Authorizing the Regulation of Swaps Act

Mr. President, I rise today to join my colleague, the ranking member of the Foreign Relations Committee, Senator Lugar, in introducing what we consider to be an important piece of legislation from our committee and an important initiative for the administration and for the Congress and the American people. We are joining today to introduce the Enhanced Partnership with Pakistan Act. I believe the legislation has already been placed at the desk.

This is legislation that will fundamentally change America's policy toward Pakistan, and I hope over time it will fundamentally change America's relationship with the people of Pakistan as well.

I especially thank Senator Lugar for his partnership in crafting this legislation and for his ongoing leadership on this issue.

It is hard to overstate the importance of Pakistan to our national security. In fact, every day the newspapers are full of events that are transpiring there and of the challenges we face. Pakistan is a nation which could either serve as a force for stability and progress in a volatile region or it could become an epicenter for radicalism and violence on a cataclysmic scale.

This is a nation of striking contradictions and on divergent paths forward.

On one hand, we all know Pakistan is a nation where Osama bin Laden and the leadership of al-Qaida have found sanctuary for the past 7 years--a haven from which they and their confederates have plotted and carried out attacks on their host country, on neighboring countries, and on sites around the globe--a nation that has in recent weeks seen the Taliban advance to within 60 miles of its capital, and a nation with a full arsenal of nuclear weapons and ballistic missiles capable of delivering them anywhere in a 1,000-kilometer range.

On the other hand, Pakistan is also a nation whose 170 million people are overwhelmingly moderate, overwhelmingly committed to democracy and rule of law; a major non-NATO ally that has sacrificed the lives of 1,500 of its soldiers and police in the fight against terrorism and insurgency; and a nation that has lost more of its citizens to the scourge of terrorism than all but a tiny handful of countries throughout the world.

In short, Pakistan has the potential either to be crippled by the Taliban or to serve as a bulwark against everything the Taliban represents. That is why the Obama administration and many of us in Congress see the need for a bold new strategy for Pakistan. The status quo has not brought success, the stakes could not be higher, and we have little choice but to think differently--in fact, to think bigger-- about what these challenges are. The Enhanced Partnership With Pakistan Act is the centerpiece of this new approach, which is why President Obama has called on Congress to pass it.

An earlier version of this bill was reported out of the Foreign Relations Committee in July with overwhelming bipartisan support. This version builds upon its predecessor in a number of important ways. First, this new legislation directs $100 million toward an urgent need: police reform and equipping. Second, it mandates strict accountability from the administration as to every dollar that is spent, using benchmarks and metrics to measure and adapt our performance. Third, in light of the acute security challenge on the ground today, this bill gives our Ambassador the flexibility needed to respond to events as they unfold.

We believe this bill is urgently needed. For decades, the United States has sought the cooperation of Pakistani decisionmakers through military aid--almost exclusively military aid--while paying scant attention to the wishes and urgent needs of the population itself. This arrangement is, frankly, rapidly disintegrating. We believe we are paying too much for one thing and getting too little for a broad number of things we really need. When I say ``we,'' I really emphasize the Pakistani people's needs. The desires and aspirations of the Pakistani people have never been adequately focused on or attended to sufficiently in these policies. Most Pakistanis understand that they have been, frankly, left out of the policy in broad terms. As a result, an alarming percentage of the Pakistani population now sees America as a greater threat than al-Qaida. Until we change that perception, there is, frankly, very little chance of ending tolerance for terrorist groups or persuading any Pakistani Government to devote the political capital necessary to deny such groups and to deny them the sanctuary they have been able to receive, particularly in the western part of the country, as well as to deny them the covert material support which they have also been able to get from a number of different sources.

The dangers of inaction are rising almost every day. So when people measure this legislation, that is really what they have to consider. What happens if you do nothing? Well, if you do nothing, it is clear that the march of terror that is taking hold in a number of different places clearly threatens nuclear weapons that might then potentially fall into hands that are completely unpredictable. In fact, to whatever degree they might be predictable, one can only see danger in that kind of eventuality. The dangers of inaction are real. Almost any scenario played out plays against the broader interests of the Pakistani people and of the democratic Government which struggles today to provide services and to govern them.

In the month since President Obama called on Congress to pass the bill we are now introducing, the situation on the ground in Pakistan has deteriorated significantly. The Government struck what many of us believed and said at the time was an ill-advised deal that effectively surrendered the Swat Valley to the Taliban. The deal, predictably--as many of us said--emboldened the Taliban to deploy the same brutal tactics they had used in both Pakistan and Afghanistan and to use their base in Swat to then extend their reach ever closer to the country's heartland.

I emphasize--I know Senator Lugar will join me in emphasizing this-- ultimately, it is not the United States or the policy of the United States that is going to decide what happens in Pakistan. Ultimately, it will be Pakistanis, not Americans, who must determine their nation's future. But we can change the nature of our relationship and we can empower those Pakistanis who are fighting to steer the world's second largest Muslim country onto a path of moderation and stability and regional cooperation. That is the foundation of the bill Senator Lugar and I are introducing.

Frankly, I have seen firsthand how this approach works. Following the 2005 Kashmir earthquake, the United States spent nearly $1 billion on relief efforts. Having visited places, as I did then, such as Mansehra and Muzaffarabad in the earthquake's aftermath, I can personally attest to the awesome power of the operation we launched. I will never forget flying up in a helicopter to the northwest part of Pakistan, not far from the big Himalayas, where one could see off in the distance, and landing in a small spot by the river and meeting kids in a

tent city because this was the first time those kids had ever come out of the mountains and, in fact, the first time any of those kids had ever gone to school. It was extraordinary to see the sight of American service men and women saving the lives of Pakistani citizens. Frankly, it was invaluable in changing the perceptions of America in Pakistan. At that period of time, while we provided that assistance and while we were visibly involved in saving lives, not in taking them, the fact is that the reputation of the United States in the country as it was measured by polls at the time markedly increased, very dramatically increased.

In the wake of that natural disaster, we weren't the only ones to recognize the need for public diplomacy based in deeds rather than in words. The front group for the terrorist organization Lashkar-e Taiba set up a string of professional relief camps throughout the region trying to mimic what we were doing. But our effort was far more effective, and the permanent gift of the U.S. Army's last mobile Army surgical hospital, or MASH, had a profound impact on the perceptions of people in the region. For a brief period, America was going toe-to-toe with extremists in a true battle of hearts and minds, and we were winning.

It is up to us to recreate this kind of success on a broader scale, without waiting for a natural or even a manmade disaster. The question is, How can we most effectively demonstrate the true friendship of the American people for the Pakistani people?

We believe this bill is an important first step. It is a prime example of what we call ``smart power'' because it uses both economic and military aid to achieve an overall effect that is greater than the sum of its parts. On the economic side, this bill triples nonmilitary aid to $1.5 billion annually for 5 years and urges an additional 5 years of funding. These funds will be used to build schools, roads, and clinics. In other words, they aim to do on a regular basis what we briefly achieved with our earthquake relief and what the Pakistani Government, because of the economic crisis as well as political crisis in the country, has been unable to do to date. But this money will do a great deal more than just good deeds. It will empower the fledgling civilian Government to show that it can deliver the citizens of Pakistan a better life. It will empower the moderates, who will have something concrete to put forward as evidence that friendship with America actually brings rewards, not just perils, and it will empower the vast majority of Pakistanis who reject the terrifying vision of al- Qaida and Taliban but who have been angered and frustrated by the perception that their own leaders and America's leaders don't care about their daily struggle.

To do this right, we must make a long-term commitment. Most Pakistanis think that America has used and abandoned their country in the past, most notably after the jihad against the Soviets in Afghanistan. They fear we will just desert them again the moment the threat from al-Qaida subsides. It is this history and this fear that cause Pakistan to hedge its bets.

If we ever expect Pakistan to break decisively with the Taliban and other extremist groups, then we need to provide firm assurance that we are not just foul-weather friends. By authorizing funds through 2013, and hopefully longer, this bill offers the chance to clearly state America's longer term concerns and interests.

On the security side, the bill places conditions on military aid that will ensure the money is used for the intended purposes, which was not the case over the last 8 years. In order for Pakistan to receive any military assistance, it will need to meet an annual certification that its army and spy services are genuine partners in this endeavor.

In the struggle against al-Qaida and other terrorist groups, including Lashkar-e Taiba--as we all know, Lashkar-e Taiba was the perpetrator of the Mumbai massacre of last November. We also will need a certification of their partnership in the battle against the Taliban and its affiliates who threaten our troops in Afghanistan from their sanctuaries in the Pakistani tribal areas, as well as in the effort to solidify democratic governance and the rule of law in Pakistan. We believe these conditions are eminently reasonable, and they should be easy to meet for any nation receiving American aid.

As important as the economic and military components of the bill are is the question of how they fit together. Making this unequivocal commitment to the Pakistani people enables us to calibrate our military assistance more effectively. In any given year, we may choose to increase it or decrease it or to simply leave its level unchanged, but we will have the flexibility which we haven't had in prior years. For too long, the Pakistani military frankly believed we were bluffing when we threatened to cut funding for a particular weapons system or an expensive piece of hardware because that was the only game, if you will. It was the only money on the table. This bill will change that. Up to now, frankly, they were right about the unwillingness of the United States to take alternative routes. But if our economic aid becomes the centerpiece of our aid policy and it is tripled to $1.5 billion, then we can actually guarantee that we pay more attention to how the military assistance is being spent and what is occurring. We will finally be able to make the choice of expenditure on the basis of both of our natural security interests rather than simply the institutional interests of the security forces in Pakistan.

Let me be clear on the issue of military aid. The bill does not take any position on the level of such assistance deliberately. It is possible to envision a significant increase in military aid, just as easily as one could envision a decrease. The Pakistani army needs more helicopters. It needs more night-vision capability, more training and counterinsurgency techniques. So instead of locking in a figure for future years, what this bill does is provide us the ability to target our military aid directly to the areas that best serve both of our national security interests, which are fighting terrorism, fighting the insurgency, and keeping the people of Pakistan safe from the most dire threats.

Moreover, this bill allows us to fine-tune our approach in response to the level of will and competence displayed by Pakistan's military: When we see the genuine commitment, then we can help increase capabilities, and if we see at any time that commitment is lacking, we have the ability to adjust and redirect assistance rather than permit it to be wasted. We have spent some $10 billion in military aid and compensation over the past 8 years. Still, the militants got within 60 miles of the capital recently and al-Qaida continues to enjoy a sanctuary. So it is long past time we figure out how to work more effectively with the Pakistanis and the Pakistan Government on a more effective approach. That is what we hope this achieves.

This bill is not a short-term fix. It aims for the medium term and especially the long term. It won't drive the Taliban out of Swat Valley next week or next month. Its aim is, once the Taliban is driven from Swat and from Bajaur and from Dir, to help keep them out. To put it in terms of basic counterinsurgency doctrine made familiar by General Petraeus, the Pakistani military is already able to handle the ``clear'' phase of the struggle. The United States will now be assisting this mission through other vehicles. But the bill Senator Lugar and I are introducing will provide vital help for the ``hold'' and the ``build'' parts of the mission. Nor is this bill intended to be a silver bullet. It provides powerful tools, but these tools are only as effective as the policymakers who wield them. I am confident President Obama and his team will use wisely whatever policy tools are at their disposal.

We need to approach this endeavor with a large dose of humility. The truth is that our leverage is limited.

This bill aims to increase that leverage significantly. But we need to be realistic about what we can accomplish. Americans can influence events in Pakistan, but we cannot and we should not decide them. Ultimately, the decisionmakers are the people and the leaders of Pakistan.

Ask any resident of Lahore, Karachi, or Peshawar what these places used to be like and you will hear a long statement of the reveries of the time that now seems a world away. We need to help Pakistan once again become a nation of stability, security, and prosperity, enjoying peace at home and abroad--a nation, in short, that older

Pakistanis remember from their childhoods.

It is this nation that most Pakistanis desperately wish to reclaim. The bill that Senator Lugar and I now introduce will help America ensure that Pakistanis have the resources necessary to choose a peaceful, stable future. It offers them a helping hand in getting there. I urge our colleagues to join us in supporting this bill.

Mr. President, I am introducing legislation today, along with Senator Collins, to strengthen the transparency, accountability, and stability of a key aspect of our nation's financial system. Right now, trillions of dollars in complex financial transactions known as swap agreements are being marketed, traded, and implemented by financial institutions operating in the U.S. without adequate oversight or regulation.

Swaps are typically an agreement between two parties placing a bet on future cash flows. Some swaps bet on whether a stock price, interest rate, commodity price, or currency value will rise or fall; others bet on whether a company will default on payment of a bond. Stock price bets are referred to as equity swaps; bets on whether companies will be unable to pay their debts are referred to as credit default swaps.

As of June 2008, according to data compiled by the Bank of International Settlements, worldwide swaps markets included credit default swaps with a total notional value of $57 trillion; commodity swaps with a notional value of $13 trillion; equity swaps with a notional value of $10 trillion; foreign currency swaps with a notional value of $62 trillion; and interest rate swaps with a notional value of $458 trillion. These multi-trillion-dollar swap transactions are going on full bore, without appropriate U.S. disclosure requirements, clearing requirements, capital or liquidity safeguards, or other measures to protect the U.S. financial system against systemic risk.

Why? Because current law prohibits key Federal financial regulators-- including the Securities and Exchange Commission, SEC, and the Commodities Futures Trading Commission, CFTC--from exercising oversight or issuing regulations to ensure the safety and soundness of swap transactions. That prohibition has been in place for nearly 10 years now, since the year 2000; it has never made any sense; it helped cause the financial crisis that is engulfing the American economy; and it ought to be eliminated immediately.

The bill we are introducing today, the Authorizing the Regulation of Swaps Act, would do just that. It would immediately repeal the statutory prohibition on the SEC and CFTC from regulating swaps. In addition, the bill would give authority to federal financial regulators, including bank, securities, and commodities regulators, to oversee and regulate all types of swap agreements, whether traded on an exchange or over-the-counter, including credit default, commodity, equity, foreign currency, and interest rate swaps. The bill would enable financial regulators, for the first time since 2000, to exercise oversight of the now largely hidden and unregulated swaps markets.

To understand why this legislation is needed and should be enacted promptly without waiting for the larger financial reform bill that's coming, I want to review some history. Twelve years ago, in 1997, Brooksley Born, then the head of the CFTC, raised a red flag about the growing use of over-the-counter swaps and other derivatives that were being traded outside of regulated exchanges and outside of normal federal oversight. She called for a study of those over-the-counter transactions and for comments on whether they should be subject to some type of regulation.

Her effort was immediately met with resistance, however, from not only the financial industry that profited from swaps trading, but also other Federal regulators then in office. For example, then Federal Reserve Chairman Alan Greenspan, then Treasury Secretary Robert Rubin, and then SEC Chairman Arthur Levitt all opposed her effort to even examine over-the-counter swap agreements. The dominant view at the time was that regulation was unnecessary and would only slow down a booming market.

In 1998, at the urging of then Chairman Greenspan, Secretary Rubin, Chairman Levitt, and others, Congress enacted legislation which actually barred the CFTC from conducting the study that Chairman Born wanted and from developing any regulatory alternatives for over-the- counter swaps.

In 2000, Congress went farther. In late December, during the final days of the 106th Congress, legislation affecting a range of financial issues was slipped without notice into a conference report of an omnibus appropriations bill. That legislation, called the Commodity Futures Modernization Act, included provisions which together created a flat out prohibition on the regulation of every kind of swap the authors could

think of, including credit default, commodity, equity, foreign currency, interest rate, and even weather swaps. That type of sweeping statutory prohibition had never been included in any bill voted on by the Senate before being inserted into a must-pass appropriations bill in December 2000. That omnibus appropriations bill was approved by the Senate on a voice vote.

Today we are living with the disastrous consequences of that ill- conceived prohibition on the regulation of swaps.

One example says it all: AIG. AIG is a financial holding company that, all by itself, has cost taxpayers more than $150 billion so far. Over a period of years, AIG had issued more than $400 billion in credit default swaps without setting aside sufficient capital or liquidity reserves. After its swaps began losing value, AIG's counterparties required AIG to post multi-billion-dollar collateral to secure payment on those swaps, and a credit rating downgrade threatened to increase its collateral calls, AIG came pleading for a taxpayer bailout. The $150 billion in taxpayer dollars was needed not only to keep AIG afloat, but also to bail out a dozen other large financial institutions that had purchased credit protection from AIG, including Goldman Sachs, Merrill Lynch, and Bank of America.

Apparently, none of those credit default swap exposures had been known to Federal regulators until AIG informed the Federal Reserve on a Friday that it was likely to go out of business the following week unless provided billions in taxpayer support. When regulators understood how far in the hole AIG had fallen and how many financial institutions would be affected by its financial collapse, they determined that they had no choice but to prop up the whole mess with taxpayer dollars.

AIG is not the only financial institution with risky credit default swaps. But even if federal regulators know of other high-risk problems, the law has tied their hands in terms of what steps can be taken in response. Even measures that most experts believe would reduce systemic risks, such as requiring companies to use credit default swap clearinghouses or requiring traders to disclose all credit default swap transactions, cannot be fully implemented, because Federal agencies lack the authority to regulate swaps.

Seven months ago, during a Senate hearing in September 2008, Christopher Cox, then chairman of the SEC, testified that the credit default swap market was ``completely lacking in transparency'' and ``ripe for fraud and manipulation.'' A few days later he called on Congress to take ``swift action'' to give regulators the authority to oversee credit default swaps. But the statutory barriers prohibiting swaps regulation have remained in place.

Giving the regulators what they have asked for is long overdue. It does not make sense for Federal regulators to be statutorily barred from requiring disclosure of swap transactions, mandating use of clearinghouses, or imposing other safeguards particularly in light of the size of the swaps market with trillions of dollars in credit default swap, interest rate, commodity, equity, foreign currency, and other swaps.

Even some past opponents of swaps regulation have rethought their opposition.

Alan Greenspan acknowledged last October that there are ``serious problems'' associated with credit default swaps.

Robert Rubin recently acknowledged that derivatives, which include swaps, ``create systemic risk.''

Arthur Levitt said it was a mistake not to have regulated swap agreements.

Top financial officials in the Obama Administration, including Treasury Secretary Tim Geithner, National Economic Council Chairman Larry Summers, SEC Chair Mary Schapiro, and CFTC nominee Gary Gensler have all called publicly for stronger regulation of over-the-counter transactions, including swap agreements.

Congress and the Administration are now engaged in an effort to enact comprehensive financial reforms to safeguard our economy. While some of those reforms require a lot of time and deliberation to get right, others can--and should--be implemented more quickly. Removing the prohibition on regulating swaps is one of those reforms that can and should be done now, so our regulators can begin, without the hindrance of ill-conceived statutory barriers, to design a sensible regulatory framework for swaps.

Here is what my bill would do. First, it would repeal about a dozen provisions in the Commodity Futures Modernization Act and other laws that prevent federal financial regulators from overseeing and regulating swap agreements. Second, it would give Federal financial regulators, including bank, securities, and commodity regulators, immediate authority to oversee and regulate swaps involving the financial institutions and exchanges that they already regulate. To ensure regulators have sufficient authority, the bill would use the same comprehensive definition of swap agreement that is used in current law to prohibit swaps regulation.

These measures would give regulators immediate authority to acquire swap-related data. That would allow them to evaluate swap risks at specific companies as well as across the financial system. Regulators could then use this data to look into what additional safeguards are needed and what abuses need to be stopped.

One thing the bill would not do is require federal financial regulators to regulate swaps or tell them how to regulate swaps if they decide to do so. That is left for the larger regulatory reform bill coming later this year. The only instruction provided in this bill is that, if any regulator decides to act, it must consult, work, and cooperate with all of the other federal financial regulators to ensure swaps are treated in a consistent way.

I see this bill as a necessary first step to eliminate harmful statutory barriers that tie regulators' hands, impede oversight of the multi-trillion-dollar swaps markets, and create systemic risk. The bill does not take the needed second step of laying out ways to regulate swaps. It does not, for example, specify swaps recordkeeping, disclosure requirements, clearing requirements, capital or liquidity safeguards, or other measures. Senator Collins has another bill that, in part, addresses credit default swaps clearinghouses; I have a separate bill that specifies safeguards in the area of commodity swaps. Other colleagues have introduced bills that address a variety of swaps issues. The legislation we are introducing today does not contradict or preclude any of those other approaches it is an interim measure that would clear the way for more specific swaps requirements in subsequent reform legislation.

The Levin-Collins bill offers a limited, commonsense way to restore immediate federal authority over a high-risk, high-dollar financial sector that has operated for too long in the shadows, and whose failure has cost us hundreds of billions of dollars so far. Due to the trillions of dollars and financial risk involved, I urge the Senate to act on this bill as soon as possible.

I would also like to take a moment to extend my thanks and appreciation to the SEC, CFTC, and Treasury officials who took the time to provide technical assistance in drafting this legislation. I hope those agencies, and the Obama Administration as a whole, will announce their support for the bill and work for its enactment.

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

Mr. President, I am introducing legislation today, along with Senator Collins, to strengthen the transparency, accountability, and stability of a key aspect of our nation's financial system. Right now, trillions of dollars in complex financial transactions known as swap agreements are being marketed, traded, and implemented by financial institutions operating in the U.S. without adequate oversight or regulation.

Swaps are typically an agreement between two parties placing a bet on future cash flows. Some swaps bet on whether a stock price, interest rate, commodity price, or currency value will rise or fall; others bet on whether a company will default on payment of a bond. Stock price bets are referred to as equity swaps; bets on whether companies will be unable to pay their debts are referred to as credit default swaps.

As of June 2008, according to data compiled by the Bank of International Settlements, worldwide swaps markets included credit default swaps with a total notional value of $57 trillion; commodity swaps with a notional value of $13 trillion; equity swaps with a notional value of $10 trillion; foreign currency swaps with a notional value of $62 trillion; and interest rate swaps with a notional value of $458 trillion. These multi-trillion-dollar swap transactions are going on full bore, without appropriate U.S. disclosure requirements, clearing requirements, capital or liquidity safeguards, or other measures to protect the U.S. financial system against systemic risk.

Why? Because current law prohibits key Federal financial regulators-- including the Securities and Exchange Commission, SEC, and the Commodities Futures Trading Commission, CFTC--from exercising oversight or issuing regulations to ensure the safety and soundness of swap transactions. That prohibition has been in place for nearly 10 years now, since the year 2000; it has never made any sense; it helped cause the financial crisis that is engulfing the American economy; and it ought to be eliminated immediately.

The bill we are introducing today, the Authorizing the Regulation of Swaps Act, would do just that. It would immediately repeal the statutory prohibition on the SEC and CFTC from regulating swaps. In addition, the bill would give authority to federal financial regulators, including bank, securities, and commodities regulators, to oversee and regulate all types of swap agreements, whether traded on an exchange or over-the-counter, including credit default, commodity, equity, foreign currency, and interest rate swaps. The bill would enable financial regulators, for the first time since 2000, to exercise oversight of the now largely hidden and unregulated swaps markets.

To understand why this legislation is needed and should be enacted promptly without waiting for the larger financial reform bill that's coming, I want to review some history. Twelve years ago, in 1997, Brooksley Born, then the head of the CFTC, raised a red flag about the growing use of over-the-counter swaps and other derivatives that were being traded outside of regulated exchanges and outside of normal federal oversight. She called for a study of those over-the-counter transactions and for comments on whether they should be subject to some type of regulation.

Her effort was immediately met with resistance, however, from not only the financial industry that profited from swaps trading, but also other Federal regulators then in office. For example, then Federal Reserve Chairman Alan Greenspan, then Treasury Secretary Robert Rubin, and then SEC Chairman Arthur Levitt all opposed her effort to even examine over-the-counter swap agreements. The dominant view at the time was that regulation was unnecessary and would only slow down a booming market.

In 1998, at the urging of then Chairman Greenspan, Secretary Rubin, Chairman Levitt, and others, Congress enacted legislation which actually barred the CFTC from conducting the study that Chairman Born wanted and from developing any regulatory alternatives for over-the- counter swaps.

In 2000, Congress went farther. In late December, during the final days of the 106th Congress, legislation affecting a range of financial issues was slipped without notice into a conference report of an omnibus appropriations bill. That legislation, called the Commodity Futures Modernization Act, included provisions which together created a flat out prohibition on the regulation of every kind of swap the authors could

think of, including credit default, commodity, equity, foreign currency, interest rate, and even weather swaps. That type of sweeping statutory prohibition had never been included in any bill voted on by the Senate before being inserted into a must-pass appropriations bill in December 2000. That omnibus appropriations bill was approved by the Senate on a voice vote.

Today we are living with the disastrous consequences of that ill- conceived prohibition on the regulation of swaps.

One example says it all: AIG. AIG is a financial holding company that, all by itself, has cost taxpayers more than $150 billion so far. Over a period of years, AIG had issued more than $400 billion in credit default swaps without setting aside sufficient capital or liquidity reserves. After its swaps began losing value, AIG's counterparties required AIG to post multi-billion-dollar collateral to secure payment on those swaps, and a credit rating downgrade threatened to increase its collateral calls, AIG came pleading for a taxpayer bailout. The $150 billion in taxpayer dollars was needed not only to keep AIG afloat, but also to bail out a dozen other large financial institutions that had purchased credit protection from AIG, including Goldman Sachs, Merrill Lynch, and Bank of America.

Apparently, none of those credit default swap exposures had been known to Federal regulators until AIG informed the Federal Reserve on a Friday that it was likely to go out of business the following week unless provided billions in taxpayer support. When regulators understood how far in the hole AIG had fallen and how many financial institutions would be affected by its financial collapse, they determined that they had no choice but to prop up the whole mess with taxpayer dollars.

AIG is not the only financial institution with risky credit default swaps. But even if federal regulators know of other high-risk problems, the law has tied their hands in terms of what steps can be taken in response. Even measures that most experts believe would reduce systemic risks, such as requiring companies to use credit default swap clearinghouses or requiring traders to disclose all credit default swap transactions, cannot be fully implemented, because Federal agencies lack the authority to regulate swaps.

Seven months ago, during a Senate hearing in September 2008, Christopher Cox, then chairman of the SEC, testified that the credit default swap market was ``completely lacking in transparency'' and ``ripe for fraud and manipulation.'' A few days later he called on Congress to take ``swift action'' to give regulators the authority to oversee credit default swaps. But the statutory barriers prohibiting swaps regulation have remained in place.

Giving the regulators what they have asked for is long overdue. It does not make sense for Federal regulators to be statutorily barred from requiring disclosure of swap transactions, mandating use of clearinghouses, or imposing other safeguards particularly in light of the size of the swaps market with trillions of dollars in credit default swap, interest rate, commodity, equity, foreign currency, and other swaps.

Even some past opponents of swaps regulation have rethought their opposition.

Alan Greenspan acknowledged last October that there are ``serious problems'' associated with credit default swaps.

Robert Rubin recently acknowledged that derivatives, which include swaps, ``create systemic risk.''

Arthur Levitt said it was a mistake not to have regulated swap agreements.

Top financial officials in the Obama Administration, including Treasury Secretary Tim Geithner, National Economic Council Chairman Larry Summers, SEC Chair Mary Schapiro, and CFTC nominee Gary Gensler have all called publicly for stronger regulation of over-the-counter transactions, including swap agreements.

Congress and the Administration are now engaged in an effort to enact comprehensive financial reforms to safeguard our economy. While some of those reforms require a lot of time and deliberation to get right, others can--and should--be implemented more quickly. Removing the prohibition on regulating swaps is one of those reforms that can and should be done now, so our regulators can begin, without the hindrance of ill-conceived statutory barriers, to design a sensible regulatory framework for swaps.

Here is what my bill would do. First, it would repeal about a dozen provisions in the Commodity Futures Modernization Act and other laws that prevent federal financial regulators from overseeing and regulating swap agreements. Second, it would give Federal financial regulators, including bank, securities, and commodity regulators, immediate authority to oversee and regulate swaps involving the financial institutions and exchanges that they already regulate. To ensure regulators have sufficient authority, the bill would use the same comprehensive definition of swap agreement that is used in current law to prohibit swaps regulation.

These measures would give regulators immediate authority to acquire swap-related data. That would allow them to evaluate swap risks at specific companies as well as across the financial system. Regulators could then use this data to look into what additional safeguards are needed and what abuses need to be stopped.

One thing the bill would not do is require federal financial regulators to regulate swaps or tell them how to regulate swaps if they decide to do so. That is left for the larger regulatory reform bill coming later this year. The only instruction provided in this bill is that, if any regulator decides to act, it must consult, work, and cooperate with all of the other federal financial regulators to ensure swaps are treated in a consistent way.

I see this bill as a necessary first step to eliminate harmful statutory barriers that tie regulators' hands, impede oversight of the multi-trillion-dollar swaps markets, and create systemic risk. The bill does not take the needed second step of laying out ways to regulate swaps. It does not, for example, specify swaps recordkeeping, disclosure requirements, clearing requirements, capital or liquidity safeguards, or other measures. Senator Collins has another bill that, in part, addresses credit default swaps clearinghouses; I have a separate bill that specifies safeguards in the area of commodity swaps. Other colleagues have introduced bills that address a variety of swaps issues. The legislation we are introducing today does not contradict or preclude any of those other approaches it is an interim measure that would clear the way for more specific swaps requirements in subsequent reform legislation.

The Levin-Collins bill offers a limited, commonsense way to restore immediate federal authority over a high-risk, high-dollar financial sector that has operated for too long in the shadows, and whose failure has cost us hundreds of billions of dollars so far. Due to the trillions of dollars and financial risk involved, I urge the Senate to act on this bill as soon as possible.

I would also like to take a moment to extend my thanks and appreciation to the SEC, CFTC, and Treasury officials who took the time to provide technical assistance in drafting this legislation. I hope those agencies, and the Obama Administration as a whole, will announce their support for the bill and work for its enactment.

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

Mr. President, today Senator Udall and I are introducing a bill that will end an ongoing water rights dispute in northern New Mexico. The bill accomplishes this by authorizing a water rights settlement resolving Taos Pueblo's water rights claims in the Rio Pueblo de Taos, a tributary to the Rio Grande.

The Rio Pueblo de Taos adjudication is a dispute that is almost 40 years old. The parties have been in settlement discussions for well over a decade but it was not until the last 5 years that the discussions took on the sense of urgency needed to resolve the issues at hand. A settlement agreement was signed by the Pueblo, State, and other interested parties in March 2006. Federal legislation was then finalized and introduced last year. Progress was made on the bill, including hearings in both the House and Senate which resulted in the identification of a few more issues which needed to be addressed. The parties negotiated a resolution to these issues and legislation to authorize and implement the settlement is now ready to move forward.

The settlement will fulfill the rights of the Pueblo consistent with the Federal trust responsibility. It will also continue the tradition of sharing precious water resources in a manner necessary to protect the sustainability of traditional agricultural communities. Finally, the Town of Taos and other local entities are assured of accessing the water necessary to meet municipal and domestic needs. In sum, the Taos Pueblo Indian Water Rights Settlement Act represents a commonsense

set of solutions that all parties to the adjudication have a stake in implementing.

This legislation is widely supported in the Taos Valley, probably as close to a consensus as any water-related agreement can get in the West. The State of New Mexico, under Governor Richardson's leadership, deserves recognition for actively pursuing a settlement in this matter and committing financial resources in recognition of the importance of this matter to all water users in the basin.

This bill, as with any water rights settlement, is crucial to New Mexico's future. In an arid State such as ours, the legal system is poorly equipped to allocate water and create the infrastructure needed for its efficient use. Negotiated agreements between the parties, the State Engineer, and the Federal Government are much more likely to lead to long-term solutions that allow for the use of water in a sustainable manner. This legislation builds upon the provisions included in the Navajo water rights settlement enacted into law on March 30, 2009 as part of the Omnibus Public Lands bill. That settlement, and each subsequent one, will help provide more certainty and less conflict with respect to the allocation and use of water in New Mexico. I look forward to working with my colleagues in the Senate, as well as the House of Representatives, to see that this bill gets enacted into law.

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

Mr. President, I am pleased to introduce The Strategic Petroleum Reserve Modernization Act of 2009. This bill will ensure that the Strategic Petroleum Reserve will continue to fulfill the goal that its creators envisioned for it in 1975, which is to protect Americans from the economic consequences of oil supply disruptions.

This bill includes two key provisions. First, it creates a refined petroleum product component within the existing SPR. The Department of Energy is required to hold at least 30 million barrels of the total 1 billion barrel SPR inventory in refined petroleum products, such as gasoline and diesel fuel.

In the 1970s, the U.S. was vulnerable to supply disruptions in crude oil, as it was a significant and growing importer of crude oil. In 1973, major oil exporting nations embargoed oil exports to the United States in retaliation for U.S. support for Israel during that year's Arab-Israeli War. The embargo and resulting oil price spikes wreaked havoc on the U.S. economy. Preventing a recurrence of this kind of geopolitical oil supply disruption was the primary goal of the SPR. Because the country then held significant surplus refinery capacity, SPR managers decided to hold only crude oil in the SPR.

In 2009, our domestic oil market has changed. While we are more dependent on imported crude oil than ever before, we also import more refined petroleum products and have considerably less spare refinery capacity. When U.S. refinery operations are disrupted, we require imported products from other countries to fill the gap.

We have also learned in the last 34 years that weather-related events are the most frequent source of oil supply disruptions. In history, the SPR has been used in connection with only on geopolitical event, during the 1990-1991 Iraqi invasion of and removal from Kuwait, while it has been used several times in response to hurricanes or other weather events, such as dense fog halting tanker traffic in the Houston Ship Channel.

These more frequent weather events are usually as disruptive, if not more disruptive, to U.S. refinery operations as to crude oil production and imports. Hurricanes Gustav and Ike in September 2008 took much of the U.S. Gulf Coast infrastructure offline, and shortages of gasoline and diesel were experienced throughout the Southeast through October of that year. The SPR was of limited use in mitigating these shortages because the refineries affected by the storms were not able to process SPR crude oil into gasoline and diesel.

Including a small volume of refined petroleum products in the SPR, as required by The Strategic Petroleum Reserve Modernization Act of 2009, would provide a cushion to affected markets while damaged infrastructure were brought back online, or until imported gasoline and diesel could arrive to service the area.

The second key provision included in the Strategic Petroleum Reserve Modernization Act of 2009 authorizes the Secretary of Energy to release emergency oil from the SPR. Under current law, only the President of the United States can authorize an emergency sale of SPR oil. Experts believe that this requirement creates a disincentive to use SPR oil for the purposes for which it is intended, as the President does not want to alarm the public by announcing that the country is in an oil supply emergency.

Moving the SPR drawdown authority to the Secretary of Energy would allow SPR policy decisions to be made closer to the oil markets that the SPR serves. I believe that many of my colleagues share my disappointment that recent discussions about when and how to use the SPR have become so political that sound decisions, based on the reality of our country's oil market, have not been possible.

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

Mr. President, I am pleased and honored to join our chairman, John Kerry, in introducing the Enhanced Partnership with Pakistan Act of 2009. Then-Senator Joe Biden and I originally introduced this legislation in July 2008. I have been especially pleased to continue the bipartisan effort on this bill with Senator Kerry.

Senators Biden and Kerry and I have worked closely over the past year with the State Department, USAID, the Defense Department, and the National Security Council to craft this legislation.

On March 27 of this year, President Obama announced a comprehensive strategy for Afghanistan and Pakistan. In his speech he called on Congress ``to pass a bipartisan bill cosponsored by John Kerry and Richard Lugar that authorizes $1.5 billion in direct support to the Pakistani people every year over the next 5 years--resources that will build schools, roads, and hospitals, and strengthen Pakistan's democracy.''

Chairman of the Joint Chiefs of Staff ADM Mike Mullen and CENTCOM Commander David Petraeus repeatedly advocated expanding foreign assistance to Pakistan as an essential element of our national security. Defense Secretary Robert Gates and Secretary of State Hillary Clinton both have testified that strengthening democracy and countering terrorism in Pakistan go hand in hand. Secretary Clinton said at a Senate Appropriations Committee meeting last week:

As President Obama has consistently maintained, success in

Afghanistan depends on success in Pakistan. We have seen how

difficult it is for the government there to make progress,

and the Taliban continues to make inroads. Counterinsurgency

training is critical. But of equal importance are diplomacy

and development to provide economic stability and diminish

the conditions that feed extremism. This is the intent of the

comprehensive strategy laid out by Senator Kerry and Senator

Lugar, which President Obama has endorsed.

I take the time to detail administration backing for this bill and its concepts because any U.S. policy related to Pakistan will require the cooperation and active support of both the executive and legislative branches of our Government. It also will require that policy toward Pakistan be closely integrated with United States efforts throughout the region.

I do not regard the Kerry-Lugar bill as a congressionally driven initiative in which we are bargaining for support of the administration; rather, Senator Kerry and I are trying to play a constructive role in facilitating a consensus position between branches that will undergird a rational approach to the region with the best chance of success. With this in mind, it is vital that the administration's message on Pakistan be clear and consistent. The administration also must continue to actively consult with Congress on elements of strategy, not just lobby us for funds.

The United States has an intense strategic interest in Pakistan and the surrounding region. The U.S. National Intelligence Estimate last year painted a bleak picture of the converging crises in Pakistan. A growing al-Qaida sanctuary, an expanding Taliban insurgency, political brinksmanship, and a failing economy are intensifying the turmoil and violence in that country. These circumstances are a threat to Pakistan, the region, and the United States of America.

We should make clear to the people of Pakistan that our interests are focused on democracy, pluralism, stability, and the fight against terrorism. These are values supported by a large majority of Pakistani people. If Pakistan is to break its debilitating cycle of instability, it will need to achieve progress on fighting corruption, delivering government services, and promoting broad-based economic growth. The international community and the United States should support reforms that contribute to the strengthening of Pakistani civilian institutions.

This legislation marks an important step toward those goals. While our bill envisions sustained economic and political cooperation with Pakistan, it is not a blank check. It expects that the military institutions in Pakistan will turn their attention to the extremist dangers within Pakistan's borders. The bill subjects our security assistance to a certification that the Pakistani Government is using the money for its intended purpose--namely, to combat the Taliban and al-Qaida. The bill also calls for tangible progress in governance, including an independent judiciary, greater accountability by the central government, respect for human rights, and civilian control of the levers of power, including the military and the intelligence agencies.

In providing substantial resources to enhance a strategic partnership with Pakistan, our bill contains provisions to help ensure that this money is spent effectively and efficiently. The bill stipulates that the administration must provide Congress with a comprehensive assistance strategy before additional assistance is made available. This strategy is expected to detail clear objectives, enumerate projects the administration intends to implement, and identify criteria that the administration will use to measure the effectiveness of our assistance.

Once money begins to flow, the administration must report every 6 months on how the money is spent and what impact it is having. In addition, the bill provides that before the administration spends more than half of the $1.5 billion authorized in any fiscal year, it must certify that the assistance provided to that date is making substantial progress toward the principal objectives contained in the administration's strategy report. We also have asked the Government Accountability Office to review annually the administration's progress on stated goals. To ensure that sufficient resources will be available to oversee our program in Pakistan, we authorize $20 million each year for audits and program reviews by the inspectors general of the State Department, USAID, and other relevant agencies.

I look forward to working with the administration of President Obama and with congressional colleagues on a policy toward Pakistan that builds our relationship with that nation and protects vital interests of the United States.

Again, I thank Senator Kerry for his partnership and leadership on this bill.