Derivatives Trading Integrity Act of 2008

Mr. President, with the size and complexity of the Treasury Department's efforts to administer the Troubled Asset Relief Program, TARP, which is unprecedented in recent U.S. history, it is essential to have a Special Inspector General, IG, who is focused exclusively on conducting effective oversight. When Congress passed the Emergency Economic Stabilization Act, I was proud to join Senator Baucus, as well as 31 of my other colleagues, to insist that the legislation direct the Treasury Secretary to appoint a Special IG as soon as possible. Notably, we tasked the Special IG with ensuring program transparency by collecting data on the Treasury's actions and reporting regularly to Congress. One might say that the Special IG is the cop on the beat dedicated to protecting taxpayers' interests.

Many would argue that the Treasury's current authority is almost completely unrestrained. There is a saying about what absolute power does to people and organizations, namely that absolute power corrupts absolutely. We must not allow unrestrained power to corrupt the Treasury Department's authority or mission. It is essential that proper oversight exists so that the Treasury Department is held accountable for how it expends taxpayer dollars.

A strong IG is even more critical now that the Treasury Department is directly injecting capital into banks, as well as potentially aiding other entities that provide consumer credit. The oversight requirements originally designed by Congress to scrutinize the purchase of toxic assets do not accurately or adequately describe the Treasury's equity investments and, therefore, do not provide the strong taxpayer protections Congress requires.

With the Treasury Department changing the plan day-by-day, there is growing market uncertainty about how best to address the economic crisis. The Treasury needs to inspire confidence. It must not follow Wall Street's example and play fast and loose on the public's dime. The bottom line is we must ensure the government respects the public's money more than Wall Street ever did. That will be the Special Inspector General's job. It is imperative then that the Special IG be adequately equipped with authority and resources to carry out this mission.

On Monday, the Finance Committee held a hearing to consider the nomination of Neil Barofsky to be the Special IG for TARP. Mr. Barofsky has had a distinguished career as a Federal prosecutor investigating white-collar crimes, but regardless of how impressive his resume might be, he cannot succeed at his job if his hands are tied with inadequate authority and resources. At this hearing, I noted a number of concerns that I have with the authority, or lack thereof, given to the Special IG, and for this reason, I rise today, to offer legislation, the Troubled Asset Relief Program Inspector General Improvement Act, that will give the Special IG the teeth that he needs to provide the oversight that taxpayers deserve with their precious tax dollars at stake.

Time is of the essence with the Treasury already having committed $290 billion without the Special IG's oversight. We cannot afford any further delay in the office of the Special IG becoming operational. Accordingly, because the Emergency Economic Stabilization Act (EESA) did not specify the timing the Treasury Department must observe to transfer $50 million to the Special IG to set up his office, my legislation would direct the Treasury Secretary to provide the TARP IG with $50 million within three days after he is confirmed by the Senate. In addition, because the TARP IG must hire personnel to get up and running, my bill includes a proposal to waive applicable civil service rules that could delay that process. I am concerned that without this change, it may be summer before the TARP IG's office is sufficiently staffed to discharge its responsibilities.

Notably, EESA requires the TARP to address deficiencies that the Comptroller General identifies, or to certify to the appropriate committees of Congress that no action is necessary, but it places no similar requirement on the TARP regarding audit findings by the Special IG. My bill would place the same requirements on the TARP to address recommendations by the Special IG as are required by the findings of the Comptroller General.

Additionally, now that the Treasury Department has changed course and decided to inject capital directly into financial institutions rather than purchase toxic and illiquid assets as originally contemplated, Congress must be sure that the Special IG has the authority to fully investigate any other type of transaction undertaken by TARP. Although many contend that the underlying statute provides the Special IG with the ability to investigate equity injections, with Treasury Secretary Paulson hinting that TARP may be expanded to benefit credit card, student loan, and car loan companies, and with the possibility that the incoming administration might enlarge the program further still in ways that we are not fully able to anticipate, it is imperative that the Special IG have the ability to conduct oversight over whatever way funds are ultimately expended. My legislation mandates that the Special IG can go wherever necessary to protect taxpayers.

Last but not least, as there is tremendous concern in many quarters that financial institutions will use the $250 billion in equity injections they have been allocated pursuant to TARP to either purchase their weaker competitors or simply pay dividends to shareholders, I believe it is absolutely critical that the public understand exactly how these funds are being committed. Although I hope the funds will be used to promote lending, which is so critical to restoring economic growth and job creation, we must be sure that such lending occurs. Accordingly, my bill would require the TARP IG to prepare by July 1, 2009, an analysis for Congress of what exactly banks did with the $250 billion they have received.

Finally, Mr. President, I would be remiss not to acknowledge similar legislation introduced yesterday by my colleagues Senators McCaskill, Grassley, Collins, and Lieberman. Although their legislation would speed the hiring process to allow the TARP IG to quickly begin operations, as well as allow the IG to investigate any initiative created as part of the program, it would not make some of the other changes I believe are absolutely vital. All that said, I hope that we can work together on a consensus, bipartisan package that can expeditiously clear the Senate.

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

Mr. President, seven weeks ago Congress faced an extremely difficult decision of whether or not to pass an unprecedented $700 billion economic stabilization bill to help our Nation's economy and financial markets. The Emergency Economic Stabilization Act, the Act, passed by Congress and signed into law by the President, was designed to provide new, expanded authority to the Department of the Treasury to take immediate action to stabilize our financial markets by purchasing troubled assets through a program called the Troubled Asset Relief Program or TARP. This new authority was designed to stop the continued declines in the financial services industry and the credit markets.

Like many of the thousands of constituents from Iowa I've heard from, I shared their concerns that the stabilization plan put hundreds of billions of taxpayer dollars at risk. During the debate on this legislation I made it clear that I would only support this package if it included significant checks on the spending through various oversight mechanisms. I wanted to make sure the legislation wasn't a blank check for Government bureaucrats to spend taxpayer dollars with impunity. I'm glad that Congress listened to my concerns and I'm glad that specific oversight reforms I recommended were included in the final package. For instance, the creation of a Special Inspector General for the Troubled Assets Relief Program (Inspector General) was something I worked to include in the final legislation to ensure that an independent watchdog would be looking out for taxpayer funds allocated to the TARP.

The legislation also has a number of additional oversight provisions such as the creation of a Financial Stability Oversight Board that is responsible for reviewing the exercise of the program to ensure the Treasury is operating as

envisioned. Additionally, the legislation included provisions requiring regular reports from the Treasury to Congress, Tranche reports outlining any assets Treasury chooses to purchase, and reports from the Comptroller General at the Government Accountability Office. The Act also places controls on executive compensation and corporate governance at participating entities. Taken together, these provisions were aimed to provide a sturdy foundation for ensuring the program is properly overseen.

However, despite these controls, many of these oversight provisions have been slowly implemented or outright ignored until recently. To date, the Senate has only held hearings on the nomination for the Special Inspector General and it is unclear when the nomination will be approved. Until then, the Inspector General at the Department of the Treasury has devoted some resources to overseeing the TARP, but we need to act expeditiously to approve the Special Inspector General to ensure someone is watching over all these taxpayer funds.

I do believe once we confirm a nominee to be the Special Inspector General that this office will face an uphill battle to work quickly to hire staff and to get operations moving to find out where all the billions of dollars are and how they were spent. This isn't an impossible task, but it is one that will take serious effort and great leadership to accomplish.

One concern I have with the Special Inspector General is the lack of authority that office will have to oversee the TARP and new, evolving programs under the TARP such as the Capital Purchase Plan, or CPP. The Secretary of the Treasury has indicated publicly that he intends to continue utilizing his authority under the Act to use the TARP and the CPP to continue to provide taxpayer funds via equity injections and stock warrant purchases to banks, financial institutions, and other entities, as opposed to purchasing distressed assets as the TARP was originally envisioned. While the Secretary is acting within his authority, this change was not necessarily envisioned from the oversight perspective when the Special Inspector General authorization was drafted. Instead, the current Act could be construed to only give the Special Inspector General the authority to review purchases of distressed assets and not the purchases and equity injections currently ongoing under the CPP. As a result, the Special Inspector General could be limited in authority to review the TARP before he takes office.

To rectify this, Senator McCaskill and I are here today to introduce a simple legislative fix to this provision that would amend the Act to allow the Special Inspector General to review all actions taken under the TARP, including those of the CPP. This is a straight forward solution to ensure that the Special Inspector General has all the authority necessary to oversee the taxpayer dollars that are being used to stabilize the financial industry.

This legislation makes one other change to the Act that will help the Special Inspector General hit the ground running once the Senate confirms the nomination. Looking back to the last Special Inspector General Congress created, the Special Inspector General for Iraq Reconstruction, SIGIR, we noted that Congress provided SIGIR the authority to utilize special hiring authority to fill these important jobs quickly and not have them tied up in bureaucratic red tape. This section of our bill simply states that the Special Inspector General may utilize special expedited hiring authority authorized under 5 U.S.C. Sec. 3161 for the first six months after the date of enactment to get the office up and running. Further, the section also removes statutory limits for how long these special appointments may serve because we do not want to limit the length of time these employees can work for the Special Inspector General given we don't know how long they will be needed to oversee this program.

Taken together, these two simple provisions are necessary to ensure that the Special Inspector General is the aggressive, independent watchdog we envisioned when we passed the Act and not just a paper tiger. As a long time supporter of Inspectors General, I believe this legislation is necessary to ensure the success of the Special Inspector General. I urge my colleagues to support this urgent legislative fix to help ensure that American taxpayer dollars are not lost to fraud, waste, or abuse because of a simple oversight in the drafting of the original legislation.

Mr. President, today I am proud to cosponsor this legislation to expand the Rural Energy for America Program, REAP, to include schools in rural areas. This amendment to the program will encourage our rural schools to carry out energy efficiency projects and install renewable energy systems, thus reducing their dependence on fossil energy and reducing future energy costs. I am proud to join my colleague, Senator Reid of Nevada, as a cosponsor of this bill.

The Rural Energy for America Program, enacted in the 2008 farm bill-- the Food, Conservation, and Energy Act of 2008--is an expansion of the very successful section 9006 program which was established by the 2002 farm bill. The program has supported over 2,000 renewable energy and energy efficiency projects for farmers, ranchers, and rural small businesses since its enactment. Most impressive is the fact that the Federal investments in these projects were matched by almost 10 times as much in funding from the developers of the projects and other sources. This truly is a hallmark of a

successful Federal program, exactly the kind of program that deserves expansion, especially because it supports rural economic development while helping to provide us with cleaner and more sustainable energy systems. Expanding this program to rural schools just makes sense--they foster rural economic development and should be able to take part in this transition to better energy systems and to realize the associated environmental and economic benefits.

I urge my Senate colleagues to join me in passing this important legislation.

Mr. President, today, I am introducing legislation--the Derivatives Trading Integrity Act--which calls for establishing stronger standards of openness, transparency and integrity in the trading of financial swaps and other over-the-counter derivatives as a critical step toward rebuilding and restoring confidence in the financial system. With the total face value of swaps reaching a high of some $531 trillion at the middle of this year--8-and-a-half times the world GDP of $62 trillion--it is long past time for accountability in these markets. Over the years, the Commodity Futures Trading Commission and Congress have responded to concerns of the the swaps industry by allowing instruments that are in form and function futures contracts to be privately negotiated without the safeguards provided through exchange trading.

The economic downturn in this country is forcing us to examine all contributing factors to the crisis in our financial markets. By restoring reasonable safeguards and regulation of swaps, including credit default swaps, along with all other futures contracts, this legislation will go a long way to restore confidence in the markets and reestablish soundness and integrity in the financial system. My bill will end the unregulated ``casino capitalism'' that has engendered great risks in swaps trading. And it will bring these transactions out into the sunlight where they can be monitored and appropriately and responsibly regulated. This legislation will establish authority and safeguards to ensure that parties can meet their obligations to manage and reduce danger and risk to the entire financial system and economy.

Virtually all contracts now commonly referred to as swaps fall under the definition of futures contracts and function basically in the same manner as futures contracts. This bill amends the Commodity Exchange Act to eliminate the distinction in futures contracts among ``excluded'' and ``exempt'' commodities and regulated, exchange-traded commodities; futures contracts for all commodities would be treated the same.

In addition, the bill eliminates the statutory exclusion of swap transactions from regulation, and it ends the Commodity Futures Trading Commission's authority to exempt such transactions from the general requirement that a contract for the purchase or sale of a commodity for future delivery can only trade on a regulated board of trade. In effect, this means that all futures contracts must trade on a designated contract market or a derivatives transaction execution facility.

Last month, the Senate Committee on Agriculture, Nutrition and Forestry heard dramatic testimony about the impact of unregulated financial derivatives on the U.S. economy. We have seen large negative consequences from the lack of price transparency and the failure to properly measure and collateralize the risk in trading over-the-counter derivatives. The problems have not been in the trading of financial futures on regulated futures markets, subject to the oversight of the Commodity Futures Trading Commission.

This legislation I am introducing will establish the standards that all futures contracts trade on regulated exchange. The regulated exchanges will work with the Commodity Futures Trading Commission to ensure that trading on the exchange is fair and equitable and not subject to abuses. The Commodity Futures Trading Commission has the experience and expertise to oversee these matters.

Bringing necessary openness, transparency, soundness, and integrity to trading in contracts which are now unregulated over-the-counter swaps and related derivatives is a key element in restoring trust and confidence in the financial system so that we can rebuild our economy on a solid foundation.

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

Mr. President, today, I am introducing legislation--the Derivatives Trading Integrity Act--which calls for establishing stronger standards of openness, transparency and integrity in the trading of financial swaps and other over-the-counter derivatives as a critical step toward rebuilding and restoring confidence in the financial system. With the total face value of swaps reaching a high of some $531 trillion at the middle of this year--8-and-a-half times the world GDP of $62 trillion--it is long past time for accountability in these markets. Over the years, the Commodity Futures Trading Commission and Congress have responded to concerns of the the swaps industry by allowing instruments that are in form and function futures contracts to be privately negotiated without the safeguards provided through exchange trading.

The economic downturn in this country is forcing us to examine all contributing factors to the crisis in our financial markets. By restoring reasonable safeguards and regulation of swaps, including credit default swaps, along with all other futures contracts, this legislation will go a long way to restore confidence in the markets and reestablish soundness and integrity in the financial system. My bill will end the unregulated ``casino capitalism'' that has engendered great risks in swaps trading. And it will bring these transactions out into the sunlight where they can be monitored and appropriately and responsibly regulated. This legislation will establish authority and safeguards to ensure that parties can meet their obligations to manage and reduce danger and risk to the entire financial system and economy.

Virtually all contracts now commonly referred to as swaps fall under the definition of futures contracts and function basically in the same manner as futures contracts. This bill amends the Commodity Exchange Act to eliminate the distinction in futures contracts among ``excluded'' and ``exempt'' commodities and regulated, exchange-traded commodities; futures contracts for all commodities would be treated the same.

In addition, the bill eliminates the statutory exclusion of swap transactions from regulation, and it ends the Commodity Futures Trading Commission's authority to exempt such transactions from the general requirement that a contract for the purchase or sale of a commodity for future delivery can only trade on a regulated board of trade. In effect, this means that all futures contracts must trade on a designated contract market or a derivatives transaction execution facility.

Last month, the Senate Committee on Agriculture, Nutrition and Forestry heard dramatic testimony about the impact of unregulated financial derivatives on the U.S. economy. We have seen large negative consequences from the lack of price transparency and the failure to properly measure and collateralize the risk in trading over-the-counter derivatives. The problems have not been in the trading of financial futures on regulated futures markets, subject to the oversight of the Commodity Futures Trading Commission.

This legislation I am introducing will establish the standards that all futures contracts trade on regulated exchange. The regulated exchanges will work with the Commodity Futures Trading Commission to ensure that trading on the exchange is fair and equitable and not subject to abuses. The Commodity Futures Trading Commission has the experience and expertise to oversee these matters.

Bringing necessary openness, transparency, soundness, and integrity to trading in contracts which are now unregulated over-the-counter swaps and related derivatives is a key element in restoring trust and confidence in the financial system so that we can rebuild our economy on a solid foundation.

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

Mr. President, I am pleased to join my colleague, Ms. Stabenow, in introducing the Dental Health Promotion Act of 2008. This bill would make expenditures on dental products used to prevent or treat diseases of the mouth to be considered ``qualified'' medical expenses eligible for reimbursement from a flexible spending arrangement, FSA. It is identical to H.R. 3109, which was introduced in the House of Representatives in July 2007.

FSAs are vehicles that allow individuals to use pretax dollars to pay for ``qualified'' medical and dental expenses that are not reimbursed by other sources, such as a health insurance plan. Qualified medical and dental expenses are defined in Section 213(d) of the Internal Revenue Code and its accompanying regulations and include prescription and over-the-counter products. For example, an individual can use FSA dollars to pay for items such as cold medicine, Band-Aids, or pain relievers. In addition, some dental expenses are currently reimbursable, such as a crown or a regular dental checkup. But the money spent on dental products such as fluoride toothpaste, a spin toothbrush, or dental floss is not currently reimbursable, even though they help prevent tooth decay. In fact, toothpaste is specifically excluded from the definition of a qualified expense.

I believe this is an inequity in our tax law that needs to be corrected. More and more medical research is demonstrating the link between good oral health and overall health. For example, research shows that pregnant women with poor oral health tend to deliver lower birth rate babies. Unfortunately, the definition of dental expenses has not kept up with medical research.

The legislation Senator Stabenow and I are introducing today would update the rules governing FSAs to ensure that funds spent on dental products used to treat or prevent oral disease are treated the same as other over-the-counter medical expenses. For those concerned about abuse, this bill makes it clear that money spent on cosmetic products would not be considered a qualified expense that can be reimbursed by an FSA.

Mr. President, it makes sense to invest in disease prevention on the front end. Allowing individuals to set aside money in their FSA to pay for dental products that can help prevent cavity or periodontal disease will help to reduce future expenditures on more costly treatments.