Rocky Mountain National Park Wilderness and Indian Peaks Wilderness Expansion Act

Madam President, I want to discuss amendment No. 3839. This amendment is designed to end the taxpayer-backed conservatorship of Fannie Mae and Freddie Mac by putting in place an orderly transition period and eventually requiring them to operate without government subsidies on a level playing field with their private sector competitors.

Events of the last 2 years have made it clear that never again can we allow the taxpayer to be responsible for poorly managed financial entities which gamble away billions of dollars. Fannie Mae and Freddie Mac are synonomous with mismanagement and waste and have become the face of too big to fail. The time has come to end Fannie Mae and Freddie Mac's taxpayer-backed free ride and require them to operate on a level playing field.

I want to quote from an AP story yesterday entitled: ``Freddie Mac seeks $10.6B in aid after 1Q loss.'' Freddie Mac is asking for $10.6 billion in additional Federal aid after posting a big loss in the first 3 months of the year. It is another sign that the taxpayer bill for stabilizing the housing market will keep mounting. The McLean, VA-based mortgage finance company has been effectively owned by the government after nearly collapsing in September of 2008. The new request will bring the total tab for rescuing Freddie Mac to $61.3 billion. Freddie Mac says it lost $8 billion, or $2.45 a share, in the January-March period. That takes into account $1.3 billion in dividends paid to the Treasury Department. It compares with the loss of $10.4 billion or $3.18 a share, in the year-ago period.

So the beat goes on and the drainage goes on. Here on this chart we have the money yet to be repaid by institutions that received $10 billion or more in taxpayer bailouts. Obviously, these organizations have paid back. GMAC still has $16 billion they owe the taxpayer; Citigroup, $25 billion; GM--despite their PR stunt the other day, where they say they paid back, with TARP money, they paid the taxpayers with taxpayer money--$43.7 billion; AIG, $69.8 billion; and, of course, Fannie and Freddie, $125.9 billion plus.

I wish to begin today by calling my colleagues' attention to an editorial in this morning's Wall Street Journal, which states:

Fan and Fred owned or guaranteed $5 trillion in mortgages

and mortgage-backed securities when they collapsed in

September of 2008. Reforming the financial system without

fixing Fannie and Freddie is like declaring a war on terror

and ignoring al-Qaida.

I want to repeat that sentence for the benefit of my colleagues. This is from the Wall Street Journal this morning.

Reforming the financial system without fixing Fannie and

Freddie is like declaring war on terror and ignoring al-

Qaida.

Unreformed, they are sure to kill taxpayers again. Only

yesterday, Freddie said it lost $8 billion in the first

quarter, requested another $10.6 billion from Uncle Sam, and

warned that it would need more in the future. This comes on

top of the $126.9 billion that Fan and Fred had already lost

through the end of 2009. The duo are by far the biggest

losers of the entire financial panic--bigger than AIG,

Citigroup and the rest.

From the 2008 meltdown through 2020, the toxic twins will

cost taxpayers close to $380 billion, according to the

Congressional Budget Office's cautious estimate.

The numbers, I say to my colleagues, are staggering--staggering.

The Obama administration won't even put the companies on

budget for fear of the deficit impact, but it realizes the

problem because last Christmas Eve--

Strangely enough on Christmas Eve--

. . . it raised the $400 billion cap on their potential

taxpayer losses to . . . infinity. Moreover, these taxpayer

losses understate the financial destruction wrought by Fan

and Fred. By concealing how much they were gambling on risky

subprime and Alt-A mortgages, the companies sent bogus

signals on the size of these markets and distorted decision-

making throughout the system. Their implicit government

guarantee also let them sell mortgage-backed securities

around the world, attracting capital to U.S. housing and thus

turbocharging the mania.

Specifically, this amendment does several things:

It provides for a finite end to the current conservatorship period for both government-sponsored enterprises--GSEs--at 2 years of date from the enactment. The Federal Housing Finance Agency has an option to extend conservatorship for 6 months if the FHFA Director determines and notifies Congress that adverse market conditions exist. If at the end of conservatorship a GSE is not financially viable, the FHFA must place that GSE in receivership. If the GSE is financially viable, then it would be allowed to reenter the market under new operating restrictions.

It provides for the following changes to existing operating structure:

It calls for the repeal of the affordable housing goals mandates for the GSEs.

It calls for new limits for mortgage assets held on its books of no more than 95 percent of mortgage assets owned on December 31 of the prior year, reduced an additional 25 percent by the end of year 1, reduced an additional 25 percent by the end of year 2, and reduced to $250 billion by the end of year 3.

It strengthens capital standards and allows them to be increased by the FHFA as necessary.

It calls for the repeal of the temporary increases in conforming loan limit and high cost area increases, and a return to the $417,000 conforming loan limit for the first year, subject to annual adjustments by FHFA.

It provides for a prohibition on the purchase of mortgages exceeding the median home price for that area.

It calls for a minimum downpayment requirement of at least 5 percent for all new loans purchased by the GSE, increasing to 7.5 percent in the second year, and 10 percent in the third year.

It repeals the GSE exemption from having to pay State and local taxes.

I wonder how many of my colleagues and fellow citizens knew that Fannie and Freddie did not have to pay State and local taxes.

It calls for a repeal of the exemption allowing GSE securities to avoid full SEC registration.

In other words, given their enormous clout here in the Congress, Fannie and Freddie were able to have an exemption from their securities falling under SEC registration.

It calls for an assessment of fees on GSEs to recoup full value of the benefit due to guarantee provided by the Federal Government. And GAO will conduct a study to determine current value of government guarantee.

The amendment establishes a 3-year period after the end of conservatorship for GSEs to operate under new operating restrictions until their government charter expires. Upon charter expiration, it provides for a 10-year period with the creation of a separate holding corporation and a dissolution trust fund for any remaining mortgages or debt obligations held by the GSE.

It establishes a Senate-confirmed special inspector general within the Government Accountability Office with responsibility for investigating and reporting to Congress on decisions made with respect to the conservatorships of Fannie Mae and Freddie Mac. The SIG would provide quarterly reports to Congress.

While GSEs remain in conservatorship, it reestablishes the Federal funding limit of $200 billion per institution

for the GSEs and requires the GSEs to reduce their portfolio holdings by 10 percent of the prior year's holdings. It also establishes an approval process for any further agreements that put the taxpayers at risk.

It places Fannie Mae and Freddie Mac as part of the Federal budget as long as either institution is under a conservatorship or receivership.

Again, my colleagues might be interested that Fannie Mae and Freddie Mac, and what we are doing with them now, is not part of the Federal budget--remarkable.

It requires the FHFA to establish minimum prudent underwriting standards for mortgage loans eligible for government-sponsored entities purchase. Minimum requirements will include verification and documentation of income and assets relied upon to qualify the borrower for the mortgage loan and determination of borrower's ability to repay the mortgage loan.

I might add that the Congressional Budget Office has indicated this amendment would save the taxpayers several billions of dollars annually. I repeat, the Congressional Budget Office states--and, by the way, it has not been given any phony assumptions such as a doc fix-- this amendment would save the taxpayers several billions of dollars annually.

During the debate on this financial reform bill, we will continue to hear a lot about how the U.S. Government will never again allow a financial institution to become too big to fail. We will hear continuous calls for more regulation to ensure that taxpayers are never again placed at such tremendous risk.

Sadly, and I say very sadly, the underlying bill completely ignores the elephant in the room because no other entity's failure would be as disastrous to our economy as Fannie Mae's and Freddie Mac's. Yet this bill does not address them at all.

In a recent Opinion Piece in the Wall Street Journal, Robert Wilmers wrote:

Congress may be making progress crafting new regulations

for the financial-services industry, but it has yet to begin

reforming two institutions that played a key role in the 2008

credit crisis--Fannie Mae and Freddie Mac.

We cannot reform these government-sponsored enterprises

unless we fully confront the extent to which their outrageous

behavior and reckless business practices have affected the

entire commercial banking sector and the U.S. economy as a

whole.

At the end of 2009, their total debt outstanding--either

held directly on their balance sheets or as guarantees on

mortgage securities they'd sold to investors--was $8.1

trillion. That compares to $7.8 trillion in total marketable

debt outstanding for the entire U.S. government. The debt has

the implicit guarantee of the federal government but is not

reflected on the national balance sheet.

The public has focused more on taxpayer bailouts of banks,

auto makers and insurance companies. But the scale of the

rescue required in September 2008 when Fannie and Freddie

were forced into conservatorship--their version of

bankruptcy--was staggering. To date, the federal government

has been forced to pump $126 billion into Fannie and Freddie.

That's far more than AIG, which absorbed $70 billion of

government largess, and General Motors and Chrysler, which

shared $77 billion. Banks received $205 billion, of which

$136 billion has been repaid.

Fannie and Freddie continue to operate deeply in the red,

with no end in sight. The Congressional Budget Office

estimated that if their operating costs and subsidies were

included in our accounting of the overall federal deficit--as

properly they should be--the 2009 deficit would be greater by

$291 billion.

The op-ed continues:

All this happened in the name of the ``American Dream'' of

home ownership. But there's no evidence Fannie and Freddie

helped much, if at all, to make this dream come true. Despite

all their initiatives since the early 1970s, shortly after

they were incorporated as private corporations protected by

government charters, the percentage of American households

owning homes has increased by merely four percentage points

to 67%.

According to a 2004 Congressional Budget Office study, the

two GSEs enjoyed $23 billion in subsidies in 2003--primarily

in the form of lower borrowing costs and exemption from state

and local taxation. But they passed on only $13 billion to

home buyers. Nevertheless, one former Fannie Mae CEO,

Franklin Raines, received $91 million in compensation from

1998 through 2003.

Amazing.

In 2006, the top five Fannie Mae executives shared $34

million in compensation, while their counterparts at Freddie

Mac shared $35 million. In 2009, even after the financial

crash and as these two GSEs fell deeper into the red, the top

five executives at Fannie Mae received $19 million in

compensation and the CEO earned $6 million.

This is not private enterprise--it's crony capitalism, in

which public subsidies are turned into private riches. From

2001 through 2006, Fannie and Freddie spent $123 million to

lobby Congress--the second-highest lobbying total in the

country. That lobbying was complemented by sizable direct

political contributions to members of Congress.

Changing this terrible situation will not be easy. The

mortgage market has come to be structured around Fannie and

Freddie and powerful interests are allied with the status

quo.

Nonetheless, Congress must get to work on the reform of

Fannie Mae and Freddie Mac. A healthy housing market, a

healthy financial system and even the bond rating of the

federal government depend on it.

There have been countless warnings about the mismanagement of both Fannie and Freddie over the years. In May of 2006, after a 27-month investigation into the corrupt corporate culture and accounting practices at Fannie Mae, the Office of Federal Housing Enterprise Oversight--OFHEO--the Federal regulator charged with overseeing Fannie Mae--issued a blistering, 348-page report which stated that:

Fannie Mae senior management promoted an image of the

Enterprise as one of the lowest-risk financial institutions

in the world and as ``best in class'' in terms of risk

management, financial reporting, internal control, and

corporate governance. The findings in this report show that

risks at Fannie Mae were greatly understated and that the

image was false.

During the period covered by this report--1998 to mid-

2004--Fannie Mae reported extremely smooth profit growth and

hit announced targets for earnings per share precisely each

quarter. Those achievements were illusions deliberately and

systematically created by the Enterprise's senior management

with the aid of inappropriate accounting and improper

earnings management.

A large number of Fannie Mae's accounting policies and

practices did not comply with Generally Accepted Accounting

Principles (GAAP). The Enterprise also had serious problems

of internal control, financial reporting, and corporate

governance. Those errors resulted in Fannie Mae overstating

reported income and capital by a currently estimated $10.6

billion.

By deliberately and intentionally manipulating accounting

to hit earnings targets, senior management maximized the

bonuses and other executive compensation they received, at

the expense of shareholders. Earnings management made a

significant contribution to the compensation of Fannie Mae

Chairman and CEO Franklin Raines, which totaled over $90

million from 1998 through 2003. Of that total, over $52

million was directly tied to achieving earnings per share

targets.

Fannie Mae consistently took a significant amount of

interest rate risk and, when interest rates fell in 2002,

incurred billions of dollars in economic losses. The

Enterprise also had large operational and reputational risk

exposures.

Fannie Mae's Board of Directors contributed to those

problems by failing to be sufficiently informed and to act

independently of its chairman, Franklin Raines, and other

senior executives; by failing to exercise the requisite

oversight over the Enterprise's operations; and by failing to

discover or ensure the correction of a wide variety of unsafe

and unsound practices.

The Board's failures continued in the wake of revelations

of accounting problems and improper earnings management at

Freddie Mac and other high profile firms, the initiation of

OFHEO's special examination, and credible allegations of

improper earnings management made by an employee of the

Enterprise's Office of the Controller.

Senior management did not make investments in accounting

systems, computer systems, other infrastructure, and staffing

needed to support a sound internal control system, proper

accounting, and GAAP-consistent financial reporting. Those

failures came at a time when Fannie Mae faced many

operational challenges related to its rapid growth and

changing accounting and legal requirements.

Fannie Mae senior management sought to interfere with

OFHEO's special examination by diretstOg the Enterprise's

lobbyists to use their ties to Congressional staff to No. 1,

generate a Congressional request for the Inspector General of

the Department of Housing and Urban Development (HUD) to

investigate OFHEO's conduct of that examination and No. 2,

insert into an appropriations bill language that would reduce

the agency's appropriations until the Director of OFHEO was

replaced.

OFHEO has directed and will continue to direct Fannie Mae

to take remedial actions to enhance the safe and sound

operation of the Enterprise going forward. OFHEO staff

recommends actions to enhance the goal of maintaining the

safety and soundness of Fannie Mae.

A remarkable report.

So what steps were taken by the Congress to punish Fannie Mae for such deliberate manipulation and outright corruption? Basically: NONE. According to published reports--including

Fannie Mae's own news release--Daniel Mudd, the president and CEO of Fannie Mae at the time, was awarded over $14.4 million in 2006--the year this report was issued, and over $12.2 million in 2007 in salary, bonuses and stock. And Fannie Mae continued their risky behavior-- successfully posting profits of $4.1 billion in 2006.

The blatant corruption reported by the OFHEO led me to come to the Senate floor back in 2006 and call for the immediate consideration of GSE regulatory reform legislation. At the time I said:

For years I have been concerned about the regulatory

structure that governs Fannie Mae and Freddie Mac and the

sheer magnitude of these companies and the role they play in

the housing market. OFHEO's report this week does nothing to

ease these concerns. In fact, the report does quite the

contrary. OFHEO's report solidifies my view that the GSEs

need to be reformed without delay.

If Congress does not act, American taxpayers will continue

to be exposed to the enormous risk that Fannie Mae and

Freddie Mac pose to the housing market, the overall financial

system, and the economy as a whole.

Additionally, also in May, 2006, I joined 19 of my colleagues in writing to the majority leader urging him to bring the Federal Housing Enterprise Regulatory Reform Act to the floor for debate.

I ask unanimous consent this letter be printed in the Record.

The letter stated in part:

Substantial testimony calling for improved regulation of

the GSEs has been provided to the Senate by the Treasury,

Federal Reserve, HUD, GAO, CBO, and others. Congress has the

opportunity to recommit itself to the housing mission of the

GSEs while at the same time making sure the GSEs operate in a

manner that does not expose our financial system, or

taxpayers, to unnecessary risk. It is vitally important that

Congress take the necessary steps to ensure that these

institutions benefit from strong and independent regulatory

supervision, operate in a safe and sound manner, and are

primarily focused on their statutory mission.

More importantly, Congress must ensure that the American

taxpayer is protected in the event either GSE should fail.

Sadly, the bill which had passed the Senate Banking Committee under the leadership of then-Chairman Shelby, with the support of all the committee's Republicans and none of the Democrats, was not brought up for consideration before this body.

It is critical to note, it was in 2005 that the GSEs, which had been acquiring increasing numbers of subprime loans for many years in order to meet their HUD-imposed affordable housing requirements, accelerated the purchases that led to their 2008 insolvency.

If legislation along the lines of the Senate Banking Committee's bill had been enacted that year, many if not all the losses Fannie Mae and Freddie Mac suffered, and will suffer in the future, may have been avoided. I wish to make it clear to my colleagues: Failure of Congress to act could have prevented--if they had acted--many of the failures we are now facing.

Any criticism leveled at Congress for the failures in Fannie Mae and Freddie Mac is very well placed. On October 3, 2008, the Wall Street Journal reported on how Congress pushed Fannie Mae and Freddie Mac to increase the purchases of low- and moderate-income borrowers. They wrote:

Beginning in 1992, Congress pushed Fannie Mae and Freddie

Mac to increase their purchases of mortgages going to low-

and moderate-income borrowers. For 1996, the Department of

Housing and Urban Development (HUD) gave Fannie and Freddie

an explicit target--42 percent of their mortgage financing

had to go to borrowers with income below the median in their

area. The target increased to 50 percent in 2000 and 52

percent in 2005.

For 1996, HUD required that 12 percent of all mortgages purchased by Fannie Mae and Freddie Mac be ``special, affordable'' loans, typically to borrowers with income less than 60 percent of their area's median income. That number was increased to 20 percent in 2000 and 22 percent in 2005. The 2008 goal was to be 28 percent.

Between 2000 and 2005, Fannie Mae and Freddie Mac met these goals every year, funding hundreds of billions of dollars' worth of loans, many of them subprime and adjustable rate loans made to borrowers who bought houses with less than 10 percent down.

Fannie Mae and Freddie Mac also purchased hundreds of billions of subprime securities for their own portfolios to make money and help satisfy HUD affordable housing goals. Fannie Mae and Freddie Mac were important contributors to the demand for subprime securities. Congress designed Fannie Mae and Freddie Mac to serve both their investors and the political class.

Demanding that Fannie Mae and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize low-income housing outside the budget, at least in the short run. It was a political free lunch. The Community Reinvestment Act, CRA, did the same thing with traditional banks. It encouraged banks to serve two masters, their bottom line and the so-called common good.

First passed in 1977, the CRA was ``strengthened'' in 1995, causing an increase of 80 percent in the number of bank loans going to low- and moderate-income families. By the way, there is nothing wrong with that as long as they meet the fundamental criteria, that they are borrowing money they can pay back.

Fannie Mae and Freddie Mac were part of the CRA story too. In 1997, Bear Stearns did the first securitization of CRA loans, a $384 million offering guaranteed by Freddie Mac. Over the next 10 months, Bear Sterns issued $1.9 billion of CRA mortgages backed by Fannie Mae or Freddie Mac.

Between 2000 and 2002, Fannie Mae securitized $394 billion in CRA loans, with $20 billion going to securitize the mortgages. Fannie Mae and Freddie Mac played a significant role in the explosion of subprime mortgages and subprime mortgage-backed securities.

Without Fannie Mae and Freddie Mac's implicit guarantee of government support, which turned out to be all too real, would the mortgage-backed securities market and the subprime part of it have expanded the way they did? Perhaps. But before we conclude that markets failed, we need a careful analysis of public policy's role in creating this mess. Greedy investors obviously played a part, but investors have always been greedy, and

some inevitably overreach and destroy themselves.

Why did they take so many down with them this time? Part of the answer is, a political class greedy to push home ownership rates to historic highs, from 64 percent in 1994 to 69 percent in 2004. This was mostly the result of loans to low-income, higher risk borrowers. Both Bill Clinton and George W. Bush, abetted by Congress, trumpeted this rise as it occurred.

The consequence, on top of putting the entire financial system at risk, the hidden cost has been hundreds of billions of dollars funneled into the housing market instead of more productive assets. Beware of trying to do good with other people's money.

Unfortunately, that strategy remains at the heart of the political process and a proposed solution to this crisis. Congress had the responsibility to ensure that Fannie Mae and Freddie Mac were properly supervised and adequately regulated. Congress failed. The devastation caused by that failure continues to reverberate across the Nation as more and more families face foreclosures every day.

In September 2008, the Washington Post published an in-depth article titled: ``How Washington Failed to Rein in Fannie, Freddie. As Profits Grew, Firms Used Their Power To Mask Peril.'' It is extremely informative and raised many troubling questions about the culture of corruption which is evident in the operations of both enterprises.

The Post piece begins:

Gary Gensler, an undersecretary of the Treasury, went to

Capitol Hill in March 2000 to testify in favor of a bill

everyone knew would fail.

Fannie Mae and Freddie Mac were ascendent, giants of the

mortgage finance business and key players in the Clinton

administration's drive to expand home ownership. But Gensler

and other Treasury officials feared the companies had grown

so large that, if they stumbled, the damage to the U.S.

economy could be staggering. Few officials had ever publicly

criticized Fannie Mae and Freddie Mac, but Gensler concluded

it was time to rein them in.

``We thought this was a hand-on-the-Bible moment,'' he

recalled.

The bill failed.

The companies kept growing, the dangers posed by their

scale and financial practices kept mounting, critics kept

warning of the consequences. Yet across official Washington,

those who might have acted repeatedly failed to do so until

it was too late.

Blessed with the advantages of a government agency and a

private company ``at the same time, Fannie Mae and Freddie

Mac used their windfall profits to co-opt the politicians who

were supposed to control them. The companies fought

successfully against increased regulation by cultivating

their friends and hounding their enemies.

The agencies that regulated the companies were outmatched:

They lacked the money, the staff, the sophistication and the

political support to serve as an effective check.

But most of all, the companies were protected by the belief

widespread in Washington--and aggressively promoted by Fannie

Mae and Freddie Mac--that their success was inseparable from

the expansion of homeownership in America. That conviction

was so strong that many lawmakers and regulators ignored the

peril posed to that ideal by the failure of either company.

In October 1992, a brief debate unfolded on the floor of

the House of Representatives over a bill to create a new

regulator for Fannie Mae and Freddie Mac. On one side stood

Jim Leach, an Iowa Republican concerned that Congress was

``hamstringing'' this new regulator at the behest of the

companies.

He warned that the two companies were changing ``from being

agencies of the public at large to money machines for the

stockholding few.''

On the other side stood Barney Frank, a Massachusetts

Democrat, who said the companies served a public purpose.

They were in the business of lowering the price of mortgage

loans.

Congress chose to create a weak regulator, the Office of

Federal Housing Enterprise Oversight. The agency was required

to get its budget approved by Congress, while agencies that

regulated the banks set their own budgets. That gave

Congressional allies an easy way to exert pressure.

``Fannie Mae's lobbyists worked to ensure that [the] agency

was poorly funded and its budget remained subject to approval

in the annual appropriations process,'' OFHEO said more than

a decade later in a report on Fannie Mae. ``The goal of

senior management was straightforward: to force OFHEO to rely

on the [Fannie] for information and expertise to the degree

that Fannie Mae would essentially regulate itself.''

Congress also wanted to free up money for Fannie Mae and

Freddie Mac to buy mortgage loans and specified that the pair

would be required to keep a much smaller share of their funds

on hand than other financial institutions. Where banks that

held $100 could spend $90 buying mortgage loans, Fannie Mae

and Freddie Mac could spend $97.50 buying loans.

Finally, Congress ordered that the companies be required to

keep more capital as a cushion against losses if they

invested in riskier securities. But the rule was never set

during the Clinton administration, which came to office that

winter, and was only put in place nine years later.

The Clinton administration wanted to expand the share of

Americans who owned homes, which had stagnated below 65

percent throughout the 1980s. Encouraging the growth of the

two companies was a key part of that plan.

``We began to stress homeownership as an explicit goal for

this period of American history,'' said Henry Cisneros, then

Secretary of Housing and Urban Development. ``Fannie Mae and

Freddie Mac became part of that equation.''

The result was a period of unrestrained growth for the

companies. They had pioneered the business of selling bundled

mortgage loans to investors and now, as demand for investors

soared, so did their profits.

Near the end of the Clinton administration, some of its

officials had concluded the companies were so large that

their sheer size posed a risk to the financial system.

In the fall of 1999, Treasury Secretary Lawrence Summers

issued a warning, saying, ``Debates about systemic risk

should also now include government-sponsored enterprises,

which are large and growing rapidly.''

It was a signal moment. An administration official had said

in public that Fannie Mae and Freddie Mac could be a hazard.

The next spring, seeking to limit the companies' growth,

Treasury official Gensler testified before Congress in favor

of a bill that would have suspended the Treasury's right to

buy $2.25 billion of each company's debt--basically, a $4.5

billion lifeline for the companies.

A Fannie Mae spokesman announced that Gensler's remarks had

just cost 206,000 Americans the chance to buy a home because

the market now saw the companies as a riskier investment.

The Treasury Department folded in the face of public

pressure.

There was an emerging consensus among politicians and even

critics of the two companies that Fannie Mae might be right.

The companies increasingly were seen as the engine of the

housing boom. They were increasingly impervious to calls for

even modest reforms.

As early as 1996, the Congressional Budget Office had

reported that the two companies were using government support

to goose profits, rather than reducing mortgage rates as much

as possible.

But the report concluded that severing government ties with

Fannie Mae and Freddie Mac would harm the housing market. In

unusually colorful language, the budget office wrote, ``Once

one agrees to share a canoe with a bear, it is hard to get

him out without obtaining his agreement or getting wet.''

Fannie Mae and Freddie Mac enjoyed the nearest thing to a

license to print money. The companies borrowed money at

below-market interest rates based on the perception that the

government guaranteed repayment, and then they used the money

to buy mortgages that paid market interest rates. Federal

Reserve Chairman Alan Greenspan called the difference between

the interest rates a ``big, fat gap.'' The budget office

study found that it was worth $3.9 billion in 1995. By 2004,

the office would estimate it was worth $20 billion.

As a result, the great risk to the profitability of Fannie

Mae and Freddie Mac was not the movement of interest rates or

defaults by borrowers, the concerns of normal financial

institution. Fannie Mae's risk was political, the concern

that the government would end its special status.

So the companies increasingly used their windfall for a

massive campaign to protect that status.

``We manage our political risk with the same intensity that

we manage our credit and interest rate risks,'' Fannie Mae

chief executive Franklin Raines said in a 1999 meeting with

investors.

Fannie Mae, and to a lesser extent Freddie Mac, became

enmeshed in the fabric of political Washington. They were

places former government officials went to get wealthy--and

to wait for new federal appointments. At Fannie Mae, chief

executives had clauses written into their contracts spelling

out the severance benefits they would receive if they left

for a government post.

The companies also donated generously to the campaigns of

favored politicians.

But Fannie Mae wasn't just buying influence. It was selling

government officials on an idea by making its brand

synonymous with homeownership. The company spent tens of

millions of dollars each year on advertising.

In tying itself to politicians and wrapping itself in the

American flag, Fannie Mae went out of its way to share credit

with politicians for investments in their communities.

``They have always done everything in their power to

massage Congress,'' Leach said.

And when they couldn't massage, they intimidated. In 2003,

Richard H. Baker (R-La.), chairman of the House Financial

Services subcommittee with oversight over Fannie Mae and

Freddie Mac, got information from OFHEO on the salaries paid

to executives at both companies. Fannie Mae threatened to

sue Baker if he released it, he recalled. Fearing the expense

of a court battle, he kept the data secret for a year.

Baker, who left office in February, 2008, said he had never

received a comparable threat from another company in 21 years

in Congress. ``The political arrogance exhibited in their

heyday, there has never been before or since a private entity

that exerted that kind of political power,'' he said.

In June 2003, Freddie Mac dropped a bombshell: It had

understated its profits over the previous three years by as

much as $6.9 billion in an effort to smooth out earnings.

OFHEO seemed blind. Months earlier, the regulator had

pronounced Freddie's accounting controls ``accurate and

reliable.''

Humiliated by the scandal, then-OFHEO director Armando

Falcon Jr. persuaded the White House to pay for an outside

accountant to review the books of Fannie Mae. The agency

reported in September 2004 that Fannie Mae also had

manipulated its accounting, in this case to inflate its

profits.

The companies soon faced new bills in both the House and

the Senate seeking increased regulation. The Bush

administration took the hardest line, insisting on a strong

new regulator and seeking the power to put the companies into

receivership if they foundered. That suggested the government

might not stand behind the companies' debt.

Fannie Mae and Freddie Mac succeeded in escaping once more,

by pounding every available button.

The companies orchestrated a letter-writing campaign by

traditional allies including real estate agents, home

builders and mortgage lenders. Fannie Mae ran radio and

television ads ahead of a key Senate committee meeting,

depicting a Latino couple who fretted that if the bill

passed, mortgage rates would go up.

The wife lamented: ``But that could mean we won't be able

to afford the new house.''

Most of all, the company leaned on its Congressional

supporters.

Fannie Mae even persuaded the New York Stock Exchange to

allow its shares to keep trading. The company had not issued

a required report on its financial condition in a year. The

rules of the exchange required delisting. So the exchange

created an exception when ``delisting would be significantly

contrary to the national interest.''

The amendment was approved by the Securities and Exchange

Commission. Fannie Mae would remain on the New York Stock

Exchange.

As Fannie Mae and Freddie Mac were trying to recover from

their accounting scandals, a new and ultimately mortal threat

emerged. Yet again, the warnings went unheeded for too long.

The companies had begun buying loans made to borrowers with

credit problems.

Fannie Mae and Freddie Mac had been losing market share to

Wall Street banks, which were doing boomtown business

packaging these riskier loans. The mortgage finance giants

wanted a share of the profits.

Soon, the firms' own reports were noting the growing risk

of their portfolios. Dense monthly summaries of the

companies' mortgage purchases were piling up at OFHEO.

An employee at one of the companies said it was already a

constant discussion around the office in 2004: When would the

regulators notice?

``It didn't take a lot of sophistication to notice what was

happening to the quality of the loans. Anybody could have

seen it,'' the staffer said. ``But nobody on the outside was

even questioning us about it.''

President Bush had pledged to create an ``ownership

society,'' and the companies were helping the administration

achieve its goal of putting more than 10 million Americans

into their first homes.

Fannie Mae and Freddie Mac's appetite for risky loans was

growing ever more voracious. By the time OFHEO began raising

red flags in January 2007, many borrowers were defaulting on

loans and within months Fannie Mae and Freddie Mac would be

running out of money to cover the losses.

Finally, as the credit crisis escalated, Congress passed a

bill in July of 2008 that established a tough, new regulator

for Fannie Mae and Freddie Mac. It was too late.

Americans are hurting. The economic situation remains depressed in my State. Unemployment is at record levels. The time has come to end the taxpayer-funded free ride of the gambling institutions. We cannot afford it anymore.

Mr. President, for us to somehow say we are going to enact significant and meaningful financial regulatory reform without addressing this situation--these hundreds of billions of dollars of toxic assets that still have not been resolved; two government- supported enterprises that have been propped up by the taxpayers of America for too long, while they engaged in the riskiest of enterprises, paying obscene profits to their executives and CEOs, their boards of directors derelict in their duties, criminally so.

We must enact reform of Freddie and Fannie if we are going to perform our duties, albeit too late--too late because of the terrible losses we have inflicted on the American taxpayers. But it is not too late to fix it.

Mr. President, I yield the floor.

I have not laid down the amendment because I understand the Senator from Connecticut would move to table, and there are numerous Members who want to talk on this issue--this multitrillion- dollar issue. So, no, I have not. But I can also assure the Senator from Connecticut, if I propose the amendment, and it is tabled without proper debate, there will be another amendment just like it.

In the words of Humphrey Bogart in Casablanca, I was misinformed because I was told by several different individuals that you would be moving to table the amendment if it was proposed. I am glad to hear that is not the case. I know of at least 20 Members on this side who want to speak on this issue. I will try to compile that and try to come to the Senator with a list and the time they want to discuss.

With all due respect to all the other amendments--and I do not say this very often--when we are talking about trillions of dollars-- trillions of dollars--this is a very important amendment. So I will try to get to the distinguished chairman--I say with sympathy and respect-- a list of speakers and the amount of time they may consume as soon as possible.

Sure. Absolutely.

I have no objection to moving other amendments while I am doing that. None whatsoever.

We have to ask our leader but, yes, that is fine. Our two leaders say it is fine. I thank you.

Mr. Speaker, it's a pleasure to join you this evening and to talk about some issues that are of significance to all of us. And I thought that what we might do this evening, starting out, was just take a look at--many people are conscious of the fact that we've got some challenges and troubles with the economy. People are aware that we have a problem with jobs and having enough jobs to go around. We have some difficulties on Wall Street, as people know. We have difficulties on Main Street.

We have been told over a period of the last six or 7 years that we spent a whole lot, too much money in the war in Iraq and in Afghanistan. In fact, we have been regaled every day with stories about oh, we're spending more and more money.

But just to kind of put perspective on how much we have been spending lately, let's just consider the 6 years of the war in Iraq and add up all the money we spent in the war in Iraq, and then let's add to that the amount of money that we spent in Afghanistan. And you put the two together, and it's less money than we've spent in the first five weeks when this Congress was in session. That's kind of an amazing number.

We spent this, supposedly stimulus bill, $840 billion. What is $840 billion? Well, it's more money than we've spent in both of these wars over the past six and 7 years all added up, combined.

So how did we get into this situation that we are spending so tremendously much money?

I recall, the President made a statement. It said, ``We cannot simply spend as we please and defer the consequences.'' And many of the President's statements are noteworthy. This is a good statement. ``We cannot simply spend as we please and defer the consequences.''

The only question is, when you take a look at the level of spending, these

blue bars was President Bush, and these red bars, now, become the Democrats and particularly, here, this is this year. Now, this is not, doesn't have projections in it for economists making all kinds of predictions. This is actually what we are spending. And you see how much the spending has gone up. And so this line doesn't square too well with ``We can't simply spend as we please and defer the consequences.''

So how did we get into this really heavy, big spending kind of situation?

I think it's helpful--people say, oh, we just have to keep looking ahead and solving problems. I think it's good to look ahead and solve problems. I think it's also possible to take a look and see where did we make mistakes and what do we need to make sure that we don't do again. I90[H25MR9-R1]{H4012}

And if you take a look at how we got the economy in trouble, the story goes back, actually, a good number of years. It goes back even as far back as 1968, and that was when Fannie Mae was created. It's called a government-sponsored enterprise. It's not really private. It's not really government. It's sort of half and half. And so '68 we created Fannie Mae, and then in 1970, Freddie Mac. And the purpose of these organizations was to make it so that Americans could afford to own homes. And that is, of course a good thing. We all appreciate the American dream, particularly having, when you come home after a hard day's work, have a place that's really your palace. Maybe not a fancy palace, but it's at least a place where there should be some peace and when you can say yeah, this is my house. And that's always been part of the American dream.

And the idea was to create these agencies, to allow more people to have a chance to own their own home. And that was what a good enough idea to start with. But then we started to tamper with the idea some in 1977 with the Community Reinvestment Act, which mandated that Freddie and Fannie--or in the Community Reinvestment Act it mandated more banks had to make loans that were risky loans, not the sort of loan that a local bank would know the people living in their area and they'd say, oh, this is a good guy and he wants to buy a home, but we know he'll be able to pay his loan, so we'll go ahead and make that loan and we'll keep that on our books and allow that to go forward. And then every month we know this man in our community, we know he'll pay off his loan and soon he'll be a proud homeowner.

No, this was not what happened with the Community Reinvestment Act. What we're saying now is that banks have to lend money to people who might not be able to repay those loans, and the government's starting to say, you've got to make these loans that are not so good.

Well, in 1992, the Federal Housing Enterprise Financial Safety and Soundness Act mandated that Freddie and Fannie buy risky loans from the banks. So now pretty soon, you've got this and it's gone a little further. It's not just that the bank is going to make some risky loans, but now the bank has the option of dumping the risky loans on Freddie and Fannie. So you can see where this is going. What's starting to happen is that we're passing the accountability. And guess who's finally going to end up holding the bag? You guessed it, the U.S. taxpayer.

Well, here's what's going on. Now, this enterprise is saying you can take these bad loans, pass them on to Freddie and Fannie. Well.

Then we go to 1999, and under the Gramm-Leach-Bliley Act, this is where President Clinton expanded the number of bad loans, not maybe bad loans, but much more risky loans that Freddie and Fannie had to take. And so Freddie and Fannie now are picking up more and more of loans where it's not so clear people are going to be able to pay these things. And so Freddie and Fannie start to do some exciting footwork with their finances, and start packaging these loans up in unique ways, and selling them, through Wall Street, all over the world. And so this is going on in '99.

Now, other things are starting to take effect here. The economy was not so good in '99. And so, Greenspan, at that time, lowered the interest rate, took it way down so it created a whole lot of available liquidity, and the housing bubble starts going. And this was the year that I was elected to Congress, 2000. So 2001, if I'd come down here, I was really kicking myself by 2005 because anybody who bought a house in Washington, D.C., why, that house would have doubled in value in about 5 years. You're saying why in the world didn't I buy some big house in D.C.? And then later on you think, I'm glad I didn't.

But anyway, we haven't gotten there yet. So this is what's happening in 1999. Then things start to--the train starts to come off the track.

In 2003, Freddie and Fannie get investigated by The Securities and Exchange, and they admit that $1.2 billion accounting error. At that particular time, President Bush, seeing that, had been warned. Now there'd been some warnings before, back in 1999. New York Times, there's an editorial saying, we are setting up a problem. And here's the problem. You've got a whole bunch of loans that are very questionable, more and more questionable loans. And who is going to back up those loans? Who's going to end up having to pay for them if people default on their loans? So this is, who's going to pay? Well, Freddie and Fannie have all of these things. What's the implication? Well, Freddie and Fannie are backed by who? By the U.S. government. So if the loans are bad, now the U.S. government is, maybe not obligated, but pretty much obligated. By this time, Freddie and Fannie have got more than half of the home loans in America. So is the government going to turn their back and say, oops, all of this is stuff is just going to go away? No, of course. So this is starting to come along.

By 2003, the President sees these problems, and in this article, on September 11, 2003, the article, this is New York Times, September 11, 2003, it says hear, ``The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.''

So here you have, Republican President Bush is saying, uh-oh, guys. We've got trouble. We need to get into Freddie and Fannie. We need to regulate them some because they're starting to get wild and wooly with their financial wheeling and dealing, and what's going to happen is the government and the taxpayer are going to end up getting caught on the hook.

Well, what was the response? And did we go ahead and take the President's recommendation and move forward with further regulations of Freddie and Fannie?

Well, he was opposed. The same article in the New York Times, same one, September 11, 2003, the ranking Democrat of the Financial Services Committee, Congressman Frank, is quoted in this article. ``These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis'' said Representative Barney Frank of Massachusetts. Now, I think he didn't think they were facing any particular kind of crisis. But he was the ranking member on this committee. That means he was in the minority party in 2003. But he was opposed to what the President was suggesting, and that was a strong reining in of Freddie and Fannie's practices. Now, he, by himself, of course, couldn't stop a legislation because he was in the minority party.

So, following 2003, you have, in addition, you have the Bush administration in 2004, again, this is committee testimony saying, we've got to get on to Freddie and Fannie. And then by 2005, a bill was passed in the House. It was mostly, the one in the House was mostly voted for by Republicans. It was opposed by a majority of Democrats, or quite a number of Democrats. And the bill passes out of the House and then goes over to the Senate.

Now, the Senate is kind of an odd body because over there it takes 60 votes to get something passed. And as the New York Times reported, the Democrats were not in favor of this additional regulation on Freddie and Fannie. So here is another version, the Senate bill 190, it's the Federal Housing Enterprise Regulatory Reform Act 2005. And the Senate, it was passed out of the Committee on Banking and Housing and Urban Affairs, but the floor action was blocked by the Democrat minority.

So there's a difference, a political difference here, that the Republicans were in support of more regulation of

Freddie and Fannie. Democrats were opposed to that, killed it over in the Senate.

Now, what happened then, of course, is that all of these bad loans spiraled more and more out of control, and as they did so, they started to create havoc in other parts of the economy. Now, was this problem created entirely because Democrats refused to regulate Freddie and Fannie? No, not entirely because of that. It was a very important component. Certainly, the bad loans are what put us on track for a very serious world economic situation. There was more to it, though.

There were people on Wall Street, such as Standard & Poor's and two other rating agencies--the ones that give us our credit ratings personally. They are the ones that said that all of these mortgage- backed securities were a AAA rating. Well, that turns out to also have been not a very wise thing, and they were not AAA rated. In fact, most of them have gone into default enough so that there is no longer any market for these mortgage-backed securities. So now we are at the point in the last year or two where we have what is clearly a recession on our hands. So what do you do with a recession? There are two basic theories about how you handle this.

The first one goes back to FDR and to his Secretary of the Treasury, Henry Morgenthau. Morgenthau, along with a guy, little Lord Keynes--he was a little weird, but he was an economist anyway--came up with this idea that when the economy gets in trouble what you have got to do is to stimulate it, and so what we are going to do is spend a whole lot of money, and that is going to make the economy a lot better. So they tried that during the Great Depression. After 8 years of stimulating-- that is, spending tons and tons of taxpayer money--you have the guy who really came up with this scheme, Henry Morgenthau, now appearing before the House Ways and Means Committee in the year 1939. He talks about: How well does it work if the government spends a whole lot of money to get itself out of an economic fix? Well, here is what his quote was:

``We have tried spending money. We are spending more than we have ever spent before, and it does not work.''

This is the guy who supports this Keynesian model of economics, which says, hey, the more you spend money, the more it's going to fix the economy. After 8 years of the administration, we have just as much unemployment as when we started--and an enormous debt to boot.

Now, this is a lesson that Henry Morgenthau learned in 1939. He learned it at the cost of 8 years of Americans being out of jobs. He realized that this does not work. The Japanese did not learn the lesson, and in the '70s, they took their economy through 10 years of big government spending to try to get their economy going, and it did not work.

So what we have then is the problem of an approach to fixing an economic crisis which creates unemployment, and of course unemployment--lost jobs--really, really hurt an awful lot of common people. A lot of people who have worked hard all of their lives, who are trying to pay their mortgages off, lose their jobs, and now their houses are foreclosed. I think sometimes, in my own mind, of being the father of a family with a wife and with kids depending on me. I think of what it would be like to come home at night and see your living room furniture sitting on the sidewalk, and you're being tossed out of your house. That is the kind of thing we risk when we start using bad government policies. When we start to take this process of having people being encouraged to take loans that they cannot afford to take, we lose jobs, and things start to come undone.

There is a different approach, another way, of dealing with a recession. One way of dealing with a recession that we mentioned is, of course, the Keynesian model, or the idea of spending your way out of trouble. Now, we need a little bit of common sense down in Washington, D.C. We need a little common sense in Congress. Most people in a lot of our districts know that, if you get in trouble economically, the thing you do is you don't go buy a brand new car and spend money like mad, hoping it's going to get better. That's just plain crazy, and yet that seems to be what the government is doing.

Let's take a look and see what our response has been, because there is another approach. There was the same approach that was used by JFK, by Ronald Reagan and by President Bush, all three times effectively turning a recession into good, solid economic times. I've got a couple of charts here. I just want to throw a couple of these up because this is the heart of where we are in America today, and it affects every man, woman and child in our country.

What I have here right in front of me is the danger of using that Keynesian model--spending money out of control. Let's take a look at this chart. This is a pretty easy one to understand. I know charts are sometimes a little confusing or you have to try and figure out what they're saying, but this just tells you whether or not the family budget got balanced. Every single one of these bars is a line, and if the line goes down, it means the government spent too much money. If the line goes up, it says we actually did not spend as much as we took in. So, just like the family budget, the down lines mean, uh-oh, we went into debt. We're going back all the way here to 1980 and are going out here to this very year where we are.

So what has happened? Well, we've been spending too much money for a long time here. About how much too much? Well, you know, $3 billion to $400 billion worth. That's a lot of money. Here we had a couple of good years where we actually made some money. This was a Republican Congress. Bill Clinton and the Congress said we're not going to spend much money, and there were some disagreements. We actually saved some money for a couple of years. These years right in here are the 8 years of Bush, and Bush was criticized for spending too much money. I voted against some of that spending, and here is what the spending was:

You can see that probably the worst spending was somewhere in the range of about $400 billion. Now take a look at what happened this year in 2009. My goodness, this is absolutely unprecedented. That is the level of spending in 2009. Guess what? We're not done with 2009 yet. So this tells you that we have taken an approach which is saying, boy, are we going to spend some money. You can say that, maybe, President Bush spent too much money. I think he did, but it is nowhere near what we're seeing, and so this spending pattern seems to be in great contradiction with the statement that says: We cannot simply spend as we please and defer the consequences. This is what he said, but look at what we are doing.

I am joined here in the Chamber tonight by a very good friend of mine from Louisiana, Congressman Scalise.

I know that you've been paying attention to some of these issues and have already, rapidly, distinguished yourself here in the Congress. I would appreciate it if you would give us your perspective on what's going on this evening.

Reclaiming my time just for a second, you are talking about these different tax increases and different things that are spending money. It's starting to get a little bit hazy because there are a number of them coming along, and it's easy to get them confused in your mind where it was that we spent money and how much. So I have put together some of the real big ticket items. I mean we're only into March, right? I mean it's only the first quarter. Let's take a look here.

This is the Wall Street bailout. It started, actually, at the end of the Bush administration. They did, I think it was, $300 billion or $350 billion, something like that.

$350 billion.

Then, under President Obama, we got the other $350 billion. So half of this is Bush and half of this is President Obama. Then we've got this economic stimulus--I call this the porkulus bill--and that was $787 billion in its final form. Then we've got the appropriations bill that we passed. That's another $410 billion. So, you know, we are well over $1 trillion here in less than--what is it?--3 months.

Sixty-five days.

I just thought it would be helpful to have those numbers up there. The main thing was the Wall Street bailout, then this porkulus bill and then this appropriations bill.

I yield.

Reclaiming my time, we have gone from $400 billion to $1.7 trillion?

Reclaiming my time, that is really clever politically. So, in other words, what you're saying is the first year, you kick it up-- and it is whatever it is, three or four times more than it has ever been for a long, long time--and then you say, ``But I am going to cut it back so it's just a lot more than it has ever been.''

Reclaiming my time.

We have a chart here. It is kind of an interesting chart in a way in that these are all of our Presidents. You start over here with George Washington and you end up down here with President Bush. And if you add all of the debt that all of these Presidents all the way through Bush put together every time when they overspent the family budget, if you will, and you keep adding all of that together, you come up with $5.8 trillion, which is bad. We shouldn't overspend that way.

But here, take a look at just from 2009 to 2016. That's not so many years. We're only talking about, what is that, 7 years. That's assuming, let's say he were President for 8 years and so this is all during his Presidency. What he's proposing is $8.7 trillion. So he's going to create more debt in 7 years than we have in 232 years of all the previous Presidents. This is kind of getting serious.

I have noticed that we're joined in the Chamber here by a judge. You know, judges are kind of sober and straightforward. And this guy is a judge from Texas, and Judge Carter usually has some very interesting perspectives and a little bit of straight shooting and straight talk.

Judge Carter, please join us.

We've heard about how bad Republicans and President Bush were, so I just made a couple of real simple comparisons.

This is the average annual deficit under President Bush, and it was $300 billion. Now we don't like that. But that was what the deficit was on an average under the Bush years--$300 billion.

Now under Barack Obama's proposed budget--these are his numbers; we're not doctoring them--this is what he's proposing. His annual deficit is going to be 600. He's doubled the deficit of President Bush. And we heard all of this stuff about how bad Bush's spending level is. Here is another way of saying it.

The highest deficit under George Bush happened to be 2008, and that, of course, was with the Democrat Congress, but that was $459 billion, and the projections by the Congressional Budget Office is looking at $1.2 trillion. That's more than double.

And here we got the increase in national debt. Under Bush, he increased the debt, from 2000 to 2008, $2.5 trillion. But take a look under Barack Obama, we're looking at almost double.

So everywhere down the line we're doubling. And we are not fighting the war in Iraq, and we're pulling the war in Iraq back, and we're, in fact, doubling everything.

So these numbers really need some attention, I think, and I appreciate your sharing.

I would yield to the gentleman from Louisiana.

You talked about the TEA party. We were flushing a little tea down the Mississippi River from St. Louis. We had a TEA party, too, and I don't know whether that's gotten down to Louisiana yet. But we had the same thing. We have people saying, Wait a minute. This spending is out of control. Some of the money that we had on the chart here has already been spent. But there is a tremendous amount more spending that is being proposed. And we don't have to keep spending.

We did the $300-some billion bank bailout. That water is over the dam or down the river, however you want to look at it. And that porkulus bill at almost $800 billion, you know, you're talking about more than the war in Iraq and Afghanistan added together. We're talking about just 5 weeks here in the Chamber, and we have gone hugely into debt.

I am on Armed Services. One of the most expensive things we buy on my committee is aircraft carriers. We have 11 of them in the U.S.A., and this bill, for $800 billion, we could get 250 aircraft carriers. End- to-end I can't even imagine how many aircraft carriers that would be. We only have 11. The debt service and the money would buy 9 brand new aircraft carriers. We're talking a lot of money, and the American public is starting to get wise to this deal.

Thirty-two thousand years? Now, wait a minute. What year is this? This is 2009 and you're saying 32,000?

This isn't the year of 32,000. This is the year 2009.

Oh, yeah.

Reclaiming my time.

The special hour that the Democrats did just before we came on here, they were talking about the glories and the benefits of this carbon tax and all the things they're doing with renewables and those kinds of things. But a tax is a tax is a tax.

What we're talking about here is this thing that's called cap-and- trade. I would call it cap-and-tax. This is $646 billion. This is another one of these things you have got to be real careful what you hear when you get an address from the President. Because as he was in this Chamber 6 or 8 weeks ago, he gave us a State of the Union or State of the State, whatever the address was called, he said, Look. I am going to guarantee you something. If you're making less than $250,000, I have got good news for you. I am not going to tax you.

He said that. We were sitting in here. And then he's proposing this cap-and-trade which really is a tax on the use of energy, particularly carbon.

And who is it that uses this carbon? Well, anybody who's got a house that's heated with fuel oil or coal or electricity or natural gas. All of those things are going to get taxed.

So this little tax, this $646 billion tax, is going to come from somebody. Guess who? The average homeowner. In fact, it has been estimated by one organization that you're talking about $3,100 per average household. That's some money for a lot of us.

Three hundred dollars a month.

If you buy a chair or a table or a microphone, anything that you see sitting around us, you're going to move that by rail.

There is energy tied up in everything. And it's all going up.

Reclaiming my time.

I don't want you to make things too gloomy here. We're not just talking about gasoline and natural gas and propane and electricity.

We're talking about the price of all of the things that that energy goes into as well.

That would affect small businesses, too. I yield to my good friend from Louisiana and I know that you have had some small business experience. Maybe you can share your thoughts about does this make sense for us to be doing this great big tax increase on energy when the economy is struggling? Does that make sense to you? I yield.

Reclaiming my time a second, what you are saying is you've got some very hard manufacturing jobs. These are the kind that support other jobs in the community. You're talking about steel mill. You're talking about production. You're talking about a lot of investment, good solid jobs in the community, and your competition is not Missouri, is it?

Reclaiming my time, these are hard jobs. This is a proposal by a company. I used to be in charge of maintenance in a steel mill. I didn't know if you knew that, but I did. In fact, my great-grandfather started a steel mill. I can tell you one thing about steel mills, they use energy. They use a lot of energy. If you're going to put this big, whopping tax increase on energy, guess what you're going to do. You're going to do the same thing that's going on here. You are sending jobs straight out of our country, and that's not what we should be doing in these economic times. It makes no common sense whatsoever.

And how well is it working?

Reclaiming my time, what you're talking about, we see this when you really look at legislation we pass all the time, we pass legislation that's supposed to do one thing, and frequently it does the exact opposite. You know what I'm thinking, if I'm from the good old State of Missouri, we have plenty of guys. There's a lot of oak trees and a lot of chain saws, and you all of the sudden start taxing people's natural gas or their propane or if they have electric heat pumps and things and their family budget gets tight, guess what's going to happen. That old, dead oak tree out behind in the back 40, they're going to get that chain saw, they're going to fire that thing up, and they're going to get themselves a big, old, wood burning stove. And it may not be very efficient, and they're going to really put some CO2 out.

And the thing that is supposed to be not making CO2, instead of building a nuclear plant that makes no CO2, which is if you were really serious that you're worried about CO2, well, then you'd want to go with a nuclear because it makes no CO2. But by doing this tax, all that's going to happen, we're going to make more CO2. It doesn't even make a whole lot of sense, does it?

Just reclaiming my time, you know, the thing I'd like-- we're going to be wrapping things up here pretty soon, and one of the things sometimes that there's some that would like to portray us as being just say ``no'' on everything. I think we need to deal with that for just a minute in our discussion here.

It's not that we think ``no'' on everything. We really think ``yes'' on everything, on a whole lot of things. We just don't believe that the solution to the economic problems that have been created by these bad loans and bad mortgages and things, which were a failed socialist policy, there was no failure of free enterprise. We don't think the solution to the economy is just spending tons and tons of money. And so that doesn't make us just ``no.''

There are ways to get an economy that's in a recession getting it going, and we've seen examples of people that have done it. Why don't we copy what works? JFK did it, Ronald Reagan did it, and Bush 2 did it in some of the tax cuts. If you do tax cuts and you cut Federal spending and you allow small business entrepreneurs, investors to have enough liquidity to invest, then you can get the economy going.

And so we've got a bunch of different kinds of solutions, but the bottom line is you've got to back off on the Federal Government sucking all of the liquidity out of the economy, and you have got to allow small businesses to invest. And you don't do that by taxing them to death, taxing them on their energy, taxing anybody who makes over $250,000. That's more than half of the small business owners in the country.

And so we've got a solution, don't we? It's not like we're saying ``no.'' Our solution is straightforward. You have to allow the investors and the small businesspeople to have enough liquidity to get the free enterprise system going and you've got to get the government in this incredible overspending off of their backs.

I wanted to make sure we're talking positively because we love America. This country has been through a lot of crises, and we're in a whale of a crisis now because of mismanagement. That doesn't mean we have to keep going down the same, dumb path that didn't work for FDR. It didn't work for the Japanese. We need to go for the things that work.

So what we are saying is we're opposed to stuff that doesn't work. We love our country, and we know how to make it better.

That seems like a whole lot better idea than taxing everybody that uses any form of energy and adding that to the price of everything else. That's just brutal in a rough economy. There's a lot of families in my district that are hurting, and to be doing this kind of budget imbalance, take a look at this, these are President after President after President, you can see, you know, this is the wrong track. This is just not the way to do something. The gentleman from Louisiana.

I guess you could say we are spending too much, we are taxing too much, we are borrowing too much. That is kind of a summary of it.

If you just take a look at these bar charts about the budget imbalance, you can see that. This is not the equation of how to fix an economy that's in trouble. That's not what JFK did. That's not what Ronald Reagan did. That's not what Bush II did to stop those recessions. This is even worse than what FDR did.

The problem we have is if something doesn't work, it just doesn't work. It's not like you're being negative. You're saying, Look, it's never worked in history. What we have to do is go back to the time- tested principles of the country we love--and that's just to trust the Americans, the inventors and the investors, the entrepreneurs, the people who love this country, who live the American Dream, who come here with some crazy new idea, give it a try and, by golly, the thing works.

They wake up some day and they've been sleeping under a park bench 10 years before and some guy and his wife realize they're millionaires and they didn't even know it was going to happen to them. That's what this country is all about.

The government can never create any wealth but, boy, we can sure keep other people from ever doing any by overtaxing them.

It strikes me as it may be worse than that. What we're doing here, we're killing the American Dream. That is what's going on. We're killing the dream for people that wanted to come to this country, own their own house, be able to send their kids to get a better education than they got before.

This is a country that is so unlike anything else in the world. We are such a special country. We are unique in so many different ways. Whenever you see there's a tsunami or hurricane, you see our people out there helping. We've been a bastion of freedom for people all around the world. They look at America and say, Hey those Americans have got it down. You could live the American Dream over there. They come flooding into our country. We're worried about the immigration because they understand what this country has always been about. It's never been about this kind of stuff--this irresponsible, runaway government spending. This is killing the dream that Americans have always come to believe in.

I yield to my friend from Louisiana.

This is taxing too much, spending too much, and borrowing too much.

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

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

Mr. President, I want to share a few thoughts, if I may, for a minute or so on the pending matter before us. But before I do that--and at a later time I will speak at greater length about this--I want to express my regrets over the decision made in Utah over the weekend regarding Bob Bennett, our colleague.

I have served with Bob for 18 years. We have been on the Banking Committee together during that time. Obviously, we have differences of opinion on a lot of policy questions. In fact, the majority of policy questions we have had our differences on. But at critical moments, Bob Bennett was always someone you could talk to, someone you could approach with an idea or an issue.

He went through a tough battle over the last number of weeks and did not prevail in his convention over the weekend in Utah. But I want to express to him and Joyce how much this institution will miss them in the coming year. He is a thoughtful, considerate individual. He is deliberate in his views and accessible when it comes to others' ideas. In my view, it will be a loss for the institution that he will not be back. That is coming from a Democrat on this side of the aisle.

I realize there is a contest coming up, but I didn't want the day to begin or end without expressing my disappointment over the results in Utah. I know that is probably not appropriate for Democrats, making comments about Republican races, but Bob Bennett is one fine U.S. Senator, and he has played an invaluable role, a critical role at critical junctures over the last number of years that I have served with him.

Now, Mr. President, I want to make some comments about the bill before us. It has been nearly 7 weeks since the Banking Committee approved legislation to reform Wall Street. It has been more than 3 years since our committee began work on this very important topic. It was in January or early February of 2007 that I became chairman of the Banking Committee for the first time, and, obviously, the news even at that early date was about the mortgage foreclosure issue.

A lot of work has gone on in the Banking Committee. We have literally had dozens and dozens of hearings and meetings with people on how best to

address this economic decline that we have suffered--with 8\1/2\ million jobs being lost and 7 million homes in foreclosure. In fact, over the weekend there was a report that nearly 4 million households are severely delinquent on their mortgages, and 250,000 homes have been seized--are in foreclosure--since the first 3 months of this.

Even though we have 4 million homes delinquent on their mortgages, which is the largest backlog since the crisis began, there is some positive news on job creation--290,000 jobs in the month of April, which is 121,000 more jobs created in the first few months of the year than were anticipated. We are clearly seeing an economy that seems to be improving. But when we have 4 million homes that are underwater, we also realize we are far from out of this difficulty, particularly if you are a working family.

We also, of course, saw last Thursday a market decline of 1,000 points in almost 17 minutes. The Presiding Officer and I, in fact, talked about this over the weekend, and I appreciate his insights and observations on the matter as someone who spent time working in this field before getting involved in public life. There are a number of ideas emerging as to how this happened, and my hope is that as early as next week our Banking Committee will have an informal meeting with people from the Securities and Exchange Commission and the Commodity Futures Trading Commission, as well as others, to hear what they think happened and what steps they are taking to minimize that event from occurring again.

Then, of course, over the weekend we had the stories emerging about Europe and the Euro and what was occurring in Greece and other nations in danger of going to default because of the huge debt problems that exist. Tomorrow morning, our committee will be briefed by the Federal Reserve as well as the Secretary of the Treasury on exactly what plans have been put in place in Europe.

I do not want to dwell on either of those points at this juncture except to make this point. Here we have an event totally unrelated to mismanagement of investment banks or financial institutions in the case of a market decline as precipitous as we saw Thursday and events that are beyond the borders of our own nation that will have an impact at home. We are told this is not going to have any kind of severe impact-- at least we don't believe it will at this juncture. But we do live in a highly sophisticated, computerized world with this flash trading, as it is called--``high frequency trading,'' as it is referred to--where literally within microseconds buyers and sellers are matched up. What the system doesn't accommodate for is panic, unfortunately, and apparently the circuit breakers necessary in market-wide exchanges to minimize these kinds of events when they occur and also events that occur in a small country in the Mediterranean--such as Greece or Portugal or Spain or other countries--where their debt situations pose risks globally.

So what is critically important, in my view, is, while our legislation before us it not going to stop crises from occurring, what we try to do is provide our government with the necessary tools so we can respond when crises occur. No one can stop the rain from coming. It will happen. It will happen again and again. What you can do, however, is make sure the roof is going to be solid enough so it doesn't leak or that you are not going to be in a situation where, when things break down in the next crisis, no matter how modest it may be, it endangers the job creation as we saw in this country--as we are today seeing massive losses occurring, retirement accounts declining. The value of homes has gone down some 30 percent in the last several years. Again, there are some indications that things are improving here at home, and we welcome that news. But if you are one of those 8.5 million who lost a job or home or if you are a retiree who watched your savings disappear overnight, as many did in this country, then this positive news, while it is welcome, is hardly any relief to you.

So it is critically important because we are in no better shape today despite advances and the progress we have made on this bill. If something were to happen tonight or tomorrow in our own country or something happened elsewhere that would have the contagion effect, it is called, to spread here or elsewhere, we have not yet passed this legislation. We don't have any more provisions in place than we did in the fall of 2008 when the problems exploded. While we have written strong provisions in this bill that never would allow an institution to become too big to fail, the fact is that has only been adopted in a bill that has yet to be passed in this body, yet to be reconciled with the language from the other Chamber in this Congress and to be signed into law by the President.

It is important that we get this job done. We have had a good debate up until now. With the guidance of our leadership, we will begin tomorrow to consider some amendments, allowing for some adequate debate--hopefully not too long on each of these ideas. And there are a lot of ideas we have, both Democrats and Republicans. We can have our votes on these matters and either include them or exclude them on the legislation. But we need to get this job done, I hope this week--at the very latest, the end of this week--so we can work with the other body and resolve the differences and get this legislation to the President.

I would be the last one to suggest that what we have written here takes care of every imaginable situation. It doesn't at all. What it does is it ends too big to fail and puts in place a consumer protection bureau that has never existed before in our Nation so that average citizens might have some redress when a mortgage broker or company takes advantage of them. We try to put in place an early warning system so when matters like those that happened in Europe or other places occur, we can respond to them early and adequately so they don't explode and expand to affect everyone else in economy. We also deal with some of these exotic instruments that were totally unregulated and operated in the shadow economy of our Nation.

There are other provisions in the bill, but those are the four at least major goals. As I said a moment ago, I know there are other circumstances people wanted to accommodate in this legislation. But, as my colleague from New Hampshire pointed out the other day, some of these other issues are so complex, they will need adequate study, and trying to sort of hurl them into this bill or eliminate things without any alternative being proposed is not exactly the wise way to be dealing with matters as important as the financial sector of our Nation.

I am grateful to our colleagues for what they have done already. As many have pointed out, this has been a worthwhile process. It has taken a long time considering the implications--none of us, obviously, want to have the so-called unintended consequences. No matter how good we think our ideas are, we need to make sure what we are doing is not going to provoke its own set of difficulties.

We have to finish our work on this legislation, not just in recognition of what has happened but in preparation for what may happen next. As we have seen in recent days, the shocks to our system are as inevitable as rainfall. Throughout Europe, as we have seen, countries are bracing for the effects of the Greek crisis, effects which respect no boundaries and offer no safe haven for anyone. Right here at home, our market stumbled, as we saw last week with our stock market tumbling hundreds of points before righting itself.

Again, as I made reference to a moment ago, the rain is coming, but we need to fix our roof so we don't all suffer as a result of the inevitability of rain. The issues raised by the crisis in Greece and last week's stock market scare require our attention--and they have it.

I have asked Senator Jack Reed of Rhode Island, who chairs the subcommittee dealing with the Securities and Exchange Commission, to prepare for hearings on the stock market issue so we can get to the bottom of what happened.

As I mentioned, our staff is working to ensure our government does its part to help contain the crisis in Europe--at least to watch it and determine whether there are any spillover effects. But these events are reminders that our work on this legislation must look through the windshield at the crises to come, not just in the rearview mirror at the one from which we are now just

emerging. They are a further reminder that our work does not end with this legislation.

I urge my colleagues to join us in making a final push to get this bill done so we can move on to those other emerging issues. When we do, we can face these challenges with the knowledge that we have strengthened our financial system; that although we cannot prevent crises from occurring, we can prepare for them so their effects are not felt by ordinary Americans to the extent they have been in the last number of years. That is all we are really trying to do. I always get uneasy when I hear authors of bills claim they are going to solve every problem known to mankind in that issue area. We are not, unfortunately. We do the best we can under the circumstances.

Again, last Thursday's and the weekend's events are a constant reminder that we live in an ever-shrinking world and we are affected by events far beyond our shores. It is not just because some company did something wrong. It can happen far away and yet have implications here. But we need to make sure the next generation will have tools on hand so they can spot problems early on and take steps to minimize their effects here at home when they occur. That is the goal of this bill. It is not an insignificant one; it is an important one.

I thank my colleagues. They have been extremely constructive and thoughtful over the last week or so. We had a good weekend. A lot of people stepped forward, and we were able to work out some language that I think will allow various provisions to be adopted. More work needs to be done, but I am confident we can achieve that goal.

I would be remiss if I didn't acknowledge once again my thanks to the Presiding Officer, a new Member of this body and the banking committee but he has made invaluable contributions to this product. While not a chairman of even a subcommittee yet, he has acted as a very senior Member in many ways because of the knowledge he has brought to this discussion and debate. That has been, as I said, invaluable to this chairman of the committee, and I thank him personally for his efforts in that regard.

I see my friend and colleague from Maine, and I yield the floor.

Before my friend and fellow New Englander leaves the floor, let me thank her for her comments, but also let me thank her for this whole notion of leverage and capital standards as well. It is something we feel equally strongly about.

We have provisions in the bill, but anything can be strengthened. We are very interested in the idea that the Senator from Maine and Senator Shaheen have brought to the table, and invite, at this moment, their staff and others to get with ours and take a look and see if we cannot--and I will talk to Senator Shelby as well because it is important.

There has been some debate, and I go back and forth in this regard. I have always resisted the idea that the Senate should set accounting standards. We have had some times in the past on stock options--I recall a few years ago the debate was whether we would set the accounting standard on stock options.

I thought there was a very persuasive argument made by the industry that pointed out that we should probably consider them as a tool to attract, particularly, startup companies. But as attracted as I was to their ideas, I did not want to open the box of beginning to set accounting standards in Congress. We have competency here, but sometimes we get beyond our competency.

The issue was sort of the same on capital leverage, that we have to have stronger leverage and capital standards. The debate is, should we actually set the leverage here or do we say we want strong standards and defer to our regulators to determine exactly what that standard ought to be? Clearly, we need to have better leverage and better capital standards. If we do not, these large institutions--my colleague from Maine is absolutely correct in this regard, that we will end up then having these institutions that are interconnected. If we do not demand greater accountability through that requirement, then we expose ourselves to the very kinds of things we are seeing elsewhere.

So I thank her for this, and over the next day or so let's see if we can take a look at the Senator's amendment and adopt it as well. I thank her for her ideas as well on the oversight council we have crafted. Actually, many of us

like the idea of having an independent chair. We had this debate.

The Secretary of the Treasury was not my first choice, the independent chair--but as my colleague from Maine knows, having chaired committees, when you are trying to get a committee to agree on something, the idea is the one that prevailed--having the Secretary of the Treasury was the one that prevailed, as the Presiding Officer will recall in those discussions. But, clearly, as to the idea of having the credit unions, the Senator makes a lot of sense. It is a major part of our economy, and having the State regulators at least represented at that table makes sense to me as well.

So maybe before this is over we can accommodate some of those additional ideas. But I thank the Senator immensely for her contribution, and I appreciate, as well, that she understands how long and arduous this has been to get to the best we can. When we have 100 of us here dealing with something of this magnitude, it is harder to put that together. But we are getting there. And I agree with her that we ought to be able to finish. It does not mean we are going to satisfy everyone, and it cannot go on forever, but we certainly ought to accommodate as many different ideas as we can and make our judgments on them to include them in the bill.

I thank her immensely for her contribution.

I suggest the absence of a quorum.

Mr. President, I wish to take a few minutes, if I may. I listened with some interest this afternoon, as I did last week, to my colleague and friend from Arizona talk about his amendment regarding government-sponsored enterprises, specifically Fannie and Freddie. I wish to respond to some of those comments and some comments today about these two agencies and their value, their present condition, and what needs to be done.

First, there is a little revisionist history in all of this that seems to be important. In 2005, the House Financial Services Committee, under the leadership of Mike Oxley, a Republican from Ohio, chairman of the committee, passed bipartisan legislation dealing with Fannie Mae and Freddie Mac. Senate Democrats picked up that proposal. It stalled in the committee over here despite support for it. The Republican- controlled committee then passed a bill. They never filed it, never brought it up for a vote on the floor of the Senate in 2005.

I became chairman of the Banking Committee in 2007. As the Presiding Officer will recall, when he arrived in 2008, we had a significant number of hearings and discussions about Fannie and Freddie. In the summer of 2008, the Banking Committee passed a comprehensive overhaul of the regulations of Fannie and Freddie, including establishment of a tough new regulator, the FHFA, limited portfolio holdings of Fannie and Freddie, and we increased their capital requirements. The authority to put Fannie and Freddie into receivership was also adopted. We required internal controls and risk management and reviving and approving new products.

The committee voted 19 to 2 on a very strong bipartisan basis in the summer of 2008, and overwhelmingly on the floor, this body supported those efforts by a vote of 72 to 13. That was in the summer and fall of 2008.

When I hear the comments being made that nothing has been done about Fannie and Freddie--Mike Oxley tried and failed. I cannot repeat on the floor of the Chamber the words Mike Oxley used to describe the minority's handling of reform when he was accused later of not having an effective reform package. The Republican chairman of that committee had very strong language to describe the failure of our Republican friends to pick up his efforts, his bipartisan efforts, in 2005. As I say, in 2008, by a vote of 72 to 13, this body adopted the committee's recommendations--adopted 19 to 2 in the Banking Committee--to put strong regulations over Fannie and Freddie. So that is as a backdrop.

I will be the first to recognize that more needs to be done, clearly, in terms of coming up with a whole new financing structure for the housing market. There is no doubt about that. But as my colleague from New Hampshire has pointed out--and while it wasn't part of the whole reform package included in this 1,400-page bill because it probably would have doubled the size of this legislation--the issue is far too complex at this juncture to include those kinds of reforms in this bill. That is not to suggest they do not need to be done, but it will take a separate undertaking, it seems to me and most who have looked at it, to decide what is that alternative idea.

So when we have the McCain amendment, as in the Ensign amendment the other night, I would urge my colleagues to vote against it. All their amendments do is to get rid of Fannie and Freddie. There is no alternative idea here. The McCain amendment says that in 24 months you have to get rid of Fannie and Freddie. Well, that is a nice idea, but what are the implications if we get rid of it?

Today, 97 percent of all mortgages are backed by Fannie and Freddie. If you want to see interest rates go up, if you get rid of the only entity that is purchasing these mortgages today--and that is Fannie and Freddie, by and large--who will purchase them? If they are not purchased, what happens to interest rates and home values? If you think the market took a plunge last Thursday, adopt the McCain amendment. It is a reckless amendment. There is no alternative whatsoever included in that proposal.

Let me identify the three major problems with it, aside from the fact it doesn't offer any alternative whatsoever as to how we end up with a financing mechanism for housing in this country. Remember, we are the only Nation on the face of the planet today that provides a 30-year, fixed-rate mortgage for homeowners. It is the reason why we have had a relatively high percentage of our population in home ownership. It also is the single largest wealth creator for most families--home ownership--not to mention the value it is to a family, a neighborhood, a community.

When people have an equity interest--when they can accrue equity over time--it leads to long-term financial security, retirement security, and it has made a difference in how middle-income families have been able to afford a higher education for their children. All these benefits accrue. No other Nation on Earth provides that kind of stability and long-term security that we have in the housing market, and it doesn't happen miraculously. It happens because we have had a financing mechanism that has provided for that kind of assurance at a relatively low cost.

So when you look at the amendment, it severs all Federal involvement with these mortgage securitization, government-sponsored enterprises within 24 months. That is the McCain amendment. Before people jump on board with what a great idea this is, consider the implications and then be prepared to explain them when they happen. There is no reform here. It just gets rids of something without replacing it with anything, except somehow the private market is going to pick up. There is no private market for that today, and we need an alternative idea. Some have mentioned a public utility concept, others have mentioned various other ideas, all of which we have listened to. But, frankly, there is a lot of debate about what that alternative ought to be.

So to draft a bill to take in all these other ideas for housing, frankly, as the Senator from New Hampshire has said, was far too complex, given all the other challenges we are faced with in this legislation, to try to deal with too big to fail, consumer protection, finally getting some clarity and regulation over exotic instruments, providing some long-term radar system, as we describe it, to identify problems as they emerge, whether in Greece or someplace else, not to mention all the other provisions, dealing with underwriting standards, capital requirements, leverage, and all the rest. This bill is 1,400 pages, not to mention the bill passed out of the Agriculture Committee, which adds, of course, a whole other title VII to the bill.

So when you consider what is in here, I hope my colleagues will be careful before they jump on what is a politically charged issue and understand what the implications may be if it is adopted. The McCain amendment, as I said, is reckless, it is poorly thought out, it poses significant risk to the housing markets that have only recently begun to stabilize, by the way. We are seeing just in the last few weeks that finally prices are beginning to move up in the housing area, new stakeholders are occurring, and things are beginning to move in the right direction.

You can say a lot of things, but if you don't have stability in the housing market, this recovery will not occur. It is a critical component of recovery and to pull the rug out from underneath this particular effort right now would be a major blow to our economy and I think would set us back on our heels at the worst possible moment. As I said earlier, major reforms to the housing financing system are clearly necessary. I will be the first to acknowledge that--all should. As we can't go back to the system of the past and the status quo of the GSEs under Federal conservatorship--by the way, Fannie and Freddie are under conservatorship because of our 2008 legislation--it is untenable. We can't continue with that, and we need to replace it, but such changes must be thoughtful and deliberate.

In the near term, we must ensure that changes affecting the Federal role in Fannie and Freddie do not jeopardize the fragile economic recovery. Over the long term, we must be careful in structuring the housing financing system in a way that guarantees continued mortgage liquidity with minimum economic disruptions.

The McCain amendment falls short in several respects. First of all, it imposes significant risk to our economic recovery. Some 95 to 97 percent of mortgage originations are currently backed by the Federal Government--95 to 97 percent, the vast majority of this coming through Fannie and Freddie. The McCain amendment would cause significant uncertainty among investors and GSE-issued mortgage-backed securities, threatening the primary source of mortgage credit that we have at this time. Pull away the credit we have, what replaces it? In this amendment, nothing, without offering any alternative sources of liquidity. Such a precipitous drop in mortgage liquidity could severely threaten this fragile recovery we are presently feeling.

Second, the McCain amendment fails to ensure sufficient mortgage credit would be available in the future. Private securitization of the GSEs account for, as I said, some $9 trillion of the $14 trillion in total outstanding mortgages in the United States today. With the future of private securitization highly uncertain--in fact, that is a mild statement given the present economic circumstances--policymakers seeking to reform the housing financing system must ensure that the system of the future will provide sufficient liquidity to meet the mortgage needs of all Americans. The McCain amendment would eliminate existing sources of mortgage liquidity while remaining silent on the more difficult question of how to replace them.

So you may not like what you have here, but you are replacing it with nothing. What are the alternatives to go to in the housing market?

Thirdly, the McCain amendment neglects to replace the public purposes served by GSEs. The GSEs were poorly run, but they clearly served a number of public purposes, such as making the 30-year fixed-rate mortgage broadly available for American home buyers. This does not go to the question of the underwriting standards. That was a disaster with unregulated brokers and mortgage companies. But putting aside that question, which we address--and there are other ideas on how to further address the underwriting requirements--there is the idea that the average family in this country could purchase and have a chance to get in that starter home, to put them on the pathway to home ownership and all that means to families--what it has meant to our country to make that available, not just to the affluent and the well-heeled but to families even at the lower end of the economic spectrum--to have that kind of job that could provide that income to support a mortgage; what it means to be able to say to your family: We own our home. This is where we live. We have a vested interest in our community, in our neighborhood.

You can talk to anyone about social policy and home equity interest in a neighborhood, and it changes a neighborhood. It makes a difference. So when you start stripping away, pulling out the rug from underneath the financing scheme for doing this today, the mechanism for doing it, then you undermine the very ability to have that long-term, stable mortgage that a family can count on. Watching their equity grow, under normal circumstances, makes such a difference. It is why this economic disaster we have been through over the last couple years is so harmful.

I said earlier there are 4 million homes today that are underwater--4 million of them underwater--and 250,000 homes in the first 3 months of this year have been seized because of the economic conditions. So housing is critical. It is where this crisis began because of the shoddy underwriting requirements that are out there and luring people into subprime mortgages. By the way, that is the alternative. When you strip away the financing mechanism, what you are left with is subprime lending. That is what goes on, luring people into those circumstances.

So, Mr. President, you are entitled to your own opinion but not your own facts in this debate. The fact is, there was an effort in 2005, led by a Republican chairman in the housing committee in the House, and he has some very choice words for those who suggest that effort wasn't real to make a change here. I regret deeply that Mr.

Oxley didn't prevail in his ideas here in the Senate. He passed it in the House, but it was squashed over here.

Then, in 2008, as I said, by votes of 19 to 2 and 72 to 13 on the floor of this Chamber, we did pass legislation that provided for a comprehensive overhaul of the regulation of Fannie and Freddie. It made a substantial change, but far more needs to be done. I acknowledge that, clearly. But let's not, in the face of that acknowledgment, strip away that ability in this bill, within 24 months, without replacing it with anything, putting our economic recovery at great risk. I predict to you, as certain as I am standing here, if the McCain amendment were to pass, that is the outcome, count on it, in my view.

So I caution my colleagues, despite the political mantra associated with all this, we are in a very delicate time. It is very important that we use our heads and carefully deliberate on how we are moving. By a vote of 59 to 35, we rejected the Ensign amendment last week. It was the right outcome. If we reverse that vote tomorrow or in the next day--whenever the McCain amendment comes up--and we will have a side- by-side amendment, by the way, to explain what the committee is doing further and what needs to be done to get us on the right track so people can be supportive of some alternative ideas here--then I think we will set ourselves back.

In light of what has happened in Europe over the weekend, still may unfold here, right now we don't need to be sending messages to the markets without any alternative ideas in place as to how to come up with a housing finance system that is as worthy of the very people who counted on that ability to have that fixed-rate mortgage, to watch their family prosper and grow and become stable, as this has over the years.

I know others want to be heard on probably other matters, but this is a very important issue, and my hope is my colleagues will pay careful attention to this and not succumb to the temporary temptation to follow because there are some groups out there that have never liked this anyway. They have never liked the idea of this program. Clearly, as I say, reforms are needed.

With that, I yield the floor.

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

Madam President, I ask unanimous consent that on Tuesday, May 11, after any leader time, the Senate resume consideration of S. 3217, and debate concurrently the pending Sanders amendment No. 3738 and the Vitter amendment No. 3760; that prior to a vote in relation to each amendment, there be a total debate limit of 80 minutes, with 20 minutes each under the control of Senators Sanders, Vitter, Shelby, and Dodd, or their designees; that upon the use or yielding back of all time, the Senate proceed to a vote in relation to the Sanders amendment, followed by a vote in relation to the Vitter amendment, with no amendment in order to either amendment.

Mr. President, today I introduce a straight-forward bill that is a first step toward helping American workers and businesses. This bill is part of my E-4 Initiative, which focuses on issues affecting the economy, energy, education and employment. The Skills Standards Certification Evaluation Act will require the Secretaries of Labor, Education and Commerce to evaluate skills standards certification programs that have been developed with federal funding.

Skills Standards Certifications have emerged over the past two decades in response to job growth in high-technology and varied industries. The training or classes usually take weeks or months, rather than years. Often, they are developed in response to the needs of one industry or even one company, though the skills are often applicable more widely.

As the President-elect and Congress work to save and create jobs through additional funding for infrastructure, green jobs, and similar programs, among other things, it is even more critical that employers be able to find qualified workers for a variety of positions. Workers who can easily demonstrate their skills quickly and easily will be able to benefit from such investments early on.

Over the past two decades, the Federal Government has taken conflicting approaches to skills standards certifications. That is why, as part of the Skills Standards Certification Evaluation Act, I require a recommendation from the Secretaries of Labor and Commerce on how Congress ought to move forward with funding for these certification programs. Both the national, top-down, and a local, bottom-up approach have been tried, and a thorough evaluation will make clear how we can move forward to get the most out of the funding the Federal Government provides.

These certifications have a tremendous benefit for workers. First, because the training is often condensed into a few weeks with a flexible schedule, it allows people to complete certifications without leaving a current job and without the financial cost of attending a full-time program that lasts a year or more. In addition, these programs allow workers to clearly demonstrate a certain set of skills, and may open more doors for higher-paying employment. Because these programs can be completed without leaving work, they also allow workers to advance within a career or company to more skilled positions and better wages and benefits.

For employers, Skills Standards Certifications can simplify the search for employees. I have heard from numerous Wisconsin employers, especially small businesses with limited resources, that it is hard to find employees with the skills they need, or who will be dedicated and loyal. Skills Standards Certifications clearly show the qualification of an individual, of course, but also tell the employer that he or she is dedicated enough to invest in the course to earn the certificate. Very few people will spend the time and money to enroll in such a program if they don't intend to use the certificate.

Lastly, these programs can help state and local governments quantify their skilled workforce, which can be invaluable when marketing the area to businesses and investment.

This bill is a small first step in what I hope can be a continuing effort to help hard-working Americans obtain and use high-demand work skills.

Mr. President, today I reintroduce a piece of my E4 initiative, so named because it is a collection of proposals that address issues important to the economy, education, employment and energy. This piece of the E4 legislation focuses on the important supporting role that transportation can play in economic development by creating an environment where employers and those seeking employment or better employment are connected together. Having such a system to overcome transportation hurdles can benefit both employers and employees, as well as the local economy and is all the more important in these difficult economic times.

In more general terms, investing in our infrastructure like roads, bridges and transit systems can have direct job creation impacts. This is one reason I have fought hard with the rest of the delegation for a fair rate of return for Wisconsin from the highway bill. It is also why in a letter I sent to President-elect Obama and Senate leaders I included highway and transit projects as part of a variety of ready-to- go infrastructure projects that should be included in the forthcoming economic recovery program.

In addition to supporting transportation-related jobs, linking workers and businesses that need them can also be an important part of a more comprehensive job creation strategy. This can mean supporting a robust public transportation system or more specific programs designed to link low-income individuals with jobs. I have consistently done the former by supporting

public transportation during consideration of the highway bill and Amtrak reauthorizations. But my specific proposal today focuses on the latter and improving the Job Access and Reverse Commute, JARC, program that links low-income workers with employers.

I have heard good things about the JARC program and was glad that it was shifted away from earmarks and was made available as a combination formula and competitively awarded program in the last highway bill. The primary program goal is to locally assess the transportation needs of low-income workers and then plan and fund programs to help alleviate transportation-related barriers to employment or better employment. While initially this may have been viewed as a way to support reverse commute projects whereby transit routes were established to allow city center residents to access jobs in the suburbs, the program actually does much more than just this and provides reliable transportation to low-income urban, rural and suburban workers.

In Wisconsin, the Federal JARC program is jointly administered by the State departments of transportation and workforce development as the Wisconsin Employment Transportation Assistance Program, WETAP. According to the Wisconsin Department of Transportation, transportation barriers can include a lack of a dependable vehicle or bus service in the area, an absence of local jobs, or childcare transportation problems. The State agencies in Wisconsin have found several different types of projects to be effective depending on the local circumstances. These projects have included the traditional public transit projects such as extending bus lines or supporting van-pooling, along with other programs such as providing cars or car repairs to low-income individuals. Wisconsin has even found that assisting with indirect barriers such as transportation of children to and from childcare facilities is critical in allowing some individuals to improve their job prospects.

A recent University of Illinois Chicago, UIC, study found that the societal benefits from this program are $1.65 per dollar spent and estimates lifetime benefits to low income participants of $15 per dollar spent due to their ability to find and retain better paying jobs. While the goals of the Job Access and Reverse Commute program are important and the program has been found to be fairly effective, there are some details that have prevented the program from reaching its full potential. Working closely with transportation officials in Wisconsin and partially based on recommendations from the UIC study, I've come up with some specific ideas to improve the program.

With a proven effective program and continuing unmet needs by employers and low-income individuals seeking employment, JARC could use a boost in funding. So that is why my proposal ramps up funding by $100 million over 5 years from the current funding of $165 million to $265 million in fiscal year 2014.

My proposal would also allow the Federal share of projects to increase to 80 percent from the current 50 percent level for operating expenses. The 50 percent local and State match wasn't feasible for far too many local governments in Wisconsin and as a result Wisconsin has not been able to spend all its Federal funds. The higher Federal cost share will better balance the need to leverage Federal funds, while ensuring that these critical funds are fully utilized--millions of dollars in an account does nothing to link people to jobs.

Besides the challenge in coming up with a 50 percent local cost share, the other main issue that has kept JARC from being as effective as it could be is the paperwork and reporting burden required by the program, especially for the small nonprofit groups that often have never dealt with Federal grant requirements before. My proposal directs the Federal Transit Agency, FTA, to examine the current reporting requirements to see if there are ways to streamline the amount of paperwork required while still ensuring that the program goals are met.

My bill also includes a pilot program funded at $10 million a year for 5 years in order to test a few areas that seem very promising, but should be evaluated more fully before broader implementation. The first portion of the pilot program builds off the regulatory streamlining evaluation and allows the FTA to test streamlined reporting requirements to help get the balance between oversight and administrative burden right.

The second part of the pilot program focuses on improving education- and employment-related transportation for teens and young adults. Enabling students and young people to reliably get between their high schools or neighborhoods and technical colleges, job training centers or apprenticeships can have a lifelong positive impact.

The third section of the pilot program would allow experimentation with combining different transit programs and integrating JARC projects across local political boundaries to provide a more comprehensive local transportation system. Instead of having one transit program to assist the disabled, one targeted toward the elderly and another focused on jobs, this pilot program would encourage funding combined applications to meet these needs together with one comprehensive project. There is even the potential for the Department of Transportation to further coordinate with other departments such as Health and Human Services for healthcare-related transportation. Similarly, the needs of employers for employees do not recognize local political boundaries, so encouraging greater collaboration between local entities to make a more robust interconnected system should ultimately provide more efficient and effective service.

While the FTA already provides some technical assistance for the JARC program, my proposal provides a small boost in funding and some additional areas of emphasis. For example, after hearing about the struggles that some small nonprofits have with the reporting requirements, in addition to looking for ways to streamline the requirements, my proposal would direct the FTA to also provide some technical assistance especially targeted to this need.

The final element of my proposal is the offset. The new spending authorized in the proposal is fully offset by rescinding highway and bridge earmarks that have not had funds spent from them despite being authorized over a decade ago as part of the TEA-21 highway bill. Helping connect workers and employers is a much better use of these funds than letting them sit unused in some obscure DOT account.

Providing reliable transportation to low-income individuals only goes so far--it is the companies and innovators creating the jobs and the individuals seeking to better their lot through education or more challenging employment, that are doing the heavy lifting. That being said, transportation can clearly be a challenge for companies and workers and in the case of the JARC program can play an important supporting role.

Mr. President, we are all aware of the serious challenges our economy faces in the short term and the urgency of our need to promote job creation and economic development. I am committed to engaging in this broad effort with my colleagues on both sides of the aisle. But it is essential that our efforts not just be short term fixes--they must not only aim to create jobs and investment opportunities in the short term, they must be part of strategic efforts to strengthen our Nation's innovation capabilities and sustain long term economic development in a changing and competitive global environment. There is no better way to do this than by stimulating and supporting small business innovation, especially in areas of national priority. As part of this effort, today I am introducing the Strengthening Our Economy Through Small Business Innovation Act of 2009.

Job growth, innovation and economic development are driven by our small

businesses. Small businesses also tend to be based in our cities and communities and so they are major contributors to our local economies. Half of our county's payroll jobs and most of our new job opportunities are provided by small businesses. Small businesses are proven innovators and drive commercialization of cutting edge technologies. Not only are small businesses our major source of employment, they employ about one third of our country's scientists and engineers and generate more patents on a per capita basis than large businesses and universities. They also are effective partners with universities to enhance product creation, develop university income and attract university graduates and faculty through increased innovative job opportunities.

Over the last 25 years, through the Small Business Innovation and Research program, SBIR, and, more recently, the Small Business Technology Transfer program, STTR, up to 2.5 percent and 0.3 percent, respectively, of Federal R&D funds from 11 Federal agencies have been specifically allocated to our Nation's small businesses to fund innovation. These small business allocations are not sufficient. We must diversify and strengthen innovation capabilities and our economic base, and to accomplish this we must extend and increase R&D allocations to our Nation's innovative small businesses.

My bill does 3 things. First, it extends the SBIR and STTR programs for a further 14 years so that small businesses, as well as universities and non-profit research organizations that collaborate with small businesses, can continue to leverage Federal research and development funding.

Second, it significantly increases the allocation of funds and the awards from large Federal research and development budgets to small businesses through the SBIR and STTR programs. It would increase the SBIR allocation from its current 2.5 percent to 10 percent and the STTR allocation from 0.3 percent to 1.0 percent over a 3-year period. It would increase SBIR phase I awards from $100,000 to $300,000 and phase II awards from $750,000 to $2.2 million. Third, it identifies specific funding priorities for energy innovation; safe and secure water; domestic security; and transportation.

The SBIR program is tested, successful and worthy of extension. In its comprehensive study of the SBIR program, the National Research Council found that the program ``is sound in concept and effective in practice''; was ``stimulating technological innovation''; ``linking universities to the public and private markets''; ``increasing private sector commercialization of innovations'' at an ``impressive'' rate; and ``providing widely distributed support for innovation activity.'' The study concluded that:

[T]he program is proving effective in meeting Congressional

objectives. It is increasing innovation, encouraging

participation by small companies in R&D, providing support

for small firms owned by minorities and women, and resolving

research questions for mission agencies in a cost effective

manner. Should the Congress wish to provide additional funds

for the program in support of these objectives, those funds

could be employed effectively by the nation's SBIR.

The NRC's study also found that universities and other non-profit research institutions would benefit significantly from the increase in both the SBIR and the STTR programs. In particular, the STTR allocation increase will directly benefit universities and efforts to bring university-based research into the commercial marketplace, as a partnership with a non-profit research institution, such as a university, is a requirement of all STTR award recipients. Many of the small businesses that receive SBIR funding are rooted in the university infrastructure so investigators and graduates from universities will have opportunities to be part of commercial developments. More than two-thirds of SBIR companies report that at least one founder was previously an academic. About one-third of SBIR company founders were most recently employed as academics before founding the company. Over a third of SBIR projects cite direct university involvement with 27 percent of projects having university faculty as contractors on the project, 17 percent using universities themselves as subcontractors, and 15 percent employing graduate students.

In its report accompanying reauthorization legislation, the Senate Small Business and Entrepreneurship Committee recently concluded that:

increases in the SBIR allocation will invest money in

research, contracting, internships, and other collaborative

activities done with universities, with the contracting and

patenting activities with SBIR companies being a sizable

source of revenue for universities as well. The university-

industry partnerships that SBIR creates are crucial in that

they provide an applied research and commercialization focus

that otherwise likely would not be present in university

research. More specifically, the partnerships are important

in exposing faculty and the next generation of scientists and

engineers to commercial research and development. SBIR

businesses provide graduate and undergraduate students with

hands-on experience and job opportunities that universities

would be unable to provide alone.

Our country not only faces immediate economic and employment challenges, it faces major challenges in transportation, energy, domestic security and water quality and safety. Targeted research and development will be critical. Congress, with non-partisan expert guidance, has a role to play in guiding our national research and development priorities and, in this case, stimulating small business innovation and job creation in specific areas of critical national need. The National Academies of Science and other independent government research organizations provide us with carefully researched and considered recommendations on how we can address these priorities, so my bill draws on their recommendations to develop innovative energy technologies; enhance water quality and security; strengthen domestic security; and address transportation priorities. This is not only a good investment in short term job creation; it is an imperative investment in our Nation's long term innovation prospects and economic development.

The costs of my bill would be fully offset by cancellation of the airborne laser program. CBO estimates that cancelling that program will produce savings of over $2.6 billion.

Mr. President, as the 111th Congress begins, I am reintroducing a number of different bills designed to fuel job creation and spur economic development. My initiative, dubbed E4 because of its focus on economy, employment, education, and energy, seeks to respond to economic and job development needs both in my State of Wisconsin and around the country. These challenging economic times call for a comprehensive set of solutions including providing new job training opportunities for workers, fostering innovation among small businesses, protecting the existing family-supporting jobs in our nation, and boosting educational opportunities for young Americans. Today I am introducing the Connecting Education and Emerging Professions Act of 2009, which provides competitive grants to States and local school districts to promote better collaboration between high schools and local businesses and workforce development groups. This E4 education initiative is designed to help prepare America's students for future success in the workforce and post-secondary education as well as enhance America's competitiveness in the global economy as we prepare to enter the second decade of the twenty-first century.

Helping to ensure that all American students have access to a high- quality education is critical to boosting America's competitiveness and helping to ensure that our country is better equipped to respond to the economic challenges currently before us. Investment in our young people now will pay off in the future when these individuals are better prepared to compete for the highly skilled jobs of tomorrow. If the United States is to remain competitive on an international stage and continue to lead the world in innovation and development, we need to make certain that our young people are well prepared to meet current and future economic challenges.

Improving educational opportunities in the United States is going to require

a comprehensive set of policy strategies and I look forward to working with my colleagues in Congress this year as we get to work on a variety of education issues including expanding access to education from pre-K through college. We also face the monumental task of reauthorizing and reforming the Elementary and Secondary Education Act, ESEA, better known as No Child Left Behind, NCLB. As we consider the ESEA reauthorization, we should make substantial changes to the testing mandates that were imposed through NCLB and provide support to states that develop smarter accountability systems with enhanced assessments that measure higher-order thinking skills among students. We also need to look at ways to strengthen and reform our Nation's public secondary schools as part of the ESEA reauthorization. The legislation I am introducing today is designed to help support innovative changes that are taking place in some of our Nation's high schools and help even more States and local communities make improvements to their local high schools.

My CEEP bill seeks to address a couple of interrelated issues related to secondary education. The first issue is the alarmingly high dropout rate in our nation's high schools. While numbers vary slightly, a growing body of research indicates that the United States has a graduation rate of approximately 70 percent and that about one-third of our country's high school students will not graduate on time. Graduation rates for minority and low-income students are even lower, in many cases, alarmingly lower. In addition, many of our nation's urban school districts report very high dropout rates, including the Milwaukee Public School District. According to the Cities in Crisis report released in 2008 by the Editorial Projects in Education Research Center, the Milwaukee Public Schools has a graduation rate of 46.1 percent. Unfortunately, there are at least a dozen large urban districts that have even lower graduation rates than Milwaukee.

One of our top education priorities as a Nation must be to address the low graduation rates nationwide in urban, suburban, and rural school districts. We must also work to close the huge opportunity gap that is created by the large disparity in graduation rates between our minority and non-minority students as well as between low-income and more affluent students. Solving this problem will require a broad, comprehensive solution involving the federal, state and local governments. It is my hope that when Congress finally reauthorizes the Elementary and Secondary Education Act, we pay particular attention to the needs of our nation's high schools and our students.

While many factors contribute to high dropout rates, disengagement from classroom instruction can contribute to a student's decision to drop out. Some students feel that high school is not relevant to their lives and do not see how completing high school will translate into future career and academic success. In this increasingly competitive twenty-first century where postsecondary education is now required for many entry-level jobs, it is up to us to show our nation's students why it is so important that they graduate from high school.

Another issue that this bill seeks to address is the growing sense among employers and postsecondary institutions that our nation's high school students who do graduate are unprepared for success either in the workforce or in college. Employers in various economic sectors, including technology, manufacturing, health care, construction, and others, report difficulty in identifying qualified candidates for skilled positions. Recent surveys also indicate that many employers are dissatisfied with the overall preparation of secondary school graduates. In order for companies in the United States to be competitive in a global economy, we must have a highly skilled workforce. Adequate preparation at the high school level can help prepare students for entry into our rapidly changing global economy where new emerging industries are cropping up in Wisconsin and around the country.

To address these two interrelated issues, my bill would provide 5- year competitive education grants to states and school districts to foster collaboration and discussions between schools, businesses, and others about the emerging industry workforce needs and how to prepare our high school students to meet those needs, both academically and practically. States and local school districts must use this money to form partnerships with local or regional businesses, postsecondary institutions, workforce development boards, labor organizations, nonprofit organizations and others.

These partnerships will have the responsibility of surveying local, regional, and statewide emerging industries and deciding what are the academic and work-based skills that our high school students need in order to be successful in these emerging industries. The partnerships will then work together to develop new and engaging curriculums and programs designed to teach the academic and work-based skills that are necessary to succeed in these new emerging industries. Once the partnership has designed a curriculum or program and received approval from the Federal Department of Education, the partnership will work to implement the program in qualifying schools.

During the implementation phase, the partnership will come together to implement hands-on learning and work opportunities for students including internships, apprenticeships, job shadowing, and other career and technical education programs. These hands-on learning and work opportunities will be based on the emerging industry pathways curriculum or program that the eligible partnership has designed and will offer students practical academic experiences and skill-building lessons that they can use in the workplace or in postsecondary education.

This legislation seeks to help schools, businesses, colleges, and the students who would be served by this legislation talk with each other to build new programs that would help boost student engagement in learning and student attendance and graduation rates while also preparing students for success in the workforce or in college after they graduate. There are a number of successful local and state programs around Wisconsin that this legislation would help support and that served as valuable examples as I developed this legislation.

Wisconsin's Department of Public Instruction, Department of Workforce Development, and various local school districts have all been working to boost Wisconsin's career and technical education offerings and gear these offerings towards emerging industries. My bill seeks to help Wisconsin and other states build on these efforts and engage in additional conversations with interested stakeholders to design new curriculums and programs to prepare students for emerging industries.

I look forward to moving this legislation forward this year as the new Congress begins to debate how best to boost educational opportunities for all of our Nation's children. We have a significant achievement gap and graduation gap in urban, rural, and suburban schools throughout the country and it is imperative that we work together to promote innovative ideas that will close these gaps. Some of our Nation's schools are experiencing high dropout rates in part because students aren't connecting with what they are being taught. At the same time, we're seeing an emergence of new industries, like those aiming to capitalize on alternative energies and energy efficiency, that need employers with skills and training in their field. If we help schools connect their students with businesses, workforce development boards, and colleges that offer career and academic opportunities in these new and exciting fields, we can help to lower the alarming dropout rates while helping these emerging industries thrive.

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

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

Mr. President, I stand today to discuss the McCain amendment as well. We have had a lot of debate about the financial regulatory legislation before us. A lot of the debate has focused on the content of the bill, with concerns being raised by some such as myself about whether we truly are ending too big to fail and truly are ending bailouts and whether we are going too far in creating yet again a big government response to an issue that needs to have a more effective response rather than more government, a response that will hammer Main Street, not Wall Street, and create yet again another big expansion of government in this Congress. We have seen way too much of that in way too many parts of our economy so far, and some of us are concerned about that.

But what I want to talk about today is what is noticeably absent in the bill; that is, the reform of Fannie Mae and Freddie Mac, our government-sponsored entities--actually, our government-managed entities now--and the fact that these entities are at the core of the financial crisis we are dealing with and yet are not even touched by this legislation.

Americans remain rightly outraged that their tax dollars were used to bail out irresponsible Wall Street firms and auto companies. I have voted against these bailouts, and I have been working with my colleagues to make sure we do not set the stage for yet more government bailouts. The most expensive government bailouts of all, however, will be those of Fannie Mae and Freddie Mac--the largest housing lenders that purchased home loans, packaged them into investments, and then guaranteed them against default.

I think a little history of how we got to where we are is appropriate. Congress chartered Fannie Mae and Freddie Mac to provide access to home financing by maintaining liquidity in the secondary market. According to Peter Wallison of the American Enterprise Institute:

Their implicit, or assumed, government backing enabled them

to drive all competition out of the middle-class housing

sector, permitting Fannie and Freddie to acquire over $5

trillion in mortgages, which they either held in portfolios

totaling approximately $1.5 trillion or securitized as

mortgage backed securities.

Continuing his quote:

In pursuing their mission to support low and middle-income

housing--also called affordable housing--Fannie and Freddie

assumed the credit risk on almost 11 million subprime and

other high-risk mortgages and contributed substantially to

the growth of a housing bubble. When the bubble began to

deflate in 2007, they began to suffer huge losses.

But I want to go back and talk a little bit about the history before 2007, when it became evident to everyone what was happening to Fannie Mae and Freddie Mac in our housing markets, because it did not just become known then. As my colleague, Senator Sessions, has already mentioned on the floor today in his earlier remarks, the Banking Committee was heavily engaged in reviewing this issue for several years leading up to this, as was the Office of Federal Housing Enterprise Oversight at HUD and the Fed and a number of other analysts.

Senator Sessions quoted a letter. I believe it was from then-Chairman Greenspan of the Fed, who noted we needed to put focus on Fannie and Freddie then--this was back in the 2004 to 2005 timeframe--and that if we did not establish much tighter regulatory control over Fannie and Freddie, their excesses were going to create systemic risk that would put the taxpayer in extreme jeopardy.

The committee itself focused very heavily on this same dynamic. In May of 2006, we had established legislation that would have, had it been able to be passed on the floor of this Senate, created a strong, new regulator for Fannie Mae and Freddie Mac and begun the process of setting the right capital standards and the right regulatory environment in which we could control this excessive growth and set the process in place for us to take Fannie Mae or Freddie Mac into receivership or into trust if they eventually failed, as it began looking as if they would.

The Office of Federal Housing Enterprise Oversight completed a multiyear special examination of Fannie Mae and

issued a report describing OFHEO's findings and recommendations in May of 2006. OFHEO found the following:

Fannie Mae senior management promoted a false image of the enterprise as one of the lowest risk financial institutions in the world.

A large number of Fannie Mae's accounting policies and practices did not comply with generally accepted accounting principles.

Fannie Mae had serious problems of internal control, financial reporting, and corporate governance, resulting in Fannie Mae overstating reported income and capital.

Between 1998 and 2004, Fannie Mae senior management deliberately and intentionally manipulated accounting to hit earnings targets so that senior management maximized the bonuses and other executive compensation they received.

Fannie Mae's board of directors failed to be sufficiently informed, to act independently of its chairman and other senior executives, and to exercise the requisite oversight over the enterprise's operations.

And then the final finding of the report: Despite rapid growth and changing accounting and legal requirements, Fannie Mae senior management did not make investments in accounting systems, computer systems, other infrastructure and staffing needed to support a sound internal control system, proper accounting, and GAAP-consistent financial reporting.

Again, as a result of these findings and of an increasing awareness of the threat that was being posed by the excesses at Fannie Mae and Freddie Mac, the Banking Committee, on which I served then and still serve, developed legislation to address these very excesses and to create the kind of regulatory structure in which we could control these problems.

Along with 26 of my colleagues, in May of 2006 I signed a letter to then-majority leader Bill Frist and to the chairman of the Banking Committee then, Senator Richard Shelby. In the letter, we stated:

We are concerned that if effective regulatory reform

legislation for the housing-finance government sponsored

entities is not enacted this year--

Remember, this is 2006--

American taxpayers will continue to be exposed to the

enormous risk that Fannie Mae and Freddie Mac pose to the

housing market, the overall financial system, and the economy

as a whole. Therefore, we offer you our support in bringing

the Federal Housing Enterprise Regulatory Reform Act (S. 190)

to the floor and allowing the Senate to debate the merits of

this bill, which was passed by the Senate Banking Committee.

I might note that when we debated this bill back in 2006, it came out on a straight party-line vote from the Banking Committee--all the Republicans voting for it, all the Democrats opposing it.

As history shows us, we never were able to get that bill to the floor because although we had 55 Republican votes, it takes 60 votes to move legislation on the floor of the Senate in the face of filibusters, and that bill was filibustered. We were not able to get the additional support to get it past the filibuster.

I would like to quote from a recently written editorial about this chapter of the Fannie Mae-Freddie Mac history. Peter Wallison, in an April 20, 2010, editorial in the Wall Street Journal, wrote:

One chapter in this story took place in July 2005, when the

Senate Banking Committee, then controlled by the Republicans,

adopted tough regulatory legislation for the GSEs on a party-

line vote. . . . The bill would have established a new

regulator for Fannie and Freddie and given it authority to

ensure that they maintained adequate capital, properly

managed their interest rate risk, had adequate liquidity and

reserves, and controlled their asset and investment portfolio

growth.

These authorities were necessary to control the GSEs' risk-

taking, but opposition by Fannie and Freddie--then the most

politically powerful firms in the country--had consistently

prevented reform.

He goes on to say:

The date of the Senate Banking Committee's action is

important. It was in 2005 that the GSEs--which had been

acquiring increasing numbers of subprime and Alt-A loans for

many years in order to meet their HUD-imposed affordable

housing requirements--accelerated the purchases that led to

their 2008 insolvency. If legislation--

And this is the key part of the editorial--

along the lines of the Senate committee's bill had been

enacted in that year, many if not all the losses that Fannie

and Freddie have suffered, and will suffer in the future,

might have been avoided.

What happened was the bill was stalled. Fannie and Freddie collapsed. When it became evident the losses were going to occur, there was a rush on the floor of the Senate to get back to that bill, and in 2008 the bill passed--after the horse was out of the barn. At least, though, we did get it passed in 2008, and Fannie and Freddie were taken into conservatorship.

Where are we now? The Congressional Budget Office has estimated that in the wake of the housing bubble and the unprecedented deflation in housing values that resulted, the government's cost to bail out Fannie Mae and Freddie Mac will eventually reach $381 billion. As we talk on this floor about bailouts, this is the biggest bailout of all. It exceeds, in fact, all of the other bailouts together, by far. Yet it is unlimited. I mean that literally.

Last Christmas Eve, in what was considered by many to be a Christmas Eve taxpayer massacre, the Treasury Department announced it was lifting the $400 billion loss cap on these two companies, creating a potentially unlimited liability and effectively providing the full faith and credit of the government to support their debt.

To date, the Federal Government has already provided about $126 billion to $130 billion to Fannie and Freddie. As I just indicated, the Congressional Budget Office estimates that will ultimately top $380 billion, and many believe that is a conservative number--direct taxpayer bailouts that are not even mentioned in this bill.

It reminds me of the fight back in 2005 when we were trying to get the legislation to reform Fannie and Freddie passed then, and here we are knowing what we need to do--seeing these bailouts, knowing the American taxpayers want those bailouts to stop--and we are being resisted in trying to bring an amendment just to add Fannie Mae and Freddie Mac--GSE--reform to the bill.

Last week, Freddie Mac announced it had lost $8 billion, as others on the floor have just said, in the first quarter and has requested another $10.6 billion to add to this mounting bailout.

As the government has pledged more and more money to cover these companies' losses, it has assured the public that planning is underway for overhauling these firms so that the bailouts will end. In December, the administration said it expected to release a preliminary report on how to remake Fannie and Freddie around February 1. But February 1 has come and gone, and no plan has been provided, and now we are being told it will be another year before the government proposes how to restructure these firms. Eighteen months after they were seized to prevent their collapse, the companies remain wards of the state in what has become the single costliest component of bailouts in our financial system.

In September of 2008, the Federal Housing Finance Agency placed Fannie Mae and Freddie Mac into that conservatorship I talked about, which allows the regulator to establish control and oversight of a company to put it in a sound and solvent condition. Since being placed in conservatorship, Fannie Mae and Freddie Mac have actually become a bigger part of the market, which will make reform of them even more difficult. Last quarter, Fannie Mae and Freddie Mac were responsible for funding two-thirds of all U.S. home loans. That is primarily because there is nobody else able to play in the markets these days, except for these government--now completely government--controlled and financed entities. When you add in the Federal Housing Administration, the U.S. Government is behind 96.5 percent of all loans.

What we have seen here is literally another government takeover. We have seen the government take over in the health care industry. We have seen the government take over in the auto industry. We have seen the government takeover of AIG and the insurance industry. We have seen the government take over in multiple parts of our financial industries and a greater government takeover being proposed in this bill. Yet we have the literal government control and management of Fannie Mae and Freddie Mac going unabated and unaddressed in the legislation that is before us.

What does the legislation do?

The longer Fannie Mae and Freddie Mac are allowed to operate in their current role--as political rather than business entities--the greater the financial losses will be for taxpayers and, frankly, the greater the risk they will simply continue endlessly in government control and government management, with the government managing yet one other big part of our economy perpetually.

That is why the McCain amendment requires the current conservatorship of the companies to end in the next 2\1/2\ years and begin the process of shrinking their portfolios. If the companies are not viable at the end of that period, they would be placed into receivership, which is a form of bankruptcy restriction.

Without a hard deadline, I am very concerned Congress will not act and, just like back in 2005, we will find gridlock here in the Senate stopping us from moving forward and be left with a nationalized Fannie Mae and Freddie Mac.

The amendment would also reestablish the $200 billion cap and accelerate the 10-percent reductions of the mortgage portfolios, effectively requiring the companies to shrink those portfolios by holding a combined $100 billion from their current levels. This will also limit the losses taxpayers will face as a result of the blank check given by the administration in lifting all caps on December 24 of last year.

It also includes Fannie Mae and Freddie Mac as a part of the Federal budget as long as either institution is under conservatorship or receivership. This is going to show the American people the true picture of how much of our national debt has increased by the bailout of these institutions.

As an aside here, as most people probably did not realize, the Senate Budget Committee recently acted on a proposed budget for the Congress this year. We were supposed to have declared and created a budget for us to operate under months ago, but because of, I think, an unwillingness to literally put it out there--how much money this government is spending--the committee and the Senate have not acted on a budget yet. But the Budget Committee actually did finally act on one. I didn't vote for it. It is more spending--trying to spend ourselves into prosperity again as the last budget was--but at least we acted.

In that Budget Committee process, I brought forth an amendment to require that Fannie Mae and Freddie Mac debt be added to our national debt calculations. Why would I do that? According to the Congressional Budget Office Director Douglas Elmendorf:

After the U.S. Government assumed control in 2008 of Fannie

Mae and Freddie Mac, two Federally-chartered institutions

that provided credit guarantees for almost half--

and by the way, as I indicated, now it is two-thirds--

of all the outstanding residential mortgages in the United

States, the Congressional Budget Office concluded that the

institutions had effectively become government entities whose

operations should be included in the Federal budget.

So here we have the Director of the Congressional Budget Office saying we run these companies, we are financially backing these companies, we should at least include them in our budget.

The purpose of my amendment then--and the same language that is in this amendment on the floor today--is to include in the debt calculations of the budget resolution the debt obligations of Fannie Mae and Freddie Mac. This allows the American people to see a true picture of how much our national debt has been increased by the bailout of these institutions. At the end of calendar year 2009, per the financial statements, those figures are $774 billion for Fannie Mae and $781 billion for Freddie Mac, for a total of $1.555 trillion of debt. That is debt the United States holds today that is not being disclosed to the American public as part of our debt because of our interesting budget procedures.

To put into perspective how large these entities are, their combined total books of business are nearly $5.5 trillion. The Congressional Budget Office has estimated that in the wake of the housing bubble and the unprecedented deflation in housing values that resulted, the government's cost to bail out Fannie Mae and Freddie Mac, as I indicated earlier, will eventually reach $381 billion, and that estimate may be too optimistic.

I also already mentioned that last Christmas Eve the Treasury lifted the cap. We actually had a cap so that the taxpayer was at least protected at $400 billion. Last Christmas Eve--and I told my colleagues earlier some called it the ``Christmas Eve Taxpayer Massacre''-- Treasury lifted that cap so there now is no limit to the amount of debt we will assume and pay for as taxpayers as a result of this bailout of Fannie Mae and Freddie Mac. According to a January 2010 CBO background paper entitled ``CBO's Budgetary Treatment of Fannie Mae and Freddie Mac,'' CBO:

believes that the Federal Government's current financial and

operational relationship with Fannie Mae and Freddie Mac

warrants their inclusion in the budget.

By contrast, the administration has taken a different approach by continuing to treat Fannie Mae and Freddie Mac as outside the Federal budget, recording and projecting outlays equal to amounts of any cash infusions made by Treasury into the entities.

The Office of Management and Budget of the U.S. Government fiscal year 2011 states:

Under the approach in the budget--

This is the President's budget--

all of the GSEs' transactions with the public are

nonbudgetary because the GSEs are not considered to be

government agencies.

So we have the administration saying they are not considered to be government agencies, and, therefore, we aren't going to consider their debt and their financing, and we have the Congressional Budget Office saying they should be. CBO has included the GSEs in its budget baseline, but does not include the debt in its calculations because of their narrow view of how to calculate the Federal debt.

In light of all these facts, I think it is evident that we need to have transparency and we need to start telling the American people exactly what it means, that we have taken Fannie Mae and Freddie Mac into receivership, and that we are not going to put their finances in the Federal budget.

Going back to what the amendment we are debating here today does, in addition to putting Fannie Mae and Freddie Mac in the budget, it establishes a Senate-confirmed special inspector general within the Government Accountability Office with responsibility for investigating and reporting to Congress on decisions made with respect to the conservatorships of Fannie Mae and Freddie Mac, and this special inspector general would provide quarterly reports to Congress. There is no one politically accountable to the public for the operation of these multitrillion-dollar entities since the President has yet to nominate anyone to officially run the Federal Housing Finance Agency and the Office of Special Inspector General. The office of the Special Inspector General for the Troubled Asset Relief Program has done a good job to inform the public and Congress about TARP, and we should follow this model with Fannie Mae and Freddie Mac. It is not credible to say we are protecting the taxpayer and fixing mortgage financing and do nothing about Fannie Mae and Freddie Mac.

Let me conclude by reading from a couple of editorials. If you scan the news today about this issue, you will see editorials across this country. I think one of them said ``the silence on this issue is deafening.'' Others have said there is a huge hole in the legislation. The title of another one: ``Congress Remains Missing In Action on Two Key Causes of the Financial Crisis.''

I wish to read from one of the Wall Street Journal editorials on May 6 of this year. In part it says:

One sign that the White House financial reform is less

potent than its advertising claims is that it doesn't even

attempt to reform the two companies at the heart of the

housing mania and panic--Fannie Mae and Freddie Mac. So we

are glad to see that yesterday GOP Senators John McCain,

Richard Shelby, and Judd Gregg introduced a Fannie and

Freddie reform amendment.

Going on, it says:

The Financial Crisis Inquiry Commission spent yesterday

focusing on financial leverage using Bear Stearns as an

example. But Fannie Mae and Freddie Mac were twice as

leveraged as Bear and much larger as a share of the mortgage

market. Fan and Fred owned or guaranteed $5 trillion in

mortgages and mortgage-backed securities when they collapsed

in September of 2008.

This is a quote that has been read on the floor before, but it is exactly applicable.

Again, quoting the editorial:

Reforming the financial system without fixing Fannie and

Freddie is like declaring war on terror and ignoring the al-

Qaida. Unreformed, they are sure to kill the taxpayers again.

Only yesterday--

this was on May 6--

Freddie said it had lost $8 billion in the first quarter--

which I have already mentioned.

Going on to another editorial, this one also in the Wall Street Journal by Robert Wilmers--and I quote just a part of it:

At the end of 2009, their total debt outstanding--either

held directly by their balance sheets or as guarantees on

mortgage securities they'd sold to investors--was $8.1

trillion. That compares to $7.8 trillion in total marketable

debt outstanding for the entire U.S. Government. The debt has

the implicit guarantee of the federal government but is not

reflected on the national balance sheet.

The public has focused more on taxpayer bailouts of banks,

auto makers and insurance companies. But the scale of the

rescue required in September 2008 when Fannie and Freddie

were forced into conservatorship--their version of

bankruptcy--was staggering. To date, the federal government

has been forced to pump $126 billion into Fannie and Freddie.

That's far more than AIG, which absorbed $70 billion of

government largess, and General Motors and Chrysler, which

shared $77 billion. Banks received $205 billion, of which

$136 billion has been repaid.

Fannie and Freddie continue to operate in the red, with no

end in sight. The Congressional Budget Office estimated that

if their operating costs and subsidies were included in our

accounting of the overall deficit--as properly they should

be--the 2009 deficit would be greater by $291 billion.

The point is simple. This bill is alleged to be focused on trying to solve the problem of bailouts. We will hear Senators on this floor say day in and day out that this bill will end bailouts and stop too big to fail. Yet the two largest enterprises which were at the core of the financial crisis are exempt from the provisions of the legislation. They are not even mentioned in the legislation. Apparently, they are too big to fail, because we in this Senate will not put them into a track of being resolved properly.

As I indicated earlier, I am concerned that the same outcome is going to happen now that happened back in 2005 and 2006 when we tried before their collapse to put some restraint into place, and that we will not act, the net result of which will be that we will, in effect, nationalize Fannie and Freddie and have a huge portion of our Nation's mortgage market be run by the government.

The McCain amendment will simply give us a track to move forward to stop that result from happening, and I encourage all of my colleagues to consider strongly supporting this amendment. If we don't, then I don't think we can honestly call this a bill that truly ends the bailouts in our country.

Thank you very much, Mr. President.

I note the absence of a quorum.