is more than three times the percentage that would prevail under normal market conditions and means that financial firms are reluctant to lend to one another under reasonable terms.

Moreover, community banks play an especially important role in providing credit and capital to small businesses; 48 percent of small businesses are customers at banks with less than $1 billion in assets. If the nonperforming loans remain with the community banks, it could decrease the banking system's lending capacity by as much as $450 billion.

Given what we have already experienced this September--that regular investors pulled $335 billion out of money market funds, that the cost of overnight lending between banks jumped 116 percent, that capital has evaporated, that major banks have failed, that small firms--as well as large--have been suddenly denied access to existing credit lines, never mind new loans--that on this Monday alone the U.S. stock markets lost $1.2 trillion, it is difficult to conclude there won't be serious and systemic consequences for our economy--for household finances, for American jobs--when the full impact of this meltdown truly manifests itself and we face the imminent threat of a severe recession.

And so we return to the original and central question--are circumstances compelling enough to warrant government intervention? Regrettably, given this travesty of unfathomable proportions for American taypayers and families, they are. In the words of Treasury Secretary Paulson:

These illiquid assets are clogging up our financial system,

and undermining the strength of our otherwise sound financial

institutions. As a result, Americans' personal savings are

threatened, and the ability of consumers and businesses to

borrow and finance spending, investment, and job creation has

been disrupted. To restore confidence in our markets and our

financial institutions, so they can fuel continued growth and

prosperity, we must address the underlying problem.

And Federal Reserve Chairman Ben Bernanke has warned:

This is the most significant financial crisis of the

postwar period.

When our government's financial leadership employs words such as ``undermining,'' ``threatening,'' ``most significant financial crisis,'' it must be considered with the utmost seriousness that it is time to move from the ad hoc approach of assisting companies only at the point they are failing and act prescriptively, now, to stem the tide of a looming financial meltdown.

I well recall the savings and loans crisis, from when I served in the U.S. House of Representatives. During that time, 747 savings and loan institutions went bankrupt, leading to the loss of $160.1 billion in depositor assets. Yet it was only after these failures that Congress finally established, in 1989, the

Resolution Trust Corporation to sell off assets of these already failed financial institutions. Today, it is imperative we act before a similar but far more pervasive cascade of financial failures paralyses our markets and destroys the value of $5.6 trillion in retirement and private pension investments that are imperiled by this ongoing market turmoil.

Again, I commend the tireless work of Senators Dodd and Gregg for crafting legislation that ensures that this rescue process will not be open-ended, ambiguous, or unfettered for placing taxpayers front and center for repayment and building in strong taxpayer protections throughout the proposal, for clamping down on executive compensation with tough restrictions that will prevent corporate managers from profiting on the backs of taxpayers for providing necessary, timely, and crucial mortgage relief to families facing foreclosure, for calming banks and depositors by increasing deposit insurance to $250,000, and by including the extension of critical tax incentives and a patch for the alternative minimum tax to ensure millions of middle-class American taxpayers do not fall victim to this onerous levy.

With the passage of this legislation comes the forceful responsibility to recover all of the costs of this program for taxpayers. To fulfill this mandate taxpayers are given an ownership stake in participating companies which ensures they will be first to profit when these companies recover. If, after 5 years, taxpayers have not been made whole, for the costs of this rescue, the President is required to act to recoup any shortfall from the companies which benefited from the Treasury's actions.

Importantly, in addition to provisions limiting executive compensation, are measures addressing so-called retirement ``golden parachutes,'' payments that are often extremely generous and disconnected from performance. Under this bill, for participating financial institutions, the Secretary of the Treasury would be empowered to set compensation standards to exclude incentives for excessive risk taking, recover bonuses paid based on inaccurate earnings statements; and prohibit future golden parachute payments. For companies selling more than $300 million of the toxic securities to the government, tax deductible executive compensation would be limited.

To guarantee strong and comprehensive oversight, I supported provisions championed by Senators Baucus and Grassley to establish an independent inspector general that will focus solely on the Treasury's purchase and sale of illiquid assets. I also championed the inclusion of provisions that require Federal agencies to cooperate with the Federal Bureau of Investigations to investigate fraud, misrepresentation, and malfeasance with respect to development, advertising, and sale of the financial products which created this systemic crisis. This became section 127 of the bill.

Passing this legislation--to stabilize markets and restore American's confidence in their financial firms in order to return to the normalcy necessary for credit and commercial activity to revive--must be the first phase of our action to restore the system for American taxpayers, but it can by no means be the last.

The second phase of our obligation is for Congress to demand accountability for the massive malfeasance that has been perpetrated on the American people. The congressional pursuit--through hearings that Senator Dodd has indicated he will hold--must occur in tandem with the legal investigation and prosecution of those responsible for this meltdown. Both must receive the same rigorous attention we have applied to this rescue package--and not subsumed by the routine of day-to-day legislative process moving forward.

Therefore, I will introduce legislation to form a dedicated office within the Justice Department whose sole mission is to ferret out the rout causes of this catastrophe and bring to account those who are criminally responsible for bringing our financial system to its knees. It would be inconceivable to me to devote anything less than 100 percent of our resources to investigating those responsible for this crisis. No one should reap rewards from this colossal failure. And frankly, any Wall Street individual who is found criminally responsible must follow the Enron executives to prison!

Finally, as the third phase of congressional action, as we have an iron-clad obligation to ensure that this calamity is never repeated, we are required to reform and rebuild our financial regulatory structure. Congress must demand the restoration of accountability and transparency from all of our financial products, including complex securities such as mortgage backed investments or credit default swaps, whose risk characteristics largely have been black boxes in the past. It is essential that people must know--and the federal government is aware of--the level of financial risks that companies are taking. We must understand whether firms are creating systemic risks that could undermine the foundations of our financial system.

It is essential we must utilize the remainder of this year to develop the fundamental reforms necessary to fix this systemic problem. Again, Senator Dodd has announced hearings over the next couple of months to examine the root causes of this catastrophe. Congress must also consider all proposals for reform, such as the ``Blueprint for a Modernized Regulatory Structure'' that Treasury Secretary Hank Paulson put forward in March. As Secretary Paulson's plan concludes, ``the existing functional regulatory framework no longer provides efficient and effective safeguards against poor prudential behaviour of financial services firms.''

Indeed, as we have unmistakably learned, the current regulatory structure, which has been largely knitted together over the past 75 years, can not protect us from the type of systemic risks that are ravaging our financial markets and economy. Financial institutions have developed products and complex risk-hedging strategies that today's regulatory structure has failed to properly evaluate and oversee--with disastrous results. We can never again allow the U.S. financial industry to act with impunity, and make the highly speculative investments that have today put in jeopardy the health, stability, and growth of our economy.

The bottom line is that we do not have a moment to lose in developing a regulatory oversight structure that keeps pace with whatever new financial instruments may be developed in the future. We can never again find ourselves in the position of having to vote for another financial rescue package. Instead, we must take the weeks ahead to draft bipartisan and bicameral legislation to eliminate systemic risk in financial markets and protect our economy over the long term.

Senator Baucus and I asked the Government Accountability Office to review the accuracy of tax returns that are filed reporting capital gains. The GAO found that as many as 7 million individual taxpayers, or 36 percent, who sold securities in 2001 may have misreported capital gains or losses, and around half of those taxpayers did so because they misreported their basis. This information reporting proposal will reduce errors and help taxpayers to file their returns more accurately.

The Congress further intends that the IRS will exercise its administrative authority to revise forms and take other actions as appropriate to help brokers and taxpayers understand and comply with this new law so that burden is reduced, errors decrease, and compliance is enhanced.

Mr. President, this Congress is on the cusp of making an extremely difficult decision that will not only affect our financial markets in the near term, but it will also leave a lasting footprint on the direction of the our economy for years to come.

We face an unprecedented economic challenge--failing banks, declining credit, rising unemployment, and a likely recession. These problems have led us to the point of placing hundreds of billions of taxpayer dollars at risk to purchase risky subprime mortgages in an effort to avoid, or lessen the impact of these looming problems. Allow me to discuss a few of the factors that led us to where we are today.

In response to the high-tech, dot-com bust in 2000, the Federal Reserve began a series of interest rate cuts reducing the Fed Funds rate from 6.5 percent to 1.0 percent. The rate averaged 1.4 percent from 2002 through 2004.

As cheap credit flooded the markets, financial institutions borrowed money at low short-term rates and invested at higher long-term rates-- playing the spread. They adopted reckless lending practices under the political banner of increasing homeownership. These practices included ``liar loans,'' i.e. no credit check, no-money down, interest-only, negative amortization, i.e. missed payments are added to the principal, adjustable-rates, and balloon payments.

As these risky loans were extended to marginal borrowers who could not afford their overpriced homes, the financial wizards on Wall Street devised schemes to theoretically insure themselves against default. These so called ``credit default swaps'' allowed investors who purchased mortgage-backed securities to pay fees to underwriters, like AIG, in exchange for a promise to cover any losses. However, the underwriters often failed to acquire and

maintain adequate reserves to cover such losses.

There is plenty of blame to go around for getting us into this mess. But the financial problems we face are much bigger and more fundamental than the home mortgage market itself.

Our financial system is based on the fundamentally unstable practice of maturity transformation--more commonly known as borrowing short and lending long.

The consequences of this practice are illustrated in the classic movie ``It's a Wonderful Life.'' In this movie, Jimmy Stewart plays the owner of the Bailey Building and Loan Association. In the wake of the Great Depression, the citizens of Bedford Falls panic and begin a run on his bank. Stewart's character explains that he does not have their money, but rather it has been used to build their homes. He asks them to be patient, and they will eventually get their money back. But they persist. He ultimately stops the run by convincing them to take only what they need right away. He uses his own money that he was saving for his honeymoon to repay his customers.

The scene from this movie illustrates the fundamental instability of our current financial system. We operate under the illusion that we can deposit our money in a bank and then withdraw it anytime we choose. But at the same time we expect the bank to pay us interest on our deposits.

However, the interest we receive can only be achieved by giving our money to someone else to invest for weeks, or months, or years.

Maturity transformation works only as long as people have confidence in our banking system. Federal deposit insurance was created to instill this confidence. By having the Government stand behind our banks ready to provide the cash necessary to repay our deposits, there is no reason to have a run on a bank. Moreover, if there is a run, banking regulators can swiftly close down the failed bank, or orchestrate a takeover by a healthier bank, and promptly resolve the problem.

Deposit insurance is not a perfect system, as we learned from the savings & loan fiasco in the late 80s and early 90s. Deposit insurance creates moral hazard. Because depositors are protected from their bank's failure, they have no incentive to question the reckless lending practices of their bank. Without adequate oversight, risk-based premiums, and adequate capital requirements, deposit insurance is unsustainable in the long run.

The current home mortgage mess is merely an extension of the maturity transformation and moral hazard problem. But in this case, instead of depositors and deposit insurance, we have overnight loans and too-big- to-fail institutions.

Essentially what happened is Wall Street created an alternate banking system in which participants loaned each other money overnight and invested in mortgage backed securities. They treated their overnight loans as deposits, and they relied on the widely-held belief that once their activities reached critical mass, they would be too-big-to-fail and the Government would bail them all out if anything went wrong.

This financial house of cards collapsed as home prices began to fall and default rates began to rise. At that point, investors became unwilling to rollover their overnight loans. Participants began to suggest there was not enough liquidity. That is a fancy way of saying investors were no longer willing to lend money overnight to buy long- term assets that were declining in value.

So what is the solution?

Last week, the President asked Congress to enact legislation to address this problem. The original plan proposed by Treasury Secretary Paulson would have authorized the Government to buy $700 billion in mortgage-related assets. By taking these troubled assets off the books of financial institutions, it was hoped the government could stabilize falling asset prices and restore investor confidence. Since this plan was first proposed, improvements have been made.

The bill we are considering isn't perfect. Like my constituents, I am outraged that we are in this position today. But the fact is, we are facing a global economic meltdown. Irresponsible lenders and greedy investors have put small businesses, farmers, and families at risk. While many in Iowa may not yet see the effects, our inaction will lead them to understand how dire this problem truly is. We must unfreeze the financial markets as soon as we can, and this is the only solution on the table that will come close to working. We can't guarantee to the taxpayers that this solution will work. What we can say is that we are doing the best we can, representing our constituents the best we can, and trying to solve the problem before the American people really have to suffer the consequences.

What I have come to learn is that the credit crunch doesn't just impact Wall Street. Our economy depends on America's small businesses. We are nine meals away from a revolution, making the farmer an integral part of our country's survival. But farmers and businesses are at risk. Parents who are hoping to send their children to college may not get the loans they need. Individuals that need loans to purchase autos or homes may be left without a ride to their workplace or a roof over their head. There is a trickle-down effect that is sure to be felt if Congress sidelines this bill today.

Since Congress was urged to act, I have stated--in public and private sessions--that there are core principles that must be addressed before I would vote for the bill. I wanted to see strong oversight of the program, including an independent inspector general. I wanted strict executive compensation restrictions for CEOs that got us in this mess. I wanted those who are responsible to give up their pin-striped suits for orange jump suits and to be held accountable. I wanted assurances that the Government would take equity in the firms we bail out. The bill, unlike the original Treasury proposal, includes the core principles I wanted to see. This bill is an improvement from the Treasury plan because there is transparency, oversight, and more protections for taxpayers.

One of the duties I take most seriously as a U.S. Senator is overseeing the policies and activities of the Federal Government. Government must have its checks and balances in place to prevent waste, fraud, and abuse by bureaucrats in Washington. I have been the chief supporter of inspectors general at Federal agencies, and making sure they remain independent overseers of taxpayer dollars. The proposal brought forward by the Secretary of the Treasury failed to include any oversight. Because the emergency plan is sure to be one of the most complex and difficult tasks ever undertaken, I pushed the leaders in the House and Senate to include a special inspector general to monitor the activities of the Treasury Department and its contractors. Timely, comprehensive and truly independent reporting is critical to these oversight efforts.

I am glad oversight was included in this bill. Not only will there be a special inspector general, but we will also have a financial stability oversight board responsible for reviewing the exercise of authority under the program, including the review of policies and making recommendations to the Secretary. Additionally, there is established a congressional oversight panel to review the current state of the financial markets and the regulatory system. This panel will be independent, tasked with reviewing the administration of the program. They will also study the effectiveness of foreclosure mitigation efforts and the effectiveness of the program from the standpoint of minimizing long-term costs to the taxpayers.

Despite these oversight boards and panels, you can be sure that I will not let up on my efforts to reign in fraud, abuse and misconduct. I will not tolerate bureaucrats taking advantage of taxpayer money, and will do my best to make sure heads roll if conflicts of interests by those who run the program are suspected.

Like all Iowans, I am concerned about the risk that this plan places on hard working and responsible taxpayers. Since we began discussing this plan, using taxpayer dollars responsibly has been the top priority. That's why many taxpayer protections were added to the bill.

Treasury's proposal had minimal oversight to protect taxpayer dollars. Like I said earlier, this compromise enhances the oversight structure by creating a financial stability oversight

board, a special inspector general, and a congressional oversight panel. It also requires the Secretary to develop regulations and guidelines necessary to prohibit or, in specific cases, manage any conflicts of interest with respect to contractors, advisors, and asset managers.

The Secretary also has to take steps to prevent ``unjust enrichment''--or paying more for a troubled asset than what the seller paid to purchase it. The Secretary--in considering the purchase of troubled assets--must take into account the ``long term viability'' of the financial institution. The bill requires Treasury to take an equity stake in the companies from which it purchases troubled assets. And it requires the Treasury Department to be transparent when they buy and sell. In fact, they must post, within 2 days, the purchases, amounts, and pricing of assets acquired. These provisions will help shield taxpayers from losses and may provide taxpayers with potential future benefits.

Should taxpayers lose out, the bill allows the government to go back after 5 years to recoup losses from financial companies. The Office of Management and Budget and the Congressional Budget Office will report on the net amount lost in the TARP after 5 years. The Government can assess a fee on companies that use TARP to make sure taxpayers don't lose out in the long run.

I am also glad that the final bill does not siphon profits from the program for an existing housing trust fund, as was proposed by the other side of the aisle. I firmly believe that all proceeds of sales must go to the Treasury and back to the taxpayers.

Taxpayers are protected because the final bill doesn't provide $700 billion upfront. The Administration originally wanted the authority to have it all at once, but this bill provides for the program to be implemented in stages. Only $250 billion will be provided immediately, and another $100 billion will be provided upon a written certification of need by the President. Finally, the remaining $350 billion will be provided unless Congress acts. Let's be clear. Congress can act anytime to revoke the Treasury's authority. They will be watched, and they will be questioned. And if Congress doesn't like what it sees, we can repeal this economic stabilization plan.

Finally, this bill provides for an increase in the deposit insurance cap through the Federal Deposit Insurance Corporation. The last time we increased the level was in 1980. The provision temporarily increases from $100,000 to $250,000 the amount of deposit coverage for banks and share coverage for credit unions. The coverage amount reverts back to $100,000 after December 31, 2009. The bill that was voted on by the House did not include this provision, which is an added protection for American families and businesses.

I am supportive of a provision in the bill to modify the tax treatment for banks holding preferred stock in Fannie Mae and Freddie Mac. The proposal would allow banks to treat gains and losses on Fannie Mae and Freddie Mac preferred stock as ordinary, instead of as capital, for tax purposes.

I have heard this relief is important for a number of Iowa community banks. These banks were permitted and even encouraged to hold these investments. These investments were believed to be safe. They had the backing of the Federal Government and provided reliable revenue streams through quarterly dividends.

In the wake of Treasury's acquisition of close to 80 percent of Fannie Mae and Freddie Mac, these preferred shares became virtually worthless. These small banks generally don't have capital gains. Accordingly, without this provision, they would not be able to recognize a tax deduction for their losses. This provision will help community banks satisfy their regulatory capital standards in order to continue to lend and support economic activity and growth in their local communities.

This legislation includes limits on executive compensation. I will be honest: I wish the executive compensation limitations were stronger. However, the limitations included in the bill are a step in the right direction. Why? Because those executives that got us into this mess should not be able to walk away from the institution that they ran with oodles of money. Not only should they be prohibited from walking away with oodles of money, they should go before the board of directors-- before the public--and before the stockholders and bow deeply and apologize for their mismanagement. Like the Japanese do. But I will say this--I will take what I can get, and I will look forward to taking a closer look at excessive executive compensation in the next Congress.

Despite my reluctant support for this bill, I remain concerned about the lack of provisions that will bring about long-term changes to our financial health. I would have liked to see language to address the underlying problems that led us to this emergency relief bill. However, I realize this situation calls for an emergency reaction, and we must temporarily forego consideration of provisions that would beef up the securities markets, and toughen regulations for companies that do business on Wall Street.

Take hedge funds, for example. Two years ago, I started conducting oversight of the Securities and Exchange Commission in response to a whistleblower who came to my office complaining that SEC supervisors were pulling their punches in their investigation of a major hedge fund. Nearly a year and a half ago, I came to this floor to introduce an important piece of legislation based on what I learned from my oversight. The bill was aimed at closing a loophole in our securities laws. In light of the current instability in our financial system, I think it is critical that Senators take another look at this bill. It is S. 1402 the The Hedge Fund Registration Act. It is pretty simple, only two pages long. All it does is clarify that the Securities and Exchange Commission has the authority to require hedge funds to register, so the Government knows who they are and what they're doing.

Given the SEC's current attempts to halt manipulative short selling and other transactions by hedge funds that threaten the stability of our markets, I am disappointed that the Senate did not adopt this legislation long ago. If it had, then the SEC might have more of the tools it needs now in these nervous markets.

One major cause of the current crisis is a lack of transparency. Markets need a free flow of information to function properly. Transparency was the focus of our system of securities regulations adopted in the 1930's. Unfortunately, over time, the wizards on Wall Street figured out a million clever ways to avoid transparency. The result is the confusion and uncertainty fueling the crisis we see today. This bill would have been one important step toward greater transparency on Wall Street, but so far it has been a lonely effort on my part.

Another problem in bringing about transparency in the market is the notion of suspending mark-to-market Rules. Mark-to-market accounting requires entities to calculate fair market value by estimating the price that would be received for that asset in an orderly transaction occurring on a specific date, i.e. willing buyer-willing seller. Contrary to public perception, the mark-to-market rule is not new. Other existing accounting standards have and continue to require certain assets to be written down if the asset value falls below cost. This is often referred to ``lower of cost or market''. Under mark-to- market, assets are required to reflect fair market value so they are measured above cost or below cost depending on market conditions. According to the Center for Audit Quality, an autonomous public policy organization affiliated with the American Institute of Certified Public Accountants, AICPA,``suspending mark-to-market accounting would throw financial accounting back to a time of less comparability, less consistency and less transparency''. This position is supported by the Council of Institutional Investors and the CFA Institute. The chairman of the Financial Accounting Standards Board said it best when he said ``the harsh reality is that we can't just suspend or modify the financial reporting rules when there is bad news.''

I hope Congress will consider these key statutory changes that are needed when we return early next year.

Aside from the economic stabilization plan that we are voting on today,

we are again discussing legislation designed in part to deal with time- sensitive tax matters. I strongly support this part of the package.

These identical AMT relief, disaster tax relief, and individual, business, and energy tax extender provisions were passed by the Senate by an overwhelming vote of 93-2 just last week. There are five categories of tax relief provided in the bill. The first one is the AMT patch. It expired on December 31 of last year. If we don't act, 24 million families will face an average tax increase of at least $2,000 each.

The second category of tax relief includes several tax benefits available to middle income taxpayers. They expired on December 31 of last year.

Included are deductions for out-of-pocket expenses for teachers, sales tax, and college tuition. Millions of taxpaying families would face an unexpected tax increase.

The third category consists of many valuable business incentives, like the research and development tax credit, that likewise expired.

In this time of high oil prices and instability in the energy markets, Congress should send a clear signal in support of alternative energy and conservation. This is the fourth category. We will not let the wide assortment of tax incentives for alternative energy and conservation expire this year.

The fifth and final category deals with disasters that have ravaged the Nation's heartland and the gulf coast. We need to respond to the folks in those regions, including my home State of Iowa.

This is must-do business. Congress cannot dawdle any longer. With a sense of urgency, Senators Reid and McConnell have devised a path for the Senate to complete action on these provisions. I would have rather processed this time-sensitive business several months ago, but better late than never.

Our leaders provided Chairman Baucus and me with the authority to make the deal. That was the critical step. I pulled out my notepad and resharpened my pencil. Chairman Baucus did the same thing. We have a bipartisan deal evidenced by our 93-2 vote last week.

Last year, I laid out the principles Senate Republicans would follow when it came to revenue raisers. The first principle would be whether the proposal is good tax policy. If the proposal is good tax policy, then we would support and vice-versa. This compromise meets that principle.

The crackdown on offshore deferred compensation plans is appropriate tax policy. I am pleased that we made it tougher on hedge fund managers by removing a charitable loophole. Likewise, the offsets in the energy portion of the bill are appropriate policy.

The second principle deals with how revenue raisers are accounted for. This is where the parties differ. How do they differ? Republicans don't want to go down the slippery slope of building in a bias towards tax increases and against current law tax relief. This is especially compelling when appropriations are wholly outside the Democratic version of pay-go. Likewise, $1.2 trillion of expiring entitlement spending does not figure into pay-go. The Democratic version of pay-go sets us down an irreversible path of higher taxes and higher spending.

If expiring tax relief and expiring spending and appropriations were treated similarly, maybe the deficit reduction rationale behind pay-go would be somewhat credible. As it exists now, it only reinforces an ideology of higher taxes and spending. The rejection of Senator McConnell's deficit neutral offer on AMT and extenders proves my point.

In any event, we found ourselves at an impasse. Democrats insisted on offsetting current law tax relief and Republicans resisted more tax and spend. Republicans were willing to use revenue raisers for new policy and for long-term or permanent tax policy. Republicans did not want to use revenue raisers for new spending.

We came to a compromise by looking at this impasse as a kind of prism. A prism breaks one beam of light into several different shades. Each side can look at the different shades of the prism from their own viewpoint and see that their principles were upheld.

At the end of the day, we will have an AMT patch, extenders, energy, and disaster relief package that is a compromise. Republicans will see that the compromise meets their principles. The offsets are good policy. From a Republicans standpoint, there is enough new policy in the energy part of the deal to tie the non-energy offsets. Otherwise, energy incentives are reformed. Republicans can see that the biggest item in the bill, the AMT patch is not offset. That preserves our point that the unfair AMT should not be a reason to raise taxes on other taxpayers. Likewise, there is enough new and modified policy to tie to the offshore deferred compensation revenue. Bottom line is that the leaders were able to secure a longer term extension of current policy as well with the revenue.

Democrats are able to see the offset policy from their standpoint. Democrats wanted significant revenue raisers and they got them. Both sides wanted the underlying revenue losing extensions and new policy.

Most prisms are delicate and transitory. This one is no different. Our friends in the House need to see that. They can break this fragile prism. The shards will cut millions of taxpaying families.

This deal defers the very vital debate between Republicans and Democrats on whether we tax our way out of this fiscal situation, the Democratic view. Or do we restrain spending, the Republican view.

That important debate, which has held us up for so long, is deferred to another day.

Each side holds to its principles. Each side does the Peoples Business. I thank Chairman Baucus and the leaders on both sides.

The tax provisions of this bill present the opportunity to preserve tax relief for millions of middle income families.

I would like to end by saying that I reluctantly support this bill. Again, I am outraged that Congress is in this position to relieve Wall Street and our financial industry. But, unfortunately, this is the hand we have been dealt and the options we have are limited.

I know people in Iowa are opposed to this bill. They would rather see companies fail than to have their dollars used to bail them out of this mess. My vote for this bill is not easy because I respect those concerns, and I agree with them. At the same time, this legislation is the best opportunity we have today to avoid a credit crunch that might cripple our economy. No doubt credit will be tighter with or without this bill as the system becomes more cautious after acting too fast and loose for too long. The argument for this bill is that by unplugging the pipeline that is clogged up with bad debt, good credit can flow. The U.S. Treasury can hold all that bad debt until its value returns with the goal of having the taxpayers recover some of the money, and possibly a great deal of the money, that's being committed with this legislation.

I have to vote in favor of this plan because I want to protect the people back home from what is coming their way if we don't act. I hope my constituents will understand why I feel the need to support this bill.

Madam President, I ask unanimous consent to be recognized to speak for up to 15 minutes.

Madam President, I rise today to speak before we take what will be one of the most important votes, unrelated to war, many of us will cast in the U.S. Senate.

The proposal before us provides $700 billion to buy illiquid assets from financial institutions. The stated goal of this scheme is to return confidence and liquidity to our credit markets.

We did not get into this situation in a matter of days, and we are not going to fix it with a piece of legislation quickly cobbled together in back rooms of the U.S. Capitol.

In fact, this crisis has been years in the making. Over the last decade, trillions of dollars were poured into our mortgage finance markets, often at the direction of well-intended, albeit ill-conceived, Government programs.

At first, the money backed conventional mortgages with standard downpayments and properly verified incomes.

Over time, the number of home buyers who met conventional loan requirements dwindled. In order to fuel the upward spiral, mortgage products became more exotic, requiring less of borrowers and involving more risks.

Without regard for fiscal prudence and simple economics, mortgage brokers, realtors, homebuilders, mortgage bankers, and home buyers created the conditions that helped inflate the housing bubble.

At the same time, Wall Street was developing ever more sophisticated finance vehicles to ensure that money continued to flow into the mortgage markets to meet the demand.

Mortgages were pooled, packaged, and rated ``investment grade'' by the credit rating agencies. They were then sold into a market eager to purchase securities with a wide range of risks and yields.

Many purchasers employed massive amounts of leverage, layering risk upon risk in an effort to maximize return. To cover their risks, many of these buyers also bought credit protection from one another, entering into derivatives contracts with nominal values in the hundreds of trillions of dollars.

Eventually, economic reality caught up with us. Housing prices stalled and then began falling.

Many who bought homes with unconventional loans were unable to afford their rising payments. Because home values were dropping, they were unable to refinance and delinquency rates skyrocketed. This trend has not yet abated.

Once homeowners began defaulting, the value of mortgage-backed securities plummeted.

Collateralized debt obligations, or CDOs, that were comprised of the riskiest mortgage-backed securities became worthless. As a result, financial institutions holding securitized assets have suffered enormous losses and have been desperately trying to raise new capital.

I have been a member of the Senate Banking Committee for over 20 years. When I joined the committee, the savings and loan crisis was just beginning to unfold.

Let me remind my colleagues that it took nearly 10 years, five Congresses, and 3 administrations until that smaller, more contained crisis was resolved.

Personally, I learned a few solid lessons from that experience. I came to understand that bank management, bank capital, and sound regulatory policy make a major difference.

What I learned then has guided me ever since.

For example, in 1995, I opposed the expansion of the Community Reinvestment Act. I did not take this position because I am against lending to minorities or low-income individuals. My concerns were based on the simple fact that credit cannot be safely extended on any basis other than risk, and risk cannot be mitigated through social engineering.

The appropriate allocation of credit is not political, it is based on merit. Those with good credit receive the best terms and lowest rates. Those with bad credit receive the worst terms and the highest rates, or in some cases, no credit at all.

The CRA was an attempt to get around this fact and it failed. I remind my colleagues of this as we prepare to buy assets backed by the very same mortgages born of this flawed policy.

I find it ironic that many of those who supported the legislation that upended the basic concept of risk-based lending are now saying that our present circumstances are an indication that the free market failed. Federal policy, not free market decisions, fueled risky loans to unqualified borrowers.

In 1999, I opposed the financial modernization bill. Despite Alan Greenspan's proclamations, I did not think it provided a sufficient regulatory structure to oversee the financial system it created. I was also concerned that it lacked some basic consumer privacy protections. Many are now claiming that deregulatory effort led us directly to where we are today.

In 2001, I became concerned about the banking regulators' effort to modernize bank capital standards through what is known as Basel II. While it was very important to update those standards, it appeared to me that ``modernization'' was focused more on reducing bank capital levels than improving bank capital standards.

During the process, it often seemed that the regulators were more interested in industry priorities than protecting the banking system. I spent nearly 5 years trying to ensure that the regulators produced a balanced rule that focused on safety and soundness.

When I became chairman of the Banking Committee in 2003, I immediately became concerned with the financial health and regulatory structure of the Government sponsored enterprises, Fannie Mae and Freddie Mac.

I did not think the entities had sufficient capital, management controls, or regulatory oversight. I was particularly troubled about their size because their combined portfolios amounted to nearly $2 trillion at that time.

I believed that their operations posed a systemic risk to the financial markets. After each disclosed that they had committed serious accounting fraud, my concerns grew more focused and I stepped up my efforts to pass legislation.

Those efforts were rebuffed by the Democrats on the Banking Committee. And, let us be clear as to what the GSEs were doing at this time.

From 2004, when we began considering GSE legislation, up until very recently, the GSEs went on a nearly trillion dollar sub-prime and Alt-A mortgage-backed security buying spree. Madam President: $1 trillion.

I do not know for sure what motivated them in this effort, but I do know the GSEs were spending hundreds of millions of dollars lobbying Congress in an effort to stave off additional regulation.

Fannie's and Freddie's greatest allies were those that advocated and, at times, demanded that the GSEs continue to facilitate sub-prime and Alt-A borrowing. As long as they complied, real regulation was dead.

This symbiotic relationship, in turn, fueled an already over heated market to grow even hotter.

As the driving force in mortgage finance, this purchasing effort also broke down what scant underwriting standards remained in the market place. Many, if not most, of the toxic assets that this taxpayer-funded bailout is designed to buy were originated in an atmosphere created by the GSEs and facilitated by their supporters here in Congress.

During the securitization boom that took off in the last 5 years, I also became very concerned about the regulatory oversight of the credit rating agencies whose ratings were crucial to getting securities sold.

When I looked at the system in place, I soon realized it was dominated by two companies and that the regulatory structure provided no real oversight and actually prevented competitors from entering the market.

Considering the value that mutual, money market, retirement pension funds, and insurance companies, and other important investors place on the ratings, I recognized that immediate legislative action was necessary to address the shortcomings of the oversight regime. We took that action in the fall of 2006.

Unfortunately, it now appears even that effort came too late. The rating agencies provided investment-grade ratings on securities worth hundreds of billions. A large percentage of those ratings have since been downgraded.

I remind my colleagues that those securities also happen to make up the troubled assets that are now the focus of this bailout.

Finally, in 2007, I publicly questioned the adequacy of the Securities and Exchange Commission's Consolidated Supervised Entities Program.

This nonstatutory program was put in place by the SEC to allow the five big investment banks to meet European regulatory standards without having to submit to Federal Reserve

supervision as provided in the Financial Modernization Act. The program also allowed the investment banks to significantly reduce their capital requirements.

Because I already felt that the 1999 act did not provide adequate supervision, I was troubled that the investment banks continued to chafe even at this minimal supervision.

With their trillions in assets, global operations, and hundreds of thousands of employees, they were content to be ``regulated'' by a program with a staff of less than 20 people, and they vigorously lobbied the Banking Committee to keep it that way.

Needless to say, I had serious concerns about this arrangement.

These concerns crystallized when Chairman Dodd marked up legislation that would not only have codified the SEC's regulatory concoction, but also would have expanded the powers of the investment banks, allowing them access to taxpayer-insured funds through ownership of insured depositories.

I requested that the Banking Committee hold hearings to examine this structure in greater detail before we ratified that which the SEC created through regulatory fiat. Once again, we did not.

Instead, my Democrat colleagues voted not only to codify the CSE program, but also to expand it. My Republican colleagues voted to reject it and argued for additional committee action.

Today, the CSE program is gone because our investment banks have either gone bankrupt, merged, or become that which they fought so hard to avoid: Bank holding companies supervised by the Federal Reserve.

I would also like to point out to my colleagues that a large number of the assets that will be purchased under the Paulson plan were either originated or held by the CSE regulated firms: Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, or Goldman Sachs.

We did not get to where we are today by accident, it was a path we chose.

My warnings about the risk of basing credit decisions on well- intended social mandates rather than sound, fact-based underwriting were dismissed.

My concerns about the inadequacy of the regulatory structure put in place in the financial modernization legislation went unacknowledged.

My efforts to ensure that bank capital standards were designed to ensure safety and soundness, rather than industry concerns, were conducted largely alone.

When I urged focus one of the SEC's Consolidated Supervised Entities Program, my Democrat colleagues ignored me and instead voted to ratify and expand the program.

When we attempted to pass meaningful GSE reforms, we were repeatedly stopped.

I commend Senator Dodd, who in the end, worked with me to pass a bill. Unfortunately, that effort came too late because the GSEs had already gorged on billions of dollars of toxic sub prime paper and no longer could function on a stand-alone basis.

As often as I have argued that we needed to address systemic risks in the financial markets, my advice has been dismissed, and my concerns have proven to be fully justified.

I now have serious concerns about the bailout package we are preparing to pass.

My foremost concern relates to the manner in which we are attempting to address the problem.

The Paulson plan focuses on a single problem--illiquid assets held throughout the financial system.

I believe we have a number of interrelated problems that need to be addressed in order of their significance.

First, and most urgent, is liquidity. Then we must address the solvency of our financial institutions and declining home values, not to mention our entire regulatory structure.

I believe Congress can address the liquidity issue by increasing the combined resources of the Federal Reserve System and the Treasury.

By enhancing the Federal Government's existing lending facilities and guarantee programs, we can help stabilize money market funds and provide loans to troubled financial institutions without exposing taxpayers to massive losses. This act alone would allow us some time to consider thoroughly our next steps.

Thereafter, we must determine how to address the troubled assets on the books of financial institutions and continue the process of dealing with declining home values. This will likely be a long and difficult process, a fact that is not being shared with the American people.

As long as we address the immediate liquidity problem by expanding lending facilities using the illiquid securities as collateral, we can then take the necessary time to do our work in a more responsible and thoughtful manner. It appears, however, that we are not going to subject this bill to our normal process.

With that in mind, I would like to take some time to look more closely at what this unprecedented piece of legislation would do.

The Emergency Economic Stabilization Act of 2008 would create the Troubled Asset Relief Program.

It would authorize the Treasury Secretary to purchase up to $700 billion worth of troubled assets from just about any type of institution.

In exercising this authority, the Secretary would be vested with nearly unfettered power.

The Secretary could purchase any financial instrument he deems necessary to promote financial market stability. He could purchase not only mortgage-related assets, but securities based on credit card payments, auto loans, or even common stock.

The Secretary could purchase assets from any institution, not just financial institutions so long as they have ``significant operations in the United States.''

What constitutes ``significant operations'' is left undefined, leaving the Secretary a great deal of latitude in determining which institutions would qualify for the program.

Certainly the Secretary could purchase assets from private equity firms and hedge funds, but also corporations and State governments. Given the lack of standards and the breadth of the Secretary's authority, it should be no surprise if politically connected entities get special treatment under this program.

Under a provision hidden deep in the legislation, the Treasury Secretary also has the authority to purchase troubled assets from foreign central banks and governments.

The Secretary has unlimited authority on how the purchased assets are managed and sold. Treasury could even set up Government-run hedge funds that compete with private companies.

While the Treasury Secretary's authority expires at the end of 2009 and can be extended for only 1 additional year, the Treasury's authority to manage purchased assets is perpetual.

Treasury could also purchase assets after the termination of its authority, if it has entered into agreements to purchase prior to the termination date. This program will be with us for decades to come.

The few restrictions imposed on the Treasury Secretary's authority could undermine the effectiveness of the program. If the Secretary purchases more than $100 million in troubled assets from an institution, he must obtain non-voting common stock or preferred equity in the institution.

To complicate matters further, the bill does not provide clear guidance on how many warrants the Secretary should obtain or what their terms should be.

If the Secretary makes direct purchases of troubled assets, the selling institution must adopt standards on executive compensation and corporate governance.

If the Secretary purchases more than $300 million in troubled assets from an institution, the institution must adopt restrictions on executive pay and golden parachutes for any new senior executives it hires.

The legislation also restricts the amount of executive compensation participating institutions can deduct for tax purposes. While this may make us feel good, these provisions will likely limit the number of institutions that utilize the program.

Not to mention that the compensation restrictions are prospective. In other words, the people who created this mess get to walk away with cash in hand, and the people hired to clean it up get penalized.

This will no doubt undermine their efforts to resolve their financial problems by hindering their ability to hire new management

Upon enactment of the legislation, the Treasury Secretary is authorized to purchase up to $250 billion in troubled assets. This purchase authority can be increased by another $100 billion if the President certifies that such additional authority is needed.

The Secretary's authority can be, and likely will be, increased to $700 billion if the President certifies the need and Congress does not enact a joint resolution of disapproval.

It is extremely difficult to obtain the two-thirds votes in both the House and Senate to override a veto. Therefore, for all intents and purposes, this distribution system is a mirage. It does not effectively limit the Treasury Secretary's ability to spend $700 billion.

The bill would establish a Financial Stability Oversight Board to review and make recommendations on the Secretary's operation of the program. The oversight board is fatally flawed.

First, the Secretary of the Treasury is one of its members. This means that the Treasury Secretary is reviewing his own actions.

Second, the other members of the board include the Chairman of the Fed, the Director of the Federal Home Finance Agency, the Chairman of the SEC, and the Secretary of Housing and Urban Development. I think there is a constitutional question about whether a Secretary can have his actions reviewed by any person other than the President.

Even if the board is constitutional, why is the Chair of the FDIC not a member? After all, the FDIC has the most experience of any Federal agency in buying and selling bank assets. It also is concerned about resolving bank problems with the least cost to the taxpayers.

Regardless of who sits on the board, we will be setting a bad precedent by having heads of agencies oversee our Cabinet Secretaries.

Finally, the oversight board's authorities are not well defined, so it is not clear what happens if the oversight board disagrees with the Treasury Secretary's actions. Can it prevent him from acting? Will disagreements result in litigation? Such bureaucratic infighting could very well undermine the effectiveness of the program, to the extent it can be effective at all.

The bill also establishes a Congressional Oversight Panel, whose members will be selected by the leaders of the House and Senate. The panel is charged with providing reports on the program, the effectiveness of foreclosure mitigation efforts, and the state of our financial regulatory system.

This is work the Senate Banking Committee and House Financial Services Committee should be doing.

The bill also provides for oversight of the program by the Comptroller General, establishes an Office of the Special Inspector General for the program, and subjects the Secretary's actions to judicial review.

While I think it is important to oversee this new entity's activities, this hodgepodge of authority is likely to hamper the program's effectiveness as it struggles to satisfy redundant and time- consuming requests for information.

These oversight bodies might not check the Secretary's authority, but they will ensure that this program generates lots of paper. More importantly, they do nothing to address the fundamental flaws with this plan.

The Secretary is required to issue regulations to address conflicts of interest. Interestingly, the Secretary may start buying assets before these rules are put into place. This is a loophole that could have serious long-term consequences for the program.

The bill does not require that taxpayer losses be repaid by its beneficiaries. It only directs the President to present a legislative proposal to recoup such losses from the financial services industry.

This is something that the President could do even without this legislation. Furthermore, there is no guarantee that the beneficiaries of the program will pay.

Indeed, it is likely that companies that did not participate in the program would end up covering its costs.

The bill would grant the SEC the authority to suspend mark-to-market accounting, establishing a dangerous precedent that could lead to the politicization of our accounting standards, something I have fought for years.

The newest addition to the bill is a precipitous increase in the deposit insurance amount from $100,000 to $250,000. We are about to more than double the exposure of the already depleted deposit insurance fund, and by extension, the American taxpayer, on a whim.

I will remind my colleagues that the track record for overnight increases in deposit insurance is not pretty. In 1980, Congress increased deposit insurance coverage for all accounts from $40,000 to $100,000 without the benefit of hearings or open discussion.

At that time, proponents argued such a change was necessary to stabilize the banking industry. What followed was a massive bailout of the savings and loan industry to the tune of well over $100 billion.

This time around, we are proposing a 150 percent increase when the deposit insurance fund is already stressed and in need of recapitalization.

At a time the FDIC's problem bank list is growing and more failures are anticipated, this higher deposit insurance coverage will increase the FDIC's expected payments for failed insured depositories. Those costs, which would ordinarily be passed on to the banking system in the form of higher premiums, will instead be placed directly on taxpayers.

Let's also be realistic about this. To the extent this measure is intended to address the concerns of those who handle large transaction accounts, such as corporate treasury deposits, those people are not going to be comforted by additional coverage levels.

If they believe a bank is in trouble, they will withdraw their money because deposit insurance does not increase confidence in a failing institution.

Let's also be clear about what this means for taxpayers.

If, on the front end, the $700 billion bailout is not enough to shore things up, rest assured, there will now be more insurance on the back end should banks begin to fail. The American taxpayer will pay, both coming and going.

The bill does do some good things, however. It permits the Federal Reserve to pay interest on reserves, which will improve its ability to conduct monetary policy and serve as a lender of last resort.

The bill does marginally increase the availability of the HOPE for Homeowners program and requires the Secretary to implement a plan to assist homeowners to the extent it acquires mortgages or other assets backed by mortgages.

While I generally do not support bailing out corporations or individuals, if we are going to get into the bailout business, then funds should be directed to individuals as well. The provisions in this bill for individual homeowners, however, are inconsequential compared to the $700 billion going to Wall Street.

As I said, I am no advocate of bailouts. I voted against the Chrysler bailout. I can not say I would have supported a bailout in this instance, but I can say the chances would have been much greater if the underlying plan had been subjected to greater scrutiny and examination. That said, I agree that we need to do something to address the current liquidity crisis in the marketplace.

My greatest concern is that we have not spent any time determining whether we have chosen the best response. There are many well informed people who argue that we have not.

In fact, just this morning, a Nobel prize winning economist indicated that using a reverse auction program to buy distressed assets from financial institutions was not going to be enough to ``revive the operations of the banks.''

I am not sure whether he is right or wrong. I am also not certain whether the Secretary is right or wrong. To the extent other options exist, I believe we failed the American people greatly in not examining them.

Many around here are finding comfort in the notion that ``something is better than nothing.'' I believe that is a false choice. The choice we faced was between pursuing an informed response or panic.

Unfortunately, we chose panic and are now about to spend $700 billion on something we have not examined closely. Yes, in the end, we will have ``done

something.'' At the same time, however, we will have done nothing to determine whether it will accomplish anything at all.

I yield the floor.