Madam President, if my colleague from North Dakota would yield for a question on this subject. Our colleague from Utah, Senator Hatch, if he would just observe, this issue is not a new one. I know Senator Grassley, who is on the Finance…
Madam President, if my colleague from North Dakota would yield for a question on this subject.
Our colleague from Utah, Senator Hatch, if he would just observe, this issue is not a new one. I know Senator Grassley, who is on the Finance Committee, is here, and there has been a lot of discussion about this: Do we have an extraordinarily high rate of taxation on corporations or don't we? We just heard on the floor that we rank I think the second highest in tax rates on corporations. Well, this is not some arcane discussion between people who can't understand exactly what is happening. We rank, I believe, third from the bottom in the rate of taxes paid by corporations of all of the OECD countries-- 30-some countries, we rank third from the bottom, not from the top.
So they come out here and say: Well, we have a high rate. Our statutory rate is high, toward the top, no question about that, but that is not what corporations are paying. They are not paying the rate, they are paying the rate minus all of the deductions and loopholes. The fact is, the corporate tax burden in this country is right close to the bottom of all of the other industrialized countries. Now, this ought not be debatable. We can easily find out what the facts are. So are we competitive with respect to the corporate income tax? The answer is yes.
I understand why the Chamber of Commerce and others want to perpetuate this notion that somehow we overtax corporations, but, in fact, the taxes paid by American corporations rank right near the bottom of all of the 30 or so OECD countries, the industrialized countries--right toward the bottom, not the top. That is what they, in fact, pay. If we are going to debate public policy, let's debate it with a set of facts so that we all understand what the facts are. The fact that people are talking about this in the context of what is the tax burden on corporations? The answer is, we are toward the bottom of all of the OECD countries. Those are the facts.
Madam President, I know this is a very important debate, this issue of the budget. This is: What are our priorities? I have said often that 100 years from now, we will all be dead and the only evidence of what our value system was right here, right know, will be evaluated by historians. Historians will be alive, and they will look back and say: What did that country believe in? What was their value system? What did they think was important? What did they invest in? So take a look at all of this and then make judgments.
We will have a debate all this week on this issue: What is important for the country? What do we believe represents our highest set of values? Kids? I have always said I know what might be in second, third, or fourth place in people's lives, but I certainly know what is in first place--their kids, right? So what about our budget with respect to health care for kids, just as an example. When we establish the priorities of what is important in our country, this is where we do it: in the budget. We debate it, we think about it, and then we say: This is what our country believes to be important. Here is what we should invest in to make this a better place in which to live.
I came to the floor to say something about the financial crisis and the financial meltdown in our country because that has a profound impact on this debate on the budget. This financial meltdown has begun to dry up the Federal revenues on the tax side. It has pushed up dramatically the expenditure side because we have what are called stabilizers in our economy. When people lose their jobs, they get unemployment checks. So we have these economic stabilizers that increase spending, even during this financial crisis when you see decreased revenue. That has a huge impact on this budget.
If this financial crisis has this kind of an impact on the budget, then we have a right to know what has caused all of this to happen, and what can we do to make sure it never happens again.
Last week, the Secretary of the Treasury announced a number of steps for financial regulatory reform, and those are a move in the right direction. He says we are going to regulate hedge funds, we are going to require the oversight of what are unregulated derivatives--these fancy, exotic financial products these days--we are going to require many of them to be regulated, although not fully. He needs to go further. But the Secretary is moving in the right direction to regulate hedge funds, to get rid of this dark money and bring derivatives and CDOs and credit default swaps and so on into the daylight. Then he talks about a powerful regulator that would be able to take a look at systemic risks and so on. I think all of that advances the ball and is in the right direction.
But this doesn't yet answer the larger question we have to answer with respect to this financial crisis and this meltdown. That larger question, using an automobile metaphor, is this: Is it time for a tuneup or is it time for a complete overhaul of the system? I come down on the side that you have to overhaul the entire system if you are going to provide the confidence needed in the American people going forward.
Now, let me explain how I see what has gone on. For the last 15, 20 years, we have had a bunch of people who were worshiping at the altar of this new type of finance--new financial instruments, new larger financial institutions, securitized credit, and selling the risk forward so that someone giving a home loan to a prospective homebuyer doesn't have to underwrite it or care so much about the risk, because they can sell that risk to an investment bank or a hedge fund, and sell it several times--these fancy, complex financial products.
I mentioned credit default swaps. There also has been a dramatic expansion of debt and leverage with almost every part of our financial enterprise in this country. Congress repealed the protections that used to exist for banks called the Glass-Steagall Act. Congress not only repealed these protections that used to protect banks so they could not invest in real estate and securities, and so on, but then allowed for the creation of the very large holding companies so they could get involved in one big financial swap--one-stop shopping. Gramm-Leach- Bliley did this, supported by the Clinton administration, I might say. These are all new-fashioned ideas. They got rid of the old-fashioned ideas, such as Glass-Steagall--just deregulate the market and don't worry about them.
Alan Greenspan chimed in, saying: I want to make a nice sound with all of this deregulation that is going on in Congress and I believe in self-regulation. We don't have to regulate. The Chairman of the Federal Reserve Board, Mr. Greenspan, said that would work. The lending terms and the incomes were from outer space; the incomes were unbelievable in all of these areas. And then the lending terms were completely unsupportable, and I will describe a few of those today.
We need to overhaul all this. What do we do to overhaul this? We have to get rid of this too-big-to-fail notion. We are now allowing banks that are too big to fail to merge with troubled banks, making them, apparently, too much bigger to fail, which is bizarre. We need to get rid of the holding companies, which never should have been allowed to happen in the first place. We need to go back to Glass-Steagall and create a portion of that to separate banking from the other risk enterprises.
Until we do that and address those fundamental questions, I think it is going to be very hard to instill the kind of confidence we want to instill in the American people. The New York Times asked the question in their editorial on Sunday of this week: What is it we are trying to fix? What caused the meltdown?
If you go back to the mid-1990s, I wrote an article in the Washington Monthly Magazine that was a cover story in 1994, I believe. The title was ``Very Risky Business.'' I wrote about derivatives, and I wrote that about tens of billions in derivatives that then existed. I introduced four pieces of regulation to regulate derivatives trading. None of it was acceptable because those involved in the new, modern approach to finance felt that you don't regulate these things. They will self-regulate and everything will be fine.
Of course, it was not fine and we had not only the notion of too big to fail, but the repeal of Glass-Steagall. We had the deregulation of all of this and the fusing of banking with riskier enterprises in holding companies. Regulators came to town boasting about the fact that we were willing to be blind. We had products developed that were hard to understand for even those engaged in trading them. Coupled with that, we had an unbelievable culture of greed, and the result was a financial meltdown.
The question is, what has caused, as the New York Times said, this house of cards? What is the cause? Do we know? Well, the fact is we need to know in order to move forward. The American people need to know. There needs to be a narrative that says here is what happened. We understand a portion of what happened, and it has been a calamity. Nobody understands all of it. The Attorney General of New York is doing some investigations here and there, but there is no comprehensive investigation. I believe there ought to be a select committee of the Senate, and I have introduced such legislation, with Senator McCain as a cosponsor. I believe we must do a select committee of the Senate to address these issues. I believe we also ought to have a financial crimes task force at the Justice Department to prosecute that which is discovered is illegal--a whole series of things.
We need to reconnect Glass-Steagall and decide that too big to fail is a doctrine that itself is old-fashioned, and we have to run our banks through a banking ``carwash'' of sorts, where you get rid of the bad assets and keep the good and rename them, if necessary. We need a banking system that is a circulatory system of our economy. But we cannot ignore what happened. We have to understand what happened and we have to fix it.
Let me go back to 1999, if I might, during the debate over the repeal of Glass-Steagall and passage of a bill called Gramm-Leach-Bliley. I was one of eight Senators who voted against it. On May 6, 1999, I said this bill will, in my judgment, raise the likelihood of future massive taxpayer bailouts. It will fuel the consolidation of mergers in the banking and financial services. I said that 10 years ago. I felt that would happen if we decided to let the big banks get bigger, without regulatory involvement. I said during that debate that we will, in 10 years time, look back and say we should not have done that repeal of Glass-Steagall, because we forgot the lessons of the past.
I wish this didn't happen, but it did. I wish to talk about what we do now. There are four steps. One, investigation. We need to find out what happened here. The New York Times has said--and I agree--in their questions on reform--in Sunday's editorial, it says that without an investigation, the reform effort will be, at best, hit or miss and, at worst, a charade.
Congress should start now to gear up for an investigation, using as its model the 1930s Pecora inquiry into the stock market crash, or the Watergate hearings of the 1970s. Here is a picture of Mr. Pecora, whom I described. Mr. Ferdinand Pecora was chief counsel of the Senate Banking Committee during the 1930s investigating the Wall Street banking and stock brokerage practices. He was involved in an investigation that I think was a very important one with respect to the cause and effect of the Great Depression. A real investigation is necessary and it will at least give those people who are furious about what happened an understanding and an outlet to understand and be a part of knowing what happened.
Now, I want to talk about the roots of some of this and why I think it is scandalous. The trigger of this financial crisis, I think, was the subprime scandal. Under the subprime scandal, there was so much debt and leverage that it was nearly unbelievable. We need something such as that to develop the narrative of what happened.
Let me describe the triggering mechanism with respect to the subprime lending. I went to the Internet today, and I will read a couple of invitations on the Internet. This is from speedybadcreditloans.com:
Do you want your loan approved on the terms you desire,
with easy credit and no credit check? This is the smartest
and fastest way to get the money you need for a home loan.
Bad credit, no credit, bankruptcy, you have been declined
before? Don't worry at Speedy Bad Credit Loans we have
lenders dealing with all kinds of credit loans. You will get
the money you need, and fast.
That is today. They are willing to loan on those terms today.
You can go to the Internet and find a dozen of these. In fact, I will show you this. Leading up to this crash, this financial crisis, Zoom Credit said this in their advertisement:
Credit approval is seconds away. Get on the fast track, and
at the speed of light they will approve you. Even if your
credit is in the tank, Zoom Credit is like money in the bank.
We specialize in credit repair and debt consolidation.
Bankruptcy, slow credit, no credit, who cares?
Is it a surprise that a financial system that allows this nonsense to go on somehow, at some point, collapses? That is not a surprise to me.
Here is Millenium Mortgage's advertisement:
Twelve months, no mortgage payment. That's right, we will
make your payments for the first 12 months. Our loan program
may reduce your current monthly payment by as much as 50
percent and allow you to make no payments for the first 12
months. Call us today.
Countrywide, the single largest mortgage company in America--by the way,
its CEO was able to get out of this with around $140 million, or so, I am told. They said:
Do you have less than perfect credit? Do you have late
mortgage payments? Have you been denied by other lenders?
Call us. Are you a bad risk? Call us, we will lend you some
money.
What did the biggest mortgage company in our country do? It made all these mortgages and then wrapped them up into securities--they securitized them. I have described it like the making of sausage, when they used to pack them with sawdust as filler. They packed these securities with good loans, bad loans, subprime loans, and conventional loans, and sold them to an investment bank, or a hedge fund--and, by the way, when you read about the toxic assets in the bowels of these institutions, these are the toxic assets.
Is it a surprise? This is bad business. They all made big money. They were like hogs at a trough, with unbelievable greed. They made massive amounts of money. Yet they were able to sell the risk forward, and the people in the hedge funds made money, and the people in the investment banks made money. The amount of money they made is unbelievable. Bear Stearns went belly up. Alan Schwartz, the CEO of Bear Stearns the 5 years prior, made $117 million. Jimmy Cane, the previous CEO, 5 years prior, made $128 million. At Lehman Brothers, Dick Fuld, 5 years prior to him going bankrupt, made $350 million. This was a carnival of greed. Everyone was doing well, except the economy, with this unbelievable avalanche of debt and leverage that all completely collapsed.
Now, we have a situation today where we have the American people trying to figure out what happened. I described the subprime loan scandal, which was at its roots. They were all making a lot of money by victimizing the American people. I should say some of the people were not victims. Some of these folks were willing victims because they wanted to buy a house with a special deal and flip it and make money. They got caught. They are not really victims. They were trying to profiteer. A lot of other folks were victims of this sort of scam.
I mentioned that these big investment banks took on all these assets and then got bailed out, and we now think there is $9 trillion of American taxpayers' money at risk going out through the back door of the Federal Reserve Board, Treasury, and the FDIC--$9 trillion. There has never been a hearing about that. No one has been able to get the Federal Reserve Board before a hearing to tell us where those trillions of dollars are pledged, who got the money, and how much money did they get. You cannot find out. The information we do have is pried out of the Federal Reserve Board. Bloomberg News corporation filed a lawsuit to get some of this information. That is unbelievable.
I mentioned these big financial firms that got all these bailouts. About $45 billion in TARP funds have gone to Bank of America. Bank of America got $30 billion in January of this year. Bank of America, last September, was urged to buy Merrill Lynch, a failed investment bank, by the then-Treasury Secretary Paulson. So what happened was the marriage was arranged by the Treasury Secretary and was going to be consummated in January. It turns out that in December, Merrill Lynch, which lost $27 billion in 2008, paid $3.6 billion in bonuses to their employees.
Let me say that again. An investment bank called Merrill Lynch that lost $27 billion--$15 billion in the fourth quarter alone--paid $3.6 billion in bonuses in December just prior to being taken over by Bank of America. Then Bank of America received $20 billion in TARP funds from the American taxpayers--in addition to $10 billion it had just been paid, which was initially allocated to Merrill Lynch. Pretty unbelievable.
Here are the Merrill Lynch bonuses, $3.6 billion. The top four executives got $121 million. This is for a company that lost $27 billion last year and was a failing company. Madam President, 694 executives got more than $1 million each. These are bonuses that would normally have been paid in January. They were paid in December, and my suspicion is they were paid by arrangement with Bank of America to be paid before the end of the year and before $30 billion went from the American taxpayers to Bank of America that just took over Merrill Lynch. That means, in my judgment, the American taxpayers paid bonuses to those who worked for a company that lost $27 billion in a year.
Do people have a right to be furious about this situation? You bet they do, and they should.
There are a lot of needs we have in this country to try to find a way to fix this situation so it never happens again. But as I have indicated, the first step, it seems to me, always is to try to understand what has happened and what to do about it.
The Washington Post had a story recently. In fact, I believe it was an editorial. They talked about the fact that hedge funds were not a part of the problem in this financial meltdown. I don't know about that. Let me show some examples of incomes at the hedge fund level. This is a man named James Simons. There is no implication here about being right or wrong, legal or illegal. My point is about the spectacular amount of income, what I call incomes from outer space. Mr. Simons made $2.5 billion last year--$2.5 billion. It is interesting. He runs a hedge fund.
Here is a man named John Paulson, who also runs a hedge fund. He made $2 billion last year. It seems to me he is probably profoundly disappointed because the year before, John made $3.7 billion. And, oh, by the way, my best guess is that each of them probably pays a 15- percent income tax rate, something called carried interest. But that is another story for another day. They pay income tax rates, in most cases, that would be below the marginal tax rate paid by their receptionist in their office. That is not their fault. That is the fault of the Tax Code and the fault of this Congress for not changing it.
John Paulson last year made $3.7 billion. He has a reason probably to come home and say: Honey, we need to tighten our belt here. Madam President, $3.7 billion--by the way, that is $10 million a day. In 2007, he made in 4 minutes what the average worker works for a year to make. Incomes from outer space, big old hedge funds--they play a role in this collapse. The Washington Post said they have played no role. Oh, really? Really? Where are they in the food chain of derivatives, credit default swaps, CDOs? Does the Washington Post know? Of course, it doesn't. It doesn't have the foggiest idea what role hedge funds may have played in this situation.
What we do know is there is a lot of dark money out there traded off the exchanges. Nobody knows what risk you have. That is why you have had all these big-shot bankers walking around acting like they are in some sort of seizure because nobody knows how much risk has been taken on. Every time we turn around it is more. It is billions, hundreds of billions, then trillions of dollars.
As I said earlier, we need to create a select committee in the Senate and soon. It is this body's job. We are the ones who send the money out. We are the ones who have said we are going to provide $700 billion of TARP funds. It is our responsibility to track it and to understand what has caused its need.
Second, I think there is a substantial reason--by the way, there are some attorneys general of this country, including Mr. Cuomo in New York, who are doing first-rate work in investigating. But I think there is substantial reason to believe there is a need for a national financial crimes prosecution task force.
Do I think all of this is criminal? Not at all. I think some of it is born of ignorance, some of it is born of greed, some of it is born of deliberate, willful blindness. But there are some, in my judgment, who desperately deserve to be investigated and, if necessary, prosecuted.
Finally, real reform. Real reform exists when we have real regulators, when we revisit 1999 and restore a portion of Glass- Steagall, when we decide to take down the ceilings and walls of these large holding companies, when we decide we are going to restore, once again, trust in banks.
Let me also say that in my home State, I visit with a lot of community bankers. They are not at risk. They did not do this. They did not invest in these assets. Most of them did banking the old-fashioned way. They took deposits and made loans. When they
made loans, they underwrote the loans. That is the way banking ought to be done. We need to revisit that with respect to some of the largest banking and financial enterprises in our country.
I am convinced we can fix all of this. I understand there is great anxiety. None of us have been here before. No one quite knows what is the medicine to try to address this economic illness. I understand. There is reason to be anxious. But I am also convinced we can and we will find the opportunity to put this back on track and fix what is wrong in this country. We will not fix what is wrong unless we understand the core and root cause of what has happened.
There is nothing I see--nothing I see--that is going to give us that answer. It is our responsibility. If we are required to put up the money, to try to find a way to invest in future health and so on, it is our responsibility to find out what happened and make sure it cannot happen again.
Steps are being taken in the right direction. I applaud those steps by the Treasury Secretary and others. But we are not nearly there with the giant steps that are necessary to fix that which has been existing now and growing for a decade or two.
Finally, I was telling a group the other day about Ray Charles, who used to sing that great song ``America the Beautiful,'' when he sang `` . . . spacious skies, For amber waves of grain, For purple mountains majesties. . . .'' The interesting thing about Ray Charles, who sang that song unlike anybody else could sing it, was he was blind. Somehow, to me, it always meant it wasn't so much someone being able to see this as it was to experience what the idea of America is. America is an idea. Part of this idea, born over two centuries now, is we have the capability to do almost anything if we get together and decide to work together. We can do that now. We can put this country back on track. This is a financial collapse of significant proportions, perhaps the greatest crisis we have faced since the Great Depression. But I am not despondent about that if we can begin to take the steps--not the baby steps but the big steps--in the right direction to decide to fix what went wrong. The first step to do that always is to understand what went wrong and then join together and say: We can make this right; we can make a better future happen if we decide to link arms and come up with the answers.
I am going to speak, at some point later, on the budget as well. But nothing impacts this budget in a more profound way than the financial collapse and meltdown which we have seen. It dramatically increases the need for funding for economic stabilizers, unemployment and so on and it substantially reduces the revenue. It has caused a substantial increase in deficits. Even as we debate this budget going forward for 2 years, 5 years, 10 years, the fact is we have to get this right. We have to put this economy on track, and I believe we can do that if we make the right decisions very soon.
I yield the floor and suggest the absence of a quorum.
Mr. President, reserving the right to object, and I will not object, the point is following the next Democratic speaker, if there is one?
I do not have an objection.