S. 605Senate111th Congress (2009-2011)In Committee

A bill to require the Securities and Exchange Commission to reinstate the uptick rule and effectively regulate abusive short selling activities.

Legislative Activity

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SenateIntro Referral Latest Action

Sponsor introductory remarks on measure. (CR S3636-3539)

March 19, 2009

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SenateIntro Referral

Introduced in Senate

March 16, 2009

SenateIntro Referral

Sponsor introductory remarks on measure. (CR S3120-3121, S3121)

March 16, 2009

SenateIntro Referral

Referred to the Committee on Banking, Housing, and Urban Affairs. (text of measure as introduced: CR S3121)

Banking, Housing, and Urban Affairs Committee

March 16, 2009

SenateIntro Referral

Sponsor introductory remarks on measure. (CR S3636-3539)

March 19, 2009

Floor Debate

16 members

What members said about S. 605 on the floor

+11

8 Republicans8 Democrats

Sen. Jeff SessionsR-AL · Mar 16, 2009

Madam President, I ask unanimous consent the order for the quorum call be rescinded. Madam President, I wish to briefly begin discussion in the Senate about the President's budget that has been…

Madam President, I ask unanimous consent the order for the quorum call be rescinded.

Madam President, I wish to briefly begin discussion in the Senate about the President's budget that has been submitted to the Congress. We have had hearings under Chairman Conrad, Kent Conrad. His committee has had excellent hearings. We have had some good discussions. We have had some important witnesses, and we have been talking about some very important matters.

I wish to say now that I think the American people and the Members of the Senate need to get focused on the fact that the budget is not a good budget. The budget proposed by the President presents unsustainable spending, tax increases, and debt. It is just that way. It is right here in the book and the numbers cannot be changed. People can talk and spin any way they would like to, but if you look at these numbers, it is a chilling proposal for America that cannot be sustained.

One of the things the President promised, I think in his State of the Union and in his budget, was that we would have an honest budget and there would not be gimmicks in it. There have been, over the years, quite a number of times when Republicans and Democrats have put gimmicks into the budget. I would say I do not think this one is any better than the past. In fact, I think it is probably worse, maybe considerably worse. The budget, entitled ``A New Era of Responsibility, Renewing America's Promise,'' says on page 43, the conclusion of the introductory summary:

The budget itself does not use budget gimmicks or

accounting sleights of hand to hide our plans or the status

of our economy. It is forthright in the challenges we face

and the sacrifices we must make.

I do not think that is a fair statement of some of the things in here. We will be talking about some of the concerns as we go on. Fundamentally, the budget, as proposed, presents an overly rosy economic forecast. In fact, the numbers do not correspond with the best numbers we have on the economy from the Blue Chip indicator. That is the top 51 economists in the country. It is considered the gold standard of economic forecasting that we should have used or been close to. The consensus view of the Blue Chip economists--why is this important? It is important because if you are projecting an overly healthy economy, you are projecting more revenue into the Treasury than you are actually going to receive. That is the big deal.

In a budget you assume certain things. If it assumes a level of growth that is too high or a level of unemployment that is lower than we can reasonably expect, then it provides the Government, for the purposes of a budget, the right to assume more income than we are going to have. The budget predicts our economic growth is going to only decline this year by 1.2 percent. That is what the budget has. It has these assumptions in it. That is how they reach the numbers they reach. According to the President's speeches, of course, we are facing one of the greatest economic crises in our Nation's history and things are not good at all. So I would say that is not a very honest evaluation.

The Blue Chip forecast shows that the economy will decline this year by 2.6 percent, more than twice that. That is hardly a depression, thank goodness. I like to see that number. It is not as bad as a lot of people have been predicting, 2.6, but it is way more negative than the President's budget.

Of the 51 economists who contributed to this forecast, only three said growth would decline less than 2 percent and not a single one said growth would only decline 1.2 percent. The closest that one came to 1.2 percent was one economist who predicted 1.4 percent, but the average was 2.6 percent and some, of course, higher than that. I do not think it is responsible. I think it is a gimmick or a misrepresentation to predict this economy will only contract by 1.2 percent in this year.

Let's look at unemployment. The administration forecasts it will only rise to 8.1 percent. That is in the budget. It says next year it has it coming down to 7.9 percent. That means more people are working, more people are paying taxes, we have less food stamps and less welfare and less unemployment insurance. It impacts how much money we are actually going to have to spend. So they are projecting 8.1 percent, which will be the peak of unemployment and that next year it will be lower, 7.9.

In the early 1980s, when President Reagan and one of President Obama's advisers, Paul Volcker--who was then head of the Federal Reserve--broke the back of 15 percent inflation, but it put us in a severe recession, unemployment hit 10.9 percent. We survived that without a $800 billion stimulus bill, every penny of it going to the debt. But at any rate, they are predicting 8.1 percent on that.

What are these economists saying, the consensus? They project 9.2 percent this year and 8.8 percent next year--not 7.9. That makes a big difference. This is a big difference. It matters as to whether we can reach the goal the President has stated of reducing the deficit in half by 2013. That is not a significant commitment, frankly. It, in itself, is a gimmick, and I will explain that too. Using the Blue Chip forecast, the deficit is going to be $53 billion higher next year for fiscal year 2010 and about $150 billion higher in 2013.

We will have opportunities as we go forward. We will have budget hearings this week, I think some more, and a markup in the Budget Committee next week. I think we have a good committee. Chairman Conrad is asking some tough questions. He is not rubberstamping the administration's ideas, and I am proud of that because we are going to have to take some tough decisions.

Let me share, fundamentally, where we are in spending. After 9/11, the budget deficit was $412 billion. That was one of the largest deficits we ever had. It fell in fiscal year 2007-2008 to $161 billion. Last year, ending September of last year, that would be the 2008 budget--the previous one was 2007 at $171--we came in at $455 billion.

In 2004, a $412 billion deficit; the $455 billion deficit last year represented the highest deficits in our Nation's history. President Bush was roundly criticized for those and a good bit of that criticism was deserved, in my opinion.

Now that we have pumped another $800 billion into the economy this year on top of the Wall Street bailout, that $700 billion; on top of the $200 billion that the Congressional Budget Office has scored that we pumped into Freddie and Fannie, those mortgage holding companies, we will total, hold your hat, this year when September 30 concludes, of this year, the estimate is projected to be $1.8 trillion--not $455 billion but $1,800 billion.

They scored in that, I have to say, $200 billion, about $200 billion from the Wall Street bailout, $200 billion for Freddie and Fannie, one- time expenditures. But they didn't score all the stimulus package. In fact, they have a portion of it scored as being spent this fiscal year and a portion of it the next and some the third year. Next year's fiscal situation, according to our own Congressional Budget Office, is that the deficit will be $1.1 trillion.

I just wish to say to my colleagues and to those who might be listening outside this Chamber, it is not very hard to cut a budget deficit of $1.8 trillion in half; $1.8 trillion is almost four times the highest budget in the history of the Republic--unless perhaps during World War II we reached that deficit, I don't know. But certainly nothing has approached it in the last 30 or 40 years.

We are not doing well. Also, I have to tell you that the budget is a 10-year budget. All of us know that in the outyears it is hard to predict what is going to happen. I will just say, however, that President Obama's 10-year budget

projects that the deficit in the 10th year--you would think if we cut the annual deficit, the annual shortfall, if we cut it in half in 4 years, we would keep cutting it. He is projecting some $500 billion in 2013, and that is certainly conceivable, if we do not continue spending. If we keep spending at the same level we have today, we would be well below $500 billion, Lord willing and things continue the way we project them to continue.

But I will say in the 10th year under the budget, they are projecting $712 billion in deficits. The lowest deficit they are projecting over the entire 10 years exceeds $500 billion. As Senator Gregg said at the hearing with Secretary Geithner in the Budget Committee last week, that is not sustainable. I am just going to tell you, that is not sustainable. I think we all, as a nation, have to ask ourselves: Should we go forward with a budget that is composed of more taxes, more spending, and more debt?

I am worried about it. I know a lot of Members are worried about it. We believe, as a lot of people do, that we have to spend some money right now to help start this economy. I am prepared to support some of that too. But I think we have gone overboard. But regardless, if it was ended after 2 years, if there were the kind of projections in the future that show these programs to end and this excessive spending of today would not continue, that is one thing. But if we present a budget and ask this Congress to pass it, that calls for, over 10 years, each year having the highest deficits--higher than any deficits we have ever had before, ending up with a $712 or $720 billion deficit 20 years from now, I don't think we can support that.

It is time for a national discussion. As the President said, we need to talk about an honest evaluation of the challenges we face. And we face some tough challenges. But I have to tell you I am hoping CBO and the Blue Chip guys and the President are correct. I am hoping unemployment will not hit 10 percent.

I am hoping next year will be a better year. History tells us that is probably going to be the case. We have certainly had the Federal Reserve take some very aggressive action, most of it probably wise and needed.

We needed some stimulus from the Government. We certainly got that and more. It absolutely should give us some boost in the short run, although the Congressional Budget Office said the $800 billion stimulus bill over 10 years would result in less growth of the economy over 10 years than if no bill at all was passed. But it will help us some in the short run. I am sure that is true. So we are going to hope this economy will come back. If we contain spending, if we watch the debt we are creating, we could end up with a lot better projection than this without a lot of pain because a big part of this debt increase is based on an increase of sizeable proportions in spending, more than we can sustain.

I yield the floor.

Sen. Bill NelsonD-FL · Mar 16, 2009

I ask unanimous consent that the order for the quorum call be rescinded. I ask unanimous consent to speak as in morning business. Madam President, every time I see you sitting in the presiding chair,…

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

I ask unanimous consent to speak as in morning business.

Madam President, every time I see you sitting in the presiding chair, I can't help but think how proud your uncle, the late senior Senator from Florida and the late former Governor of Florida, Lawten Chiles--your uncle, since your mom was Lawton's sister--how proud he would be and what an enormously wonderful contribution and addition you are to the Senate. Thank you for the recognition.

It is with a heavy heart that I have to speak on this continuing saga of Wall Street, the continuing saga that the executives of big corporations in this country--and I am not talking about all corporations but a limited number of corporations with high-flying executives who, in the midst of us trying to work out this economic devastation we are in, do not understand that what they do and what they say, whether it is reality, has perception to it. As a result, they have angered a lot of people.

A lot of that anger, that disbelief, that ``oh my'' moment comes when you hear about what we heard over the weekend about AIG, American Insurance Group, one of the largest insurance companies in the world, which got into trouble. Last fall, we were presented with what in effect became an $85 billion bailout. I will never forget, as the new Secretary of the Treasury was coming through the confirmation process and the members of the Finance Committee had a chance to talk to him, I asked him: Why did we let Lehman Brothers go down and yet we propped up AIG? The answer was that AIG was too big, the hole was too big, that it would have had too many ramifications across the global marketplace to let it go down, whereas contrasted with Lehman Brothers, the financial hole was too big that it just simply could not be repaired.

Originally, they were talking about $40 or $50 billion to bail out AIG. Then it became $85 billion. If we had known that $85 billion, when we first agreed to let this happen last fall, if we had known that was going to go in taxpayer money to upwards of $170 billion, and if we had known that money was going to prop up other financial institutions to which they had an economic obligation, many of those financial institutions across the world, would we have done it? Well, I doubt we would have because $85 billion was big enough, but now closing in on $170 billion of taxpayer money, I don't think we would have agreed to that. I sure don't think we would have agreed if we knew that money was going to--now get this--almost $13 billion to Goldman Sachs; to a French financial company almost $12 billion, Societe Generale; almost $12 billion--all of this taxpayer money--to Deutsche Bank of Germany; $8.5 billion to Barclays; Merrill Lynch, which eventually bit the dust, $6.8 billion; Bank of America, which is in deep trouble right now, $5.2 billion, in deep trouble because they acquired Merrill Lynch; UBS, $5 billion--the list goes on through DNP, HSBC, Citigroup, Calyon, Dresdner Kleinwort, Wachovia, ING, Morgan Stanley, and Bank of Montreal.

That is American taxpayers' hard-earned money that was going to pay off those insurance policies called credit default swaps that were a kind of guarantee, a derivative that if they made a wrong bet, they would be protected by that insurance company. And lo and behold, that insurance company, the full weight and credit and finances of the United States Government--re: the American taxpayer--is going in, you can't say it with any other word, to bail out these companies.

Would we, the Senate, had we known $170 billion was going to bail out AIG, and of that money what I just listed was going to these corporations around the globe, half of which are foreign corporations? I don't think we would.

Is it any wonder people are upset? Is it any wonder the President of the United States has just had a press conference today saying he wants the Secretary of the Treasury to go back to find out what they can do to stop those bonuses from being paid or to get them back if they have already been paid? And, oh, by the way, why did AIG, last fall, when it made all of these payments, refuse to identify the individual financial institutions it was giving the money to? It all the more adds insult to injury. No wonder people are so mad and upset.

Now, I just came from a townhall meeting in Ocoee, FL. It is little town west of Orlando. A lot of the towns' city councils, mayors in that region of west Orange County--the Chamber of Commerce--all came today. I can tell you, this was on their mind. But they want to know something more. They want to know what has happened to old-fashioned right and wrong? What has happened to old-fashioned ethics?

When this Senator went to high school, we did not have ethics classes. It now seems we have to teach ethics classes, not only in our elementary and secondary schools, but all the way in our universities now. What is it that has gotten our leadership so askew they cannot get beyond their own blinders to see what they are doing and how it is affecting everybody else?

Now, it is no--I was going to say it is no secret, but it is not a secret, it is just a fact that I have had the privilege of being a public servant virtually all of my adult life. When I was a kid growing up, that was one of the highest callings for a person. I am starting to see some of that rekindled in young people now. But, my goodness, when they hear about all of this stuff--banks and bankers are public servants. They are entrusted with the people's money, to use it and invest it wisely, and then to be accountable for what happens to it. We elected officials are not the only public servants. There are public servants in every walk of life. If you are a teacher, if you are a doctor, a nurse--whatever your field--you are a public servant, and you owe a responsibility and accountability to the society and the country that has given you the opportunities you have. That seems to be going out of control.

We read another story a couple days ago. Bank of America bit off something they could not chew, which was Merrill Lynch. They said they were duped. Merrill Lynch gave a whole bunch of bonuses. The CEO of Bank of America, which bought Merrill Lynch, said he told them not to, and yet they did anyway. Well, since when did the captain of the ship not control the ship?

And, oh, by the way, are the CEOs of these institutions that are receiving taxpayer money not reading the papers? Did they not hear about the backlash as to the three executives of the Detroit Big Three automakers when they came to testify for a bailout of Federal taxpayer money, and they all came in their private jets? There was so much scorn and derision. They could have, of course, gotten on one of the three jets. They seemed to learn the lessons, so the next time they came to Congress asking for a bailout again, they drove their own vehicles.

Well, what happened to the CEO of Bank of America, who has taken $45 billion of taxpayer money? Of course, he is a busy man and very talented, but

he flies his Gulfstream V for a meeting in New York. It is perception. And that perception--I am not jumping on just him, I am trying to get people to understand, when you are dealing with the public's wheel, the public's business--and that certainly includes taxpayer money--then you have to be responsible and accountable. It seems somehow this goes over people's head.

Well, we all make mistakes. Certainly this Senator has made mistakes. One of the things about the American people is, they are a forgiving people. If someone, when they make a mistake, will admit it, people are very willing to give a person a second chance.

When you keep names secret, when you take billions and tens of billions of dollars of Federal taxpayer money, when you are insensitive to the perception of the high-flying style of life you are living, the American public is not very forgiving. That is what has happened over the weekend. That is what happened in that townhall meeting of mine today in Ocoee, FL.

That is another reason the President has again stood up and spoken out and said: We are going to stop this. Why do we want to stop it? Because we all seek the same goal; that is, the resuscitation of our economy, to get the banks lending again so dollars can go out to businesses and small businesses, so they can employ people and reverse the soaring unemployment rate. That is the goal: to get America back to work, to get America moving forward again economically.

It is my hope I do not have to have the kind of townhall meeting where people are upset as they were today and as they were over the weekend in the meetings.

Space Shuttle Launch

There was one good thing I did attend over the weekend. I saw Government dollars at work, as the space shuttle soared into the night sky at Cape Canaveral at the Kennedy Space Center. That was one of the most beautiful launches I have ever seen. It was right on time. Of course, it had had its delays, but that is part of the space program, making sure when you get down to T minus zero and those solid rocket boosters light off, you have it right.

Indeed, NASA had it right, and they gave a little lift to the American people last night with that display of power: almost 7 million pounds of thrust, straight up, and then arching over into a low Earth orbit.

Those astronauts now will go out and take another big section of the truss, attach it to the Space Station, and then install the final solar arrays so that the International Space Station will be up and powered with the electricity it needs for all of the scientific experimentation that is going to be done on the International Space Station, which has been designated a national laboratory of the United States.

That was a moment of joy in an otherwise time of difficult economic circumstances.

Madam President, I yield the floor.

I suggest the absence of a quorum.

Sen. Lamar AlexanderR-TN · Mar 16, 2009

Madam President, I ask unanimous consent that the order for the quorum call be rescinded. Madam President, I ask unanimous consent that Senator Kyl and I be permitted to engage in a colloquy for 20…

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

Madam President, I ask unanimous consent that Senator Kyl and I be permitted to engage in a colloquy for 20 minutes, and that I be informed when we have 2 minutes left.

Thank you, Madam President.

President Obama's Budget

Madam President, President Obama's budget raises taxes by $1.4 trillion over 10 years. It is the largest tax increase in history, right in the middle of a recession--a recession we all hope we can get out of soon.

I have with me today on the Senate floor my colleague Senator Jon Kyl, a member of the Finance Committee, who is, in our party, at least, and certainly within the entire Senate, one of the experts on taxation and jobs and progrowth Government policies.

I say to Senator Kyl, I was looking through the history books a little bit this weekend. I noticed President Hoover, in 1932, raised taxes. He, in the Revenue Act of 1932, raised taxes across the board and raised the top tax rate from 25 percent to 63 percent. That was at a time when the unemployment rate was about 23 percent in this country. The effects of the 1932 tax increase were income tax revenues went down and the Federal deficit went up and unemployment stayed up all the way to 1940, when it was still 15 percent.

But President Kennedy, of course a Democratic President, came along after a little bit of a sluggish period of time, and he cut taxes in a variety of ways and tax revenues went up. President Reagan came in a few years later, after a difficult time in the late 1970s, which I remember very well, and he reduced taxes and tax revenues went up.

So I wonder what the lessons in history are. If we are in the middle of a recession and people are struggling for jobs--and in the Hoover and Kennedy and Reagan administrations we learned that tax increases often reduce revenues and impose costs--what is the lesson in history for the Obama budget?

I believe there is another lesson, too, if we look back 40 years to October of 1969. It sounds very good to say we are going to tax the rich people. There are just a few of them; they are not you. We are going to take their money. You will be all right. That is exactly what happened in 1969. That was the last time we had a millionaires tax--that is what they called it--because they found 155 people who had paid no income taxes, so they passed the millionaires tax. We have another name for it today; it is called the alternative minimum tax. This year, if Congress did not act, it would have taxed 28 million Americans. It started out to catch 155 rich Americans and now could catch 28 million, including a lot of the middle class.

One of the tax portions has to do with what Senator Gregg, the Senator from New Hampshire, who is our ranking Republican on the Budget Committee, calls the national sales tax on electricity, a tax that would be a so-called cap-and-trade system tax.

It doesn't just get rich people.

Madam President, I think he calls it the Making Work Pay credit.

Madam President, it is not entirely clear how much a cap-and-trade system on the entire economy will raise. The President estimates in his budget $646 billion over 10 years. Some observers think that is low; that it might be $60, $80, $100, $120 billion or even more over 10 years. The cap-and-trade system--the way of limiting the use of carbon in the economy--is the subject of a very important debate we should be having in the Senate. For the whole 6 years I have been in the Senate, I have recommended a cap-and-trade system just for powerplants, not for the whole economy. I see the distinguished Senator from New Mexico on the floor who is chairman of the Energy Committee. He has had his own bill there. But our point would be in the middle of a recession, you don't put on top of the American people a new tax on electric bills and gasoline purchases.

Just in December of last year, 10 percent of customers for Nashville Electric Service said they couldn't pay their electric bills, even with TVA's relatively low rates. So whatever the views are on cap-and- trade--and there are many views even within our conference: Our Presidential nominee, John McCain, supported cap-and-trade, and I support a limited one but not in the middle of a recession--the way to deal with a recession is not more taxes.

Our responsibility as the minority party is often to hold the administration accountable, to point out the other side of things, and to oppose things we think are wrong. Our responsibility also is to say what we are for. This week during the debate and over the next couple weeks you will hear Republicans offering different ideas for a clean energy agenda, one that begins with conservation, on which most of us agree. You will hear ideas including building 100 new nuclear powerplants, that is carbon free. You will hear ideas about finding more natural gas, that is low carbon and using plug-in electric cars, which we can plug in at night and we wouldn't have to build any more powerplants. So we could move toward more American energy, as clean as possible and as fast as possible, but what we want to remember--and this doesn't seem to be remembered in the budget--is to do so at as low a cost as possible because people are hurting today because of unemployment and high costs and a lack of jobs.

Well, the Senator from Arizona brings up a very good point, which is the limitation on deductions people might take. Now, again, that sounds pretty good because one may say: Well, that applies just to someone with a lot of money, but let's think about this for a minute. That means charitable deductions in the United States would not receive the same sort of treatment under President Obama's plan that they do today. So we take a college such as Maryville College in my hometown, which is a small Presbyterian college that doesn't have a very large endowment; a faith-based college. It is having a tough time in the economy anyway. Then we come along and we say to people to whom it might turn for charitable contributions: Sorry, we are going to take away the incentive that Americans have to make charitable contributions to the colleges, to the Boy Scouts, to the Girl Scouts, to the pro-life groups, to the pro-choice groups, to all sorts of associations in America that are having a

hard time raising money for charitable activities, and we are going to make it that much harder.

This country leads the world in terms of charitable contributions. Typically, about 2 percent of our income goes to charitable contributions. No other country in the world has that sort of tradition of giving, and in the middle of a recession we would limit charitable contributions to nonprofit organizations who are already struggling.

Madam President, we have been asking the question: Why would someone who is interested in seeing an economic recovery propose these kinds of tax policies--to limit charitable deductions, limit the deduction on home mortgages, punish American companies doing business overseas, and put a mandatory energy tax on the American people?

All of these are policies that don't seem to make any sense. As my colleague pointed out in the very beginning, they run opposite to the lessons we have learned historically. Why would this be done? It turns out that a very interesting op-ed in the Wall Street Journal last Thursday, March 12, may have the answer. It was written by Daniel Henninger. It is called ``The Obama Rosetta Stone.'' It is said that the Rosetta Stone is where you go to get the answer to the great mystery of life. The Rosetta Stone in the Obama budget Mr. Henninger finds is on page 5 of the budget. This, I think, provides the clue to why all of these negative policies are being introduced into the budget at this time.

Let me quote from page 5 of the Federal budget. He is referring to the amount of income the top 1 percent of earners in our country makes:

While middle-class families have been playing by the rules,

living up to their responsibilities as neighbors and

citizens, those at the commanding heights of our economy have

not.

Prudent investments in education, clean energy, health care

and infrastructure were sacrificed for huge tax cuts for the

wealthy and well-connected.

There's nothing wrong with making money, but there is

something wrong when we allow the playing field to be tilted

so far in the favor of so few. . . .It's a legacy of

irresponsibility, and it is our duty to change it.

I think what Mr. Henninger has found in the Obama budget is the rationale for these paradoxical tax provisions. It is not a matter of helping families or supporting small businesses to create more jobs or helping the economy grow out of the recession; rather, this is all being done to redistribute the wealth in the country because it is alleged that the people at the top end of our economy are making more money than they should.

I thank the Senator. I ask unanimous consent for 30 seconds to conclude.

Madam President, I hope all of us in the Chamber understand that people are hurting, and we

want to see jobs and see the economy moving again. I think our point is that the lessons of history show that raising taxes doesn't help create new jobs. Now is not the time to change inequities in the Tax Code. Now is the time to create new jobs and for people to have more money in their pockets.

We would like to join with the President in focusing attention on fixing the banks and getting credit flowing again in the same way President Eisenhower did when he said: I will go to Korea and concentrate my attention on this job until it is honorably done.

I yield the floor and suggest the absence of a quorum.

Sen. Edward E. Kaufman D-DE · Mar 19, 2009

Mr. President, I wish to spend a few minutes talking about action that needs to be taken to restore the credibility of the fairness of the American financial markets. On Monday, Senators Isakson,…

Mr. President, I wish to spend a few minutes talking about action that needs to be taken to restore the credibility of the fairness of the American financial markets.

On Monday, Senators Isakson, Tester, and I introduced S. 605, which directs the Securities and Exchange Commission to write regulations that will deal effectively with abusive short selling.

One of the abusive techniques addressed in the bill is so-called ``naked short selling.'' Naked short selling is when traders sell shares they don't own and have no ability to deliver at the time of sale--which dilutes the value of a company's shares and can drive prices down artificially.

Before the ink on our bill was even dry, we received a profoundly disappointing report from the SEC's inspector general entitled ``Practices Related to Naked Short Selling Complaints and Referrals,'' a report detailing the results of an audit on the SEC Division of Enforcement's policies, procedures and practices for processing complaints about naked short selling.

An astounding 5,000 complaints about abusive short selling were sent to the SEC's Enforcement Division between January 1, 2007 and June 1, 2008. There could be no mistaking the scale of the potential problem that that number of complaints reflected. Incredibly, a mere 123 complaints were referred for further investigation. Worse, and I quote: ``none of the forwarded complaints resulted in enforcement actions . . .'' five thousand complaints, zero enforcement actions.

Not surprisingly, the SEC inspector general has concluded that the processes for dealing with such complaints need a fundamental overhaul.

Accordingly, the IG made 11 suggestions for improvements. And how did the Enforcement Division respond? It agreed to one of the IG's recommendations, and declined to move on the rest.

I have been around Washington and the Senate for 36 years, but rarely have

I seen an inspector general's call for action so summarily dismissed.

In its comments to the IG report, the SEC Enforcement Division stated:

there is hardly unanimity in the investment community or the

financial media on either the prevalence, or the dangers, of

``naked'' short selling.

I ask my colleagues: Why would the SEC Enforcement Division want to wait until there is unanimity in the investment community and the financial media to enforce the law? Why would the SEC Enforcement Division in its comments to the IG report want to give a virtual ``green light'' to continued abusive naked short selling? That is an enforcement division that is not worthy of its name.

In the IG's response to the Enforcement Division, the IG notes that it is ``disappointed'' that the Enforcement Division only concurred with one of the 11 recommendations in the audit report. The IG is ``particularly concerned'' that the Enforcement Division did not concur in its first three recommendations--that the Division should develop a written in-depth triage analysis for naked short selling complaints.

Moreover, the IG notes:

SEC has repeatedly recognized that naked short selling can

depress stock prices and have harmful effects on the market.

In adopting a naked short selling antifraud rule, Rule 10b-

21, in October 2008, the Commission stated, `We have been

concerned about ``naked'' short selling and, in particular,

abusive `naked' short selling, for some time.

Where does this leave us, Mr. President? We have an SEC that is ostensibly concerned about abusive naked short selling, but we have an enforcement division--after receiving literally thousands and thousands of complaints about naked short selling--that has brought no enforcement actions and doesn't take seriously an IG audit and recommendations.

This is an outrage.

I want to be clear, this was the record from a review of last year's examination of short selling complaints. This is an issue Mary Schapiro, the new SEC chair, has inherited. She just got to the SEC. But this is a strong indication of the need for real leadership at the SEC. Unless and until that happens, investors will have reason to worry that markets are not yet free of manipulation and abuse.

Of all the challenges confronting our financial system, none is more important than restoring investors' trust and confidence in the market--the belief that the game isn't rigged against them. After the disastrous and unprecedented losses of the past year, millions of Americans will refuse to put their resources back into the stock market until they believe the system is once again sound, fair and adequately overseen by the SEC.

In the not-so-distant past, a strategy of long-term buying-and- holding offered a roadmap for comfortable living in retirement and the ability to provide to our children and grandchildren that all-important economic head start in life.

Then, the market valued companies based on economic fundamentals and expected future profits.

Today, too many people view the stock markets as another gambling casino, dominated by volatility and susceptible to predatory short sellers who profit from false rumors and bear raids.

To restore faith in our securities markets, the Securities and Exchange Commission urgently needs to reflect a clear commitment to meaningful change.

It is time to restore the integrity, efficiency and fairness of our securities markets by preventing manipulative short selling, ensuring that the market fairly values the actual shares issued by a company, and outlawing the creation of ``phantom shares'' by abusive short sellers.

Let's remember how we got here. The opaque derivatives market allowed some people to play a shell game by leveraging to the hilt and buying and selling synthetic instruments that ultimately crashed in value. The same thing happens through abusive short selling, when traders sell shares they do not own and have no ability to deliver at the time of sale.

It is like making copies of your car's title, and then selling the title to the car three times, while hoping you can find other cars to deliver if the buyer proceeds.

In some cases, the short interest in a particular company's stock on a given day has spiked dramatically after false rumors have circulated about the company. The data further show that ``fails'' to deliver are large and problematic.

That is evidence of manipulation. It distorts the market. It must end now.

Let me be clear: the problem isn't short selling itself, which can enhance market efficiency and price discovery.

The problem is that, under current rules, short sellers can sell stocks they haven't actually borrowed in advance of their short sale-- and with no uptick rule in place as a circuit breaker. The current standard requires only a ``reasonable belief'' that a short seller can locate the necessary shares by the delivery date; that is no standard at all and subjects the market to rife abuse.

For the market to flourish again, the SEC must issue rules and enforce them in a way that convinces investors the system is not rigged against them.

One important step the SEC should take now is to reinstate the substance of its former ``uptick'' rule.

The uptick rule served us well for 70 years until the SEC rescinded it in July 2007. It required short sellers to take a breath and wait for a sale at a higher price before continuing to sell short in declining markets. According to one survey, 85 percent of CEOs, and professionals at NYSE-listed companies favor reinstating it. Fed Chairman Bernanke, bipartisan Members of Congress, and former regulators favor reinstating it. The SEC should do that now.

Restoring the uptick rule is necessary, but not sufficient, to rein in abusive short selling. If the SEC is to alter fundamentally the way stocks trade today, it must also require--and enforce--short sellers possessing at the time of the sale a demonstrable legally enforceable right to deliver the shares--a so-called ``pre- borrow'' requirement. We simply can't tolerate a market that permits short sellers to create phantom shares that dilute a company's value, erode the value of investors' holdings and manipulate share prices downward.

A recent Bloomberg news report based on SEC data confirmed that so- called ``naked'' short selling contributed significantly to the demise of Lehman Brothers and Bear Stearns. Those companies took horrendous gambles and their share values had to reflect those serious missteps, but in the absence of ``naked'' short selling both might nevertheless have survived.

Abusive short selling is gasoline on the fire for distressed stocks and distressed markets. And the knowledge that it is still tolerated rattles small investors and shakes confidence in our markets.

Mr. President, I ask unanimous consent that this story be printed in the Record.

The new SEC leadership has the opportunity to make the SEC a ``can do'' agency once more. The SEC is scheduled to meet on April 8 to discuss the uptick rule and abusive short selling. The Chair and commissioners should move quickly to adopt the uptick rule and a pre-borrow requirement.

If not, Congress should do its part and direct the SEC to do that quickly.

After yesterday's IG report and the Enforcement Division's response to it, I am even more convinced that SEC Chair Schapiro needs to grab the reins quickly at the SEC, and get back to standing up for investor interests to restore confidence in the markets. If the SEC won't do it, Congress should require them to do it.

Mr. President, I yield the floor.

Sen. Jon KylR-AZ · Mar 16, 2009

Madam President, I would say to my friend from Tennessee, of course, he knows the answer, having been a great student of history himself. If anyone would like to get one of the definitive works on…

Madam President, I would say to my friend from Tennessee, of course, he knows the answer, having been a great student of history himself. If anyone would like to get one of the definitive works on this, it is a book called ``The Forgotten Man.'' The author is Amity Shlaes. It is very well written. One of the key points it makes is precisely the historical point that my colleague from Tennessee makes; namely, that about the time the United States began to come out of the Depression, President Roosevelt's view was it was time to try to balance the budget and as a result--as Hoover had tried to do when he increased taxes and the economy tanked, which is exactly what happened again. So we didn't just have one Great Depression; we had a period of time when our country was in depression, it started to get out of the depression, and then went back into depression until World War II, largely because of this increase in taxes. The combination of the Smoot-Hawley tariffs--which are an increase in taxes of a different kind--and the income tax rates plunged the country back into the Depression.

If I could respond to the point about President Kennedy, he did exactly the opposite. We were in the doldrums, and he proposed, after he was elected in 1960, that we actually reduce the capital gains tax. Now, I remember this because I was taking a course in economics at the University of Arizona at the time and I wrote a paper on this. I went home, I believe it was over the Christmas recess, and I talked to my father about it. I said: President Kennedy is a Democrat, I am a Republican, but I think he is doing the right thing. My father said: He is doing the right thing. I remember writing that in the paper and my professor was kind of scratching his head because he looked at it in a more political way. Yet if you look at it in a purely economic point of view, when the economy is not doing so well, the last thing you want to do is to raise tax rates. In fact, you can do a lot of good by reducing taxes, which is what Kennedy did, and it had a very profound and positive impact. Those are the lessons history teaches.

Madam President, I would say to my colleague that is exactly right. That is one of the reasons why in this so-called stimulus package, a 1-year relief from the alternative minimum tax was included because we knew that the net was now casting so wide it would incorporate 20-plus million people into the category of millionaires-- people who made $50,000; $60,000; $70,000. The problem was the rates were never indexed for inflation, so what only caught millionaires at one time is now catching decidedly middle-class taxpayers.

The same thing could easily be done with the proposals that the administration has in the budget--a budget which, as we discussed last week, spends too much, taxes too much, and it borrows too much. We think we ought to spend less, tax less, and borrow less, which is one of the reasons we think the tax portions of the Obama budget are wrong.

Madam President, that is exactly right.

No. Madam President, this is the so-called mandatory cap- and-trade system that is included within the budget under which the Government would set how much businesses could produce in the way of carbon by their activity, and then, of course, they would pass the costs of this limitation onto their customers. Now, that only applies to people who either directly use energy, such as electricity or gasoline or you buy something that has been made with energy. I think that covers just about everybody.

The point is, it will take, from every American family, at least $800 a year, which is the amount of the so-called tax cut the President--I have forgotten what he calls that in the budget.

That is correct, the Make Work Pay Act, which is actually nothing more than a spending program in the guise of a tax cut. But whatever that gives back to people, it only covers what has been taken from them in this energy tax, and, in fact, that is just the beginning. The energy tax, by all accounts, will explode to a far greater burden on every family than an initial burden of 800 bucks.

Madam President, if I could also talk about some of the other effects of this. The problem with this kind of an energy tax is that when people use less energy, obviously they buy less, they travel less, and all of this curtails economic activity. It has been estimated the gross domestic product of the United States would be roughly 1 percent lower at the end of 2014 and 2.6 percent lower by 2030, just by having to pay this tax. As economic activity would slow, employers wouldn't need to hire as many workers. In fact, it is estimated that employers would create 850,000 fewer jobs by 2014 and 3 million fewer jobs by 2030. The effect on household income would be dramatic. It would reduce, on average, household income adjusted for inflation by $1,000 in 2014 and $4,000 by 2030. Of course, it is also a problem because not everyone will bear the same burden, and it is a very regressive tax, given the fact that people at a lower economic income level have to pay a higher percentage of their family income for energy than do higher income folks.

So for a lot of different reasons, this is a very bad idea, and as my colleague from Tennessee points out, it is a terrible idea in the middle of a recession.

Madam President, let me turn to a slightly different aspect of this same problem. It is not just the energy tax in this budget that we are concerned about; it is also a variety of tax policies that will clearly and dramatically impact business--again, not what you want to do at a time of a recession. For example, it heavily taxes American corporations that have operations overseas. Now, we want to compete overseas. We don't want to just have American businesses here in America. Anybody who would go overseas to do business would be heavily taxed here. That will have a dramatic impact on our exports, which have been a big part of our economy and on our gross domestic product in general.

Another thing it does at this time, which is dead wrong, is to indirectly impose a much higher cost on obtaining a mortgage because it limits the amount of mortgage interest deduction. One of the things that has enabled millions and millions of Americans to own their own home is because we have favorable tax treatment. They can take the mortgage interest deduction as a deduction from their Federal income taxes. So why would we limit the amount of deduction for your home mortgage, especially at this time when we are trying to encourage more people to buy homes and we don't want banks to end up with more bad loans on their books.

Then, in addition, there are other tax rates that are allowed to increase rather than to continue where they are, and these are the rates on the income tax for the top two marginal rate categories. These are exactly the people who are reporting small business income. We know small businesses create up to 80 percent of the jobs in the economy, so there again, directly imposing a greater burden on the people who run and operate the small businesses in this country; precisely the group who needs to have more income in order to hire more people so we don't have as many unemployed.

In all these ways, the budget is going to directly negatively impact our economic situation at exactly the wrong time.

The Senator from Tennessee can close after I finish my point.

The point is, this is not the purpose of tax policy. The purpose of tax policy should be to raise the amount of money we need, and need legitimately, to run the Federal Government, and do so as fairly as possible.

As they point out here, while the top 1 percent of earners in our country has earned 22 percent of the income, they pay 40 percent of the Federal taxes. The people who would get the brunt of the tax--those making above $200,000--pay 60 percent of the Federal income taxes in America. One wonders why a group that pays 60 percent of the taxes already and only comprises 2 percent of our population is being unfairly treated. As a result of the Bush tax policy, they are actually paying a higher percentage of income taxes than they did before the Bush tax cuts went into effect. I think maybe that is the answer to the question. If so, it is very distressing.

Madam President, before his conclusion, I ask unanimous consent to have the op-ed I referred to be printed in the Record.

The following Senators are necessarily absent: the Senator from Nebraska (Mr. Johanns), the Senator from Florida (Mr. Martinez), the Senator from Louisiana (Mr. Vitter), and the Senator from Georgia (Mr. Chambliss).

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Introduced in SenateIssued March 16, 2009

111th CONGRESS

1st Session

S. 605

IN THE SENATE OF THE UNITED STATES

March 16, 2009

Mr. Kaufman (for himself, Mr. Isakson, and Mr. Tester) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To require the Securities and Exchange Commission to reinstate the uptick rule and effectively regulate abusive short selling activities.

Reinstatement required

Not later than 60 days after the date of enactment of this Act, the Securities and Exchange Commission (in this Act referred to as the Commission) shall—

(1)

reinstate the substance of that portion of the regulations in effect on July 5, 2007, that prohibited short sales not effected on a plus tick;

(2)

rescind rule 201 of regulation SHO, at section 242.201 of title 17, Code of Federal Regulations, as in effect on the date of enactment of this Act;

(3)

require trades by short sellers of securities to yield priority and preference to transactions effected by long sellers of securities;

(4)

with the concurrence of the Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve System, prohibit short sales of the securities of any financial institution, unless that trade is effected at a price (in minimum lots, as specified by the Commission) that is at least 5¢ higher than the immediately preceding transaction in such securities;

(5)

adopt such rules and regulations, consistent with paragraphs (1) through (4), as necessary to prohibit any person from engaging in any conduct that artificially would create a plus tick or satisfy the price requirements set forth in the short sales regulations of the Commission; and

(6)

take such other actions as may be necessary or appropriate to make the regulation of short sales by the Commission consistent with the requirements of this Act.

Mandatory settlement preparedness requirement

Not later than 60 days after the date of enactment of this Act, the Commission shall issue regulations prohibiting any person from selling securities short, unless that person demonstrates, at the time of the sale, that such person possesses, at the time of the sale, a demonstrable, legally enforceable right to deliver the securities at the required delivery date.

Mandatory settlement times for short sales

Not later than 60 days after the date of enactment of this Act, the Commission shall issue regulations to require that all short sales settle on the same time frame employed for long sales of the same securities.