Floor Statements

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

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

Madam President, I am pleased to join my colleagues, Senator Casey and Senator Kohl, in submitting a resolution to designate May 24, 2010 as the ``Prescription Drug Disposal Awareness Day.''

The abuse of prescription narcotics such as pain relievers, tranquilizers, stimulants, and sedatives is currently the fastest growing drug abuse trend in the country. According to the most recent National Survey of Drug Use and Health, NSDUH, nearly 7 million people have admitted to using controlled substances without a doctor's prescription. People between the ages of 12 and 25 are the most common group to abuse these drugs. However, more and more people are dying because of this abuse. The Centers for Disease Control and Prevention report that the unintentional deaths involving prescription narcotics increased 117 percent from the years 2001 to 2005. These are statistics that can no longer be ignored and tolerated.

Regretfully, we read about children dying as a result of prescription and over-the-counter drug abuse. An article from February 2009 in the Des Moines Register reports on the death of a 14-year-old Brody Middle School Student who was found dead at his home from an apparent overdose of prescription drugs. The same article reports that 85 percent of drug and alcohol overdoses at the children's emergency center at Mercy Medical Center in Des Moines are from prescription or over-the-counter medicines.

Millions of Americans are prescribed controlled substances every year to treat a variety of symptoms due to injury, depression, insomnia, and other conditions. Many legitimate users of these drugs often do not finish their prescriptions. As a result, these drugs remain in the family medicine cabinet for months or years because people forget about them or do not know how to properly dispose of them. However, these drugs, when not properly used or administered, are just as addictive and deadly as street drugs like methamphetamine or cocaine.

According to the NSDUH, more than half of the people who abuse prescription narcotics reported that they obtained controlled substances from a friend or relative or from the family medicine cabinet. As a result, most community antidrug coalitions, public health officials, and law enforcement officials have been encouraging people within their communities to dispose of old or unused medications in an effort to combat this growing trend.

This is also why I have cosponsored the Secure and Responsible Drug Disposal Act of 2010. This legislation will enable the Attorney General of the United States to issue guidelines to help States and communities establish prescription drug take-back programs. Current law makes efforts to establish these programs difficult and time consuming. However, efforts to get old and unwanted medicines out of the home have shown signs of great promise to be successful if widely adopted. For example, the town of Clinton, IA, has held an annual ``Clean Out Your Medicine Cabinet'' day that has collected over 300 pounds of old or unwanted medicine from the community. This is medicine that will not fall into the hands of a child or stranger or cause potential harm to any user.

It is important that we encourage people to dispose of their old or unwanted medicines so that they will not fall into the wrong hands. This is why I am pleased to be submitting this resolution and why I encourage all my colleagues to join us in raising public awareness of this important issue.

Madam President, I am pleased to join my colleagues, Senator Casey and Senator Kohl, in submitting a resolution to designate May 24, 2010 as the ``Prescription Drug Disposal Awareness Day.''

The abuse of prescription narcotics such as pain relievers, tranquilizers, stimulants, and sedatives is currently the fastest growing drug abuse trend in the country. According to the most recent National Survey of Drug Use and Health, NSDUH, nearly 7 million people have admitted to using controlled substances without a doctor's prescription. People between the ages of 12 and 25 are the most common group to abuse these drugs. However, more and more people are dying because of this abuse. The Centers for Disease Control and Prevention report that the unintentional deaths involving prescription narcotics increased 117 percent from the years 2001 to 2005. These are statistics that can no longer be ignored and tolerated.

Regretfully, we read about children dying as a result of prescription and over-the-counter drug abuse. An article from February 2009 in the Des Moines Register reports on the death of a 14-year-old Brody Middle School Student who was found dead at his home from an apparent overdose of prescription drugs. The same article reports that 85 percent of drug and alcohol overdoses at the children's emergency center at Mercy Medical Center in Des Moines are from prescription or over-the-counter medicines.

Millions of Americans are prescribed controlled substances every year to treat a variety of symptoms due to injury, depression, insomnia, and other conditions. Many legitimate users of these drugs often do not finish their prescriptions. As a result, these drugs remain in the family medicine cabinet for months or years because people forget about them or do not know how to properly dispose of them. However, these drugs, when not properly used or administered, are just as addictive and deadly as street drugs like methamphetamine or cocaine.

According to the NSDUH, more than half of the people who abuse prescription narcotics reported that they obtained controlled substances from a friend or relative or from the family medicine cabinet. As a result, most community antidrug coalitions, public health officials, and law enforcement officials have been encouraging people within their communities to dispose of old or unused medications in an effort to combat this growing trend.

This is also why I have cosponsored the Secure and Responsible Drug Disposal Act of 2010. This legislation will enable the Attorney General of the United States to issue guidelines to help States and communities establish prescription drug take-back programs. Current law makes efforts to establish these programs difficult and time consuming. However, efforts to get old and unwanted medicines out of the home have shown signs of great promise to be successful if widely adopted. For example, the town of Clinton, IA, has held an annual ``Clean Out Your Medicine Cabinet'' day that has collected over 300 pounds of old or unwanted medicine from the community. This is medicine that will not fall into the hands of a child or stranger or cause potential harm to any user.

It is important that we encourage people to dispose of their old or unwanted medicines so that they will not fall into the wrong hands. This is why I am pleased to be submitting this resolution and why I encourage all my colleagues to join us in raising public awareness of this important issue.

Mr. President, I hope we have a chance now, during the final hours of debate, to take into consideration some of the reasons we got from where we have been over the last 3 or 4 years with the bubble, and that bubble bursting a couple of years ago, and the financial crisis and the recession that has come as a result of it.

I want to start out with something that is familiar to all my colleagues, something that George Santayana said:

Those who cannot remember the past are condemned to repeat

it.

As the Senate continues to debate the financial regulation bill, I think it is important to consider how we got from where we are today.

Many people believe the housing and financial crisis was the result of too much greed on Wall Street. No doubt. No doubt whatsoever; there was plenty of greed on Wall Street. But greed is like gravity--it is a constant of nature. When planes crash we don't blame gravity. If you search the Internet for the term ``decade of greed,'' you will discover that is what some people called the 1980s. There is no reason to believe people are greedier now than they were then. Greed has always existed. The Ten Commandments admonish us not to covet our neighbor's possessions. Everyone is tempted by greed. Some are more successful than others in resisting temptation. But greed alone does not explain our current crisis. We need to look further.

Many people blame the crisis on deregulation. According to this explanation, Congress repealed all the rules and let Wall Street run wild. Greedy bankers tricked innocent consumers into taking out risky mortgages and sold them to unsuspecting investors. This explanation views the crisis in terms of victims and villains. If it were only that simple.

Obviously, anyone who has committed a crime should be prosecuted to the fullest extent of the law. But this explanation overlooks several important facts: First, the United States is not alone in this crisis. Housing booms and busts are occurring all around the world resulting in government bailouts. According to the Organization for Economic Cooperation and Development--we refer to this as the OECD--nearly a dozen European countries are experiencing bigger housing bubbles than our own. These countries include Australia, Canada, Denmark, France, Ireland, Italy, New Zealand, Norway, Spain, Sweden, and the United Kingdom. The global nature of this crisis shows the problem is not ours alone.

Second, we do not have an unregulated free market. Let me underscore that point. This crisis occurred with lots of government involvement. The Federal Reserve controls the money supply. The Federal Deposit Insurance Corporation insures bank deposits. The Fannie, Freddie, Ginnie, FHA, and the Federal Home Loan Bank boards insure subsidized or guaranteed mortgages. We have an entire alphabet soup of government agencies that regulate our financial institutions--CFTC, FDIC, FHFA, FTC, NCUA, OCC, OTS, SEC, plus all the State agencies and the Federal Reserve. Finally, we have adopted a policy of too big to fail.

The essence of a free market is the opportunity to succeed and the potential to fail. As economist Milton Friedman observed: capitalism is a profit-and-loss system. The loss part is just as important as the profit part. Profits encourage risk taking and losses encourage what they should--prudence.

Unfortunately, we have privatized the profits and socialized the risks. In some cases, we have bailed out individual companies. In others, we have bailed out the financial markets. In recent years, market participants even coined a phrase for such bailouts--``the Greenspan put.'' In other words, Wall Street was betting on former Federal Reserve Chairman Alan Greenspan to protect them from their own mistakes.

Recent government bailouts, both industry-specific and market-wide, include Lockheed in 1971; Penn Central Railroad in 1974; Franklin National Bank in 1974; New York City in 1975 and 1978; Chrysler in 1980; Continental Illinois in 1984; the stock market crisis in 1987; Latin American debt crisis in the early-1980s; the Savings & Loan crisis in the late-1980s; the Mexican peso crisis in 1994; Asian financial crisis in

1997; Long-Term Capital Management in 1998; the stock market crisis in 2000; the airline industry in 2001; AIG, Bank of America, Bear Stearns; Citigroup, Chrysler, GM, Fannie and Freddie in 2008.

Reducing the cost of failure encourages reckless behavior. When people come to expect and accept government bailouts that's not capitalism--it is cronyism. Until we eliminate the perverse incentives created by these bailouts, no one can honestly say we have an unregulated free market.

I do not mean to say regulation is unnecessary. Indeed, the exact opposite is true. Free markets are not possible without laws to protect property and enforce contracts. The problem is government regulation often has unintended consequences.

The desire to control human greed through regulation is understandable. But we forget regulators are human too. They are subject to the same temptations as everyone else. History is replete with examples of regulatory capture and government corruption. The revolving door between Washington, Wall Street, and the Fed make these problems even worse. Second, regulation can provide a false sense of security. They encourage people to rely on the government instead of their own common sense. Third, regulation designed to solve one problem often create another problem. That can lead to more regulation and more problems.

But most of all, regulation cannot succeed when it is undermined by good intentions.

For most of the past century our government--under both Democrats and Republicans--has pursued an ad hoc industrial policy. We have encouraged home building to stimulate the economy, and home ownership to promote a better society. Unfortunately, we pursued these policies by undermining the safety and soundness of our financial system, which was already a house built upon sand. I will have more to say on that later.

A review of U.S. housing policy during the 20th century illustrates this point. Consider the government's first major campaign to boost homeownership as described by Steven Malanga of the Manhattan Institute.

As Secretary of Commerce, Herbert Hoover declared that nothing was worse than increased tenancy and landlordism. In 1922, Hoover launched the ``Own Your Own Home'' campaign, urging Americans to buy homes. According to Hoover, homeowners work harder, spend leisure time more profitably, live finer lives, and enjoy more comforts of civilization. He urged the lending institutions, the construction industry, and the great real estate men to counteract the growing menace of tenancy.

Hoover called for new rules that would allow nationally chartered banks to devote a greater share of their lending to residential properties. Until that time mortgage lending had primarily been conducted by savings and loans, or as they were originally known, building and loans.

In 1927, Congress responded by passing the McFadden Act, which allowed national banks to expand their residential lending to encourage homeownership. The act also prohibited interstate branching to protect smaller local financial institutions.

Congress would later pass the Riegle-Neal Act of 1994, which repealed the ban on interstate banking, subject to certain limits. This partial repeal followed the savings and loan crisis in the 1980s. Many observers suggest the lack of diversification and concentration of risk among smaller local institutions contributed to the S&L crisis.

The housing market boomed during the 1920s right along with the stock market. When stocks crashed in 1929, so did housing. According to one study, nearly 50 percent of the mortgages in America were in default by 1934. As panicked depositors withdrew their money, banks were forced to call in loans or stop rolling them over.

Before the Great Depression, home mortgages typically required a substantial down payment--as much as 50 percent. They usually had a very short maturity--as few as 5 years. They often had a balloon payment at the end. Homeowners had to refinance their mortgage or give up their home if they could not afford to pay off the balance when their loan came due.

In response to the housing and financial crisis caused by the Great Depression, Congress enacted the Home Owners' Loan Corporation and the Reconstruction Finance Corporation. These programs were designed to bailout insolvent financial institutions; buy up troubled mortgages; and refinance them on more affordable terms. A report by HUD on the history of the era, noted that many borrowers deliberately defaulted on their mortgages to take advantage of these bailouts.

One might think of these earlier programs as the original versions of the current TARP and HAMP.

In 1934, Congress attempted to strengthen the housing and financial markets by creating the Federal Home Loan Banks--FHLB--to lend money to other banks; the Federal Housing Administration--FHA--to guarantee home loans; the Federal Deposit Insurance Corporation--FDIC--to insure bank deposits, the Federal Savings and Loan Insurance Corporation--FSLIC--to insure the deposits of S&Ls; and the Federal National Mortgage Association--Fannie Mae--to create a secondary market for government insured mortgages.

Congress would later abolish FSLIC by merging it with the FDIC following the S&L crisis in the late 1980s.

In 1944, Congress passed the GI bill, which provided low interest, zero down payment home loans for servicemen. This enabled millions of American families to move out of urban apartments and into suburban homes.

In 1945, President Truman proposed the ``Fair Deal,'' which included several housing proposals, including temporary price controls. President Truman declared:

Such measures are necessary stopgaps-but only stopgaps.

This emergency action, taken alone, is good--but not enough.

The housing shortage did not start with the war or with

demobilization; it began years before that and has steadily

accumulated. The speed with which the Congress establishes

the foundation for a permanent, long-range housing program

will determine how effectively we grasp the immense

opportunity to achieve our goal of decent housing and to make

housing a major instrument of continuing prosperity and full

employment in the years ahead. It will determine whether we

move forward to a stable and healthy housing enterprise and

toward providing a decent home for every American family.

I ask unanimous consent to include President Truman's full statement on housing policy in the Record.

In 1949, Congress enacted the Federal Housing Act, which provided Federal funding for slum clearance, urban renewal, and public housing. The act also expanded the FHA mortgage insurance program.

To understand the origins of our current housing and financial crisis, it is critical to recognize the role played by the FHA--the Federal Housing Administration. The FHA was created in 1934. At the time, State and Federal laws prevented lenders from reducing their down payments and lengthening the terms of their loans. As I noted earlier, the typical mortgage required a 50-percent down payment and had a maturity of 5 years. These features were considered essential to maintaining the safety and soundness of the banking system.

Lower down payments increased the risk of foreclosure because buyers had less equity in their houses. If home values declined, more borrowers might walk away from their homes instead of continuing to make payments on their mortgage. Longer terms increased the risk of insolvency among financial institutions because of an increase in interest rates or a decline in the economy.

The FHA challenged conventional wisdom. It sought to waive all of the safety and soundness regulations that applied to the mortgages it insured. According to an article by Adam Gordon published in the Yale Law Journal:

The FHA had a compelling economic case for requesting such

waivers: Treating insured loans differently from uninsured

loans made sense from a safety-and-soundness standpoint. From

the banks' perspective, insurance balanced out the risks of

lower-down-payment, longer-term loans by guaranteeing that,

even if the property value went down and the buyer quit

making payments, or if the buyer defaulted twenty years into

a 25-year loan, the bank would be made whole by the insurance

fund. These assurances and the political pressure for new

ways to support homeownership led Congress and every state

legislature to rapidly pass the requisite

exemptions from bank safety-and-soundness laws.

By 1937, all 50 States had enacted legislation giving the FHA free rein to write its own rules with respect to the mortgages that it insured. The results were predictable. Delinquencies, defaults, and foreclosures increased dramatically.

The FHA lowered down payments from 20 percent, to 10 percent, and finally to 3 percent by the mid-1960s. As a result, the foreclosure rate increased sixfold, from less than 2 for every 1,000 mortgages to more than 12 per 1,000 mortgages.

Almost everyone seemed prepared to accept rising foreclosure rates as the price to be paid for expanding homeownership. However, the FHA soon faced a bigger scandal.

Today, we often forget just how much of the pre-civil rights era in America was marked by racial discrimination. The FHA program was a prime example. During its first 30 years in existence, the FHA maintained various policies to deny insurance to minorities. These policies effectively prevented most African Americans from obtaining FHA insured mortgages.

Being denied an FHA loan usually meant being denied any opportunity to obtain lower down payments and longer terms because such provisions were still illegal for conventional loans.

FHA's discriminatory policies did not end until Congress passed the Fair Housing Act of 1968. Unfortunately, efforts to end racial discrimination marked the beginning of what we now call predatory lending. According to Beryl Satter of Rutgers University:

After decades of refusing to insure mortgages in areas with

black residents no matter what their economic status, in 1968

the FHA went to the other extreme and told mortgage companies

that if they would loan in low-income minority neighborhoods,

the FHA would guarantee those loans 100%.

Speculators immediately exploited the new policy by buying

slum properties, and then bribing someone to appraise the

properties at, say, quadruple their real value. Speculators

might buy a house for $5000 but get a corrupt FHA appraiser

to say it was worth $20,000. Once they had that appraisal,

they could easily sell that property for $20,000. So what if

the price seemed high? The mortgage lender couldn't lose--

after all, $20,000 was the property's appraised value, and

more importantly, the FHA insured the loan 100%.

[Speculators] enticed buyers by emphasizing the low down

payment rather than the high final cost. People eager to buy

on such terms were easy to find. They were usually black or

Latino, and often low income. Given the desperate housing

shortage facing low income families during that decade of

massive inflation, an offer of a home of one's own for $200

down was often irresistible.

The speculators made the procedure quick and easy. They did

all the paperwork, routinely falsifying the buyers' income to

make it look like they could carry the overpriced loan. The

lenders didn't ask any questions about these loan

applications because the mortgages were fully insured; the

creditworthiness of the borrower was therefore of no

relevance. Since mortgage companies also made profits through

the exorbitant service fees they charged for FHA loans, they

made money on every sale, with no risk whatsoever.

By 1972, similar abuses of FHA programs were being reported

in Boston, New York, Newark, Philadelphia, Wilmington, Miami,

Detroit, St. Louis, Seattle, Los Angeles, and Lubbock, Texas.

The New York Times noted that FHA-guaranteed loans were being

given on ``substandard'' buildings that lacked ``such

essentials as adequate heating and plumbing.'' The confluence

of inflated mortgage payments and high repair costs meant

that the low-income buyer never had a chance. The repossessed

buildings sometimes ended up back in the hands of the

speculators, who started the cycle anew.

While the scandal meant ruin for low and moderate-income

home buyers, it meant huge profits for those in the game. . .

.

The companies exploiting FHA policies were not marginal. In

New York top officials of three of the largest mortgage

lenders in the region were convicted of housing fraud in

1975. In Brooklyn alone, the U.S. Attorney's office produced

a five hundred-count indictment demonstrating that ``real

estate speculators, brokers, lawyers, appraisers and bribed

FHA employees conspired in the scheme'' to get FHA insurance

on slums sold at inflated prices.

The FHA planted many of the seeds that ultimately grew into the current housing crisis.

The goal of making homes affordable was used to justify the weakening of traditional standards of safety and soundness. The goal of eliminating discrimination was used to justify extending both FHA and conventional loans to borrowers with poor credit and low income. These changes led to rising foreclosures. Lenders responded by charging higher rates and fees to cover their losses. Higher rates and fees increased the cost of buying a home and led to new charges of discrimination on the basis of predatory lending. That led to renewed calls for innovative ways to reduce the cost of housing. That led to a further weakening of safety and soundness standards. All of that brings us to where we are today.

Before discussing our current crisis, however, let me conclude my brief review of the history of U.S. housing policy.

In the midst of the FHA scandal, Congress created more programs to promote the American dream of home ownership.

In 1968, Congress enacted the Truth in Lending Act to require clear disclosure of lending arrangements and costs associated with a loan.

Also in 1968, Congress split Fannie Mae into two parts creating the Government National Mortgage Association, Ginnie Mae, which now deals with government guaranteed mortgages, primarily those insured by the Department of Veterans and the FHA.

In 1970, Congress created the Federal Home Loan Mortgage Corporation, Freddie Mac, to compete with Fannie Mae.

In 1974, Congress passed the Real Estate Settlement Procedures Act to prohibit kickbacks between lenders and settlement agents and require a good faith estimate of all closing costs.

In 1977, Congress enacted the Community Reinvestment Act, CRA, to encourage banks to meet the needs of their local communities in a manner consistent with safe and sound lending practices. According to Peter Wallison of the American Enterprise Institute, the CRA had a vague mandate to prevent banks from refusing to lend to qualified borrowers, which was enforced by denying mergers and acquisitions among banks. Initially, enforcement actions were rare. But over time, Congress shifted its emphasis from ``encouraging'' to ``requiring'' and from ``safe and sound'' to ``innovative and flexible.'' Ultimately, the CRA helped undermine the banking system by encouraging more risky loans.

As Stan Liebowitz of the University of Texas at Dallas observed: ``From the current hand-wringing, you'd think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards--at the behest of community groups and `progressive' political forces . . .''

But before faulty underwriting helped create the current housing crisis, there was the S&L crisis.

The late 1970s and early 1980s saw a dramatic rise in inflation due to the steady erosion of sound monetary policy in previous decades. Rising inflation led to higher interest rates, which threatened to destroy the Savings and Loan industry.

S&Ls relied on short-term deposits to fund long-term, fixed-rate mortgages. Rising inflation forced them to pay higher rates to attract new deposits. But they continued to earn the same rate on their existing mortgages. Rising costs relative to a fixed income undermined profits and threatened insolvency.

The S&Ls were further hampered by Regulation Q, which limited the interest rate they could pay to attract new deposits. The origin of Regulation Q dates back to the 1930s when Congress authorized the Federal Reserve to set interest rate ceilings.

According to proponents, the ceiling on interest rates would encourage smaller rural banks to lend in their own communities rather than send their money to larger urban banks where they might earn more. The ceiling was also seen as a way to increase bank profits by limiting the competition for deposits; in other words, it would prevent banks from engaging in a bidding war for new customers. Regulation Q was extended to S&Ls in 1966.

State usury laws also placed limits on the interest rate paid to depositors as well as the interest rate charged to borrowers further undermining the S&Ls' financial viability.

Congress took numerous steps throughout the 1980s to forestall the S&L crisis. These steps ultimately failed as more than 1,600 banks and S&Ls were either closed or bailed out

by the government. The S&L crisis ultimately cost taxpayers more than $120 billion.

The S&L crisis shows the failure of many small banks can be just as costly as the failure of a few large banks. That is a lesson we must not forget as we consider ways to address the problem of too big to fail.

In 1980, Congress enacted the Depository Institutions Deregulation and Monetary Control Act to abolish caps on both the interest paid and the interest received.

The Alternative Mortgage Transactions Parity Act of 1982 preempted State laws to enable the nationwide use of adjustable rate mortgages, balloon payments, and negative amortization.

These flexible features proved useful during the inflationary 1970s and 1980s. But they also set the stage for the emergence of the housing crisis of today.

The Secondary Mortgage Market Enhancement Act of 1984 made it easier to issue mortgage backed securities and enabled financial institutions, pension funds, and insurance companies to invest in the top rated tranches of these securities.

The Tax Reform Act of 1986 eliminated the double taxation of dividends paid to those who invest in real estate mortgage investment conduits, REMICs. The act also eliminated the tax deduction for interest paid on consumer loans, except for those secured by a home mortgage.

These two acts established the path toward the creation of collateralize debt obligations, CDO, and the off-balance sheet entities known as special investment vehicles, SIVs, which featured prominently in the latest crisis. The tax deduction for home equity loans contributed to the overleveraging of housing.

The Financial Institutions Reform and Recovery and Enforcement Act of 1989 abolished the Federal Savings and Loan Insurance Corporation; it transferred the regulation of thrift institutions from the Federal Home Loan Bank board to the Office of Thrift Supervision; it allowed bank holding companies to acquire thrifts; it established new regulations for real estate appraisals; it established new capital reserve requirements; it required the publication of CRA evaluations.

This act also included reforms of the real estate appraisal system, which had broken down during the FHA scandal in the 1970s, and contributed to the S&L crisis. Despite these reforms, faulty or fraudulent appraisals contributed to the most recent crisis as well.

Federal Deposit Insurance Corporation Improvement Act of 1991 allowed the FDIC to borrow from the Treasury and created new capital requirements and risk-based deposit insurance premiums. Moreover, it granted the Federal Reserve authority to lend directly to nonbank firms during times of emergency.

This authority increased the moral hazard problem by expanding the scope of potential Federal bailout recipients. This authority played a critical role in bailing out AIG.

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 was enacted, in part, to encourage Fannie Mae and Freddie Mac to increase their service to low- and moderate-income families and neighborhoods. These changes, along with others that followed, served to undermine standards of safety and soundness by allowing Fannie and Freddie to receive credit toward its affordable housing goals by purchasing subprime loans from other lenders. This increased the demand for such loans as well as the amount of funds available to finance them.

The 1992 act coincided with a Boston Federal Reserve Bank study on discrimination in mortgage lending. In theory, lenders evaluated the collateral and creditworthiness of those seeking to borrow money. Those applicants who qualify get credit, and those who do not are denied. The Boston Fed study suggested qualified minority applicants were being denied.

In response to growing concerns that traditional underwriting standards had a discriminatory impact on low-income and minority families, many housing advocates began to urge the widespread adoption of risk-based pricing. Unlike traditional underwriting, risk-based pricing assumes everyone can qualify as long as they pay an interest rate, or other fee, that reflects their individual risk. Thus, risk- based pricing was viewed as a way to safely implement the flexible underwriting standards needed to eliminate discrimination and expand homeownership.

In 1993, the Federal Reserve Bank of Boston published a report entitled ``Closing the Gap.'' This report included recommendations on ``best practice'' from lending institutions and consumer groups. It offered lenders a ``comprehensive program'' to ensure all loan applicants are treated fairly and to reach a more diverse customer base.

The report stated:

While the banking industry is not expected to cure the

nation's social and racial ills, lenders do have a specific

legal responsibility to ensure that negative perceptions,

attitudes, and prejudices do not systematically affect the

fair and even-handed distribution of credit in our society.

Fair lending must be an integral part of a financial

institution's business plan . . . Even the most determined

lending institution will have difficulty cultivating business

from minority customers if its underwriting standards contain

arbitrary or unreasonable measures of creditworthiness. . . .

Institutions that sell loans to the secondary market should

be fully aware of the efforts of Fannie Mae and Freddie Mac

to modify their guidelines to address the needs of borrowers

who are lower-income, live in urban areas, or do not have

extensive credit histories.

In 1995, the Department of Housing and Urban Development announced a National Homeownership Strategy which stated:

The inability (either real or perceived) of many younger

families to qualify for a mortgage is widely recognized as a

very serious barrier to homeownership. [The Strategy] commits

both government and the mortgage industry to a number of

initiatives designed to: (1) Cut transaction costs through

streamlined regulations and technological and procedural

efficiencies; (2) Reduce down-payment requirements and

interest costs by making terms more flexible, providing

subsidies to low- and moderate-income families, and creating

incentives to save for homeownership; (3) Increase the

availability of alternative financing products in housing

markets throughout the country.

Efforts to expand the use of flexible underwriting standards raised obvious concerns about the potential for increased defaults and foreclosures. To address these concerns, numerous groups, both inside and outside government, conducted studies, and proposed new laws and regulations.

In 1996, Freddie Mac issued a report to Congress based on its effort to develop an automated underwriting system. The report concluded that it was possible to replace ``subjective human judgment'' with computers that could accurately assess ``multiple risk factors'' and ``identify which loans would wind up in foreclosure and which would not.'' By fairly and objectively accessing individual credit risk, an automated system could eliminate discrimination and strengthen the underwriting process.

This study was primarily focused on improving the prime mortgage market by identifying applicants who received prime loans, but shouldn't have, and applicants who did not receive prime loans, but should have. However, the ability to identify risk within the prime market led to the conclusion that it was possible to do the same thing in the subprime market as well. In relatively short order, Fannie, Freddie, and almost every other participant in the home mortgage market adopted computerized systems to analyze and securitize home loans. These new procedures were applied to subprime loans.

Of course, risk based pricing also raised concerns that lenders might charge borrowers more than their risk profile would justify. Such overcharges raised the specter of predatory lending.

In response, Congress enacted the Home Ownership and Equity Protection Act of 1994 which required disclosures and imposed restrictions on high-cost loans. This act served to highlight once again the difficulty of promoting flexible underwriting to expand homeownership while at the same time trying to protect consumers from discriminatory lending.

The Taxpayer Relief Act of 1997 exempted from taxation profits on the sale of a personal residence of up to $500,000, couples, or $250,000, singles. This change provided a boost to home prices by increasing the after-tax rate of return on housing.

The Interstate Banking and Branching Efficiency Act of 1994 repealed restrictions on interstate banking. This

act was designed to address the lack of diversification and the concentration of risk among smaller local financial institutions that contributed to the S&L crisis.

The Financial Services Modernization Act of 1999--also known as Gramm-Leach-Bliley--repealed part of the Glass-Steagall Act of 1933. The extent to which this repeal contributed to the current crisis is the subject of much debate.

Glass-Steagall prohibited commercial banks from underwriting or dealing in securities. It also prohibited them from having affiliates that were principally or primarily engaged in underwriting or dealing in securities. It is important to understand exactly what this means.

As Peter Wallison of the American Enterprise Institute has explained:

Underwriting refers to the business of assuming the risk

that an issue of securities will be fully sold to investors,

while ``dealing'' refers to the business of holding an

inventory of securities for trading purposes. Nevertheless,

banks are in the business of making investments, and Glass-

Steagall did not attempt to interfere with that activity.

Thus, although Glass-Steagall prohibited underwriting and

dealing, it did not interfere with the ability of banks to

``purchase and sell'' securities they acquired for

investment. The difference between ``purchasing and selling''

and ``underwriting and dealing'' is crucially important. A

bank may purchase a security--say, a bond--and then decide to

sell it when the bank needs cash or believes that the bond is

no longer a good investment. This activity is different from

buying an inventory of bonds for the purpose of selling them,

which would be considered dealing.

The Gramm-Leach-Bliley Act did not repeal the restriction on underwriting or dealing by commercial banks. It only repealed the restriction on affiliates. There is no evidence the activities of any affiliates were large enough to cause the current crisis.

On the other hand, as Mr. Wallison noted, there was a critical exception to the Glass-Steagall prohibition on underwriting or dealing by commercial banks. It did not apply to securities issued by Fannie Mae and Freddie Mac.

The major commercial banks--such as Citibank, Wachovia, Bank of America, JP Morgan Chase, and Wells Fargo--that got into trouble did so by engaging in activities that were never prohibited by Glass-Steagall. These banks suffered heavy losses because they invested in poorly underwritten, overvalued mortgage-backed securities, including those of Fannie and Freddie.

Likewise, the major investment banks--such as Lehman Brothers, Bear Stearns, Merrill Lynch, Morgan Stanley and Goldman Sachs--that got into trouble have always been exempt from Glass-Steagall. As I will discuss later, the demise of these investment banks was due to a new variation on the classic bank run.

The Commodity Futures Modernization Act of 2000 authorized over-the- counter financial derivatives. Although over-the-counter derivatives, like credit default swaps, CDS, are exempt from most regulation, those who buy and sell them are not. For example, the acting director of the Office of Thrift Supervision, OTS, recently testified about the American International Group, AIG, one of the major participants in the CDS market. According to his testimony, ``. . . in hindsight, OTS should have directed the company to stop originating CDS products . . . [and] OTS should also have directed AIG try to divest a portion of this portfolio.''

Although AIG was comprised of more than 220 companies operating in more than 130 countries, its primary line of business was insurance. According to a Government Accountability Office report:

State insurance regulators are responsible for monitoring

the solvency of insurance companies generally, as well as for

approving transactions regarding those companies, such as

changes in control or significant transactions with the

parent company or other subsidiaries . . .

In other words, Federal and State regulators had the authority to monitor the financial institutions which were among the largest buyers and sellers of CDS contracts, and take appropriate action to protect their safety and soundness. Unfortunately, the regulators failed to recognize the inherent dangers created by the bubble in the housing market.

The Federal Deposit Insurance Reform Act of 2005 raised the limit on deposit insurance; merged the various deposit insurance funds; provided credits for banks for prior contributions; and required rebates when the deposit fund goes above 1.5 percent of deposits.

The Credit Agency Reform Act of 2006 required rating agencies to register with the SEC. Despite these requirements, the ratings agency contributed to the most recent crisis as well.

Credit ratings agencies--such as Fitch, Moody's, and Standard & Poor's--have been given privileged status as Nationally Recognized Statistical Rating Organizations, NRSROs, since 1975.

These agencies played a significant role in the recent financial crisis in two different ways. First, they placed their AAA seal of approval on subprime mortgages that were converted into traunches--or tiers--of securitized loans. Second, they contributed to excessive borrowing because of flawed capital standards. According to government regulations, banks needed $1 in capital for every $25 of single-family home loans. But, if those mortgages were converted into AAA securities, the banks could hold $60 in loans for every $1 in capital. Higher leverage entails greater risk to the financial system.

This brief legislative history produces an unmistakable feeling of Deja Vu as one considers where we are today. The current crisis has been summarized along the following lines:

In response to the high-tech, dot-com bust in 2000, the Federal Reserve began a series of interest rate cuts reducing the Fed Funds rate from 6.5 percent to 1.0 percent. As cheap credit flooded the markets, financial institutions adopted reckless lending practices under the political banner of increasing homeownership. These practices included liar loans, no verification of income or assets; no-money down, including seller-financed and other third-party contributions, and wrap-around loans; interest-only loans; negative amortization, missed payments are added to the principal; adjustable-rates; and balloon payments.

As these risky loans were extended to marginal borrowers who could not afford their overpriced homes, the financial wizards on Wall Street devised schemes to theoretically insure themselves against default. These so called credit default swaps allowed investors who purchased mortgage-backed securities to pay fees to underwriters, like AIG, in exchange for a promise to cover any losses. Because regulators and other market participants did not seriously consider the possibility of falling home prices and rising default rates, these CDS contracts were not backed by adequate collateral to cover potential losses.

By allowing those who bought and sold mortgage-backed securities to transfer risk to other market participants, it became more difficult to determine who would suffer the actual losses as home prices began to fall and default rates began to rise. The house of cards collapsed as financial institutions became less willing to lend to each other under the growing cloud of uncertainty.

While there is plenty of blame to go around for getting us into this mess, and there were lots of contributing factors, ultimately this crisis was triggered by a new variation on the classic bank run. Here's how Gary Gordon of Yale University describes what happened:

In a banking panic, depositors rush en masse to their banks

and demand their money back. The banking system cannot

possibly honor these demands because they have lent the money

out or they are holding long-term bonds [which can only be

sold at fire sale prices] . . . the panic in 2007 was not

like the previous panics in American history . . . it was not

a mass run on banks by individual depositors, but instead was

a run by firms and institutional investors on financial

firms.

According to Mr. Gordon, this run was caused by the collapse of the repurchase agreement--or repo--market. Before the crisis, trillions of dollars were traded in the repo market. No one knows the exact amount because there are no data on the total size of this market or the identity of all its participants. Estimates suggest it could be as much as $10 trillion, which is roughly equal to the total assets of the entire U.S. banking system.

As tempting as it may be to blame our current crisis on Wall Street greed

and irresponsible deregulation, the truth is a bit more complicated, as I think I have tried to show. To understand how we got to where we are today, it is necessary to review some history and some economics.

There have been financial booms and busts throughout recorded history--from tulip mania, the South-Sea bubble, and the Mississippi scheme, to the Mexican peso crisis, the Asian crisis, and the dot-com boom.

Economist Hyman Minsky argued there are five stages of a financial bubble: stage 1, investors get excited about some asset or commodity; stage 2, prices rise as more investors enter the market; stage 3, euphoria occurs as financial markets devise new ways to inflate the bubble; stage 4, investors begin to cash-out of the market; and, stage 5, panic sets in as the bubble pops and everyone tries to get out before it is too late.

There have been alternating cycles of financial fear and euphoria throughout history. While greed and speculation played an important role, there is another essential element that is all too often overlooked. That critical ingredient is money.

The nature of money, the source of its value, and the determination of its supply are topics of extreme importance. Historically, money is believed to have developed from the concept of barter or exchange. Individuals wished to trade one good for another. The most desirable, divisible, and nonperishable goods were designated as money. Cows, wheat, rice, rocks, sea shells, silver, and gold have all served as money throughout history.

The development of money soon led to the introduction of banking. Banks served not only as a place to store money, but also as a means to facilitate commerce by granting various types of loans.

The deposit of money involves two different concepts. First, a demand, or checking, deposit implies a custody arrangement. The bank maintains 100 percent reserves. Thus, the funds are available at all times to meet the needs of the depositor. Second, a loan, or time, deposit implies a temporary transfer of ownership. The bank is authorized to make loans. Thus, the funds are transferred to someone else who is obligated to repay them at some future date.

Initially, most banks recognized and accepted the distinction between these two different kinds of deposits. Moreover, they confined their lending activities within the limits of their total deposits. But they quickly discovered that not everyone sought to withdraw their money at the same time. Thus, they decided they could safely issue as much credit as they desired, as long they retained enough money to meet expected withdrawals. So began the practice of fractional reserve banking.

According to economist Jesus Huerta de Soto, early European bankers often sought to conceal their use of fractional reserves while claiming to maintain 100 percent reserves. Only later upon receiving official government sanction did they openly admit to and defend the practice of fractional reserves.

The most common defense of fractional reserve banking is that it is highly unlikely that most depositors will seek to withdraw their funds simultaneously. Thus, it is said the law of large numbers permits a bank to safely lend out most of its funds. But as Huerta de Soto observes:

. . . in the field of human action the future is always

uncertain, . . . The open, permanent nature of the

uncertainty . . . differs radically from the notion of risk

applicable within the sphere of physics and natural science.

History shows beyond a doubt that we cannot predict when a bank run will occur. The creation of deposit insurance and the establishment of a central bank as a lender of last resort would not be necessary if we could predict such events with any degree of certainty.

The dangers created by misguided efforts to treat uncertainty of human action as some form of statistical risk is evident in the current crisis. The use of computer models to convert subprime loans into AAA securities ignored the human action of declining underwriting standards and the growing bubble in the housing market.

Some observers may be tempted to conclude this crisis is simply the latest in the cycle of booms and busts that inevitably plague mankind. Others may be tempted to conclude we need a brand new systemic risk regulator--in other words, we need someone to oversee the safety and soundness of our entire financial system. The logic behind this approach is that our current hodgepodge of Federal and State regulatory agencies was too busy looking at the individual institutions within their jurisdiction. No one saw the big picture.

However, the problem is not that we lack a systemic risk regulator. The problem is we already have a system risk creator, namely the Federal Reserve.

Mark Thornton of the Ludwig von Mises Institute describes central banking as a confidence game:

The Federal Reserve plays a confidence game with us. A

confidence game . . . is described as an attempt to defraud a

person or group by gaining their confidence. . . . [The]

Fed's basic confidence game [is] trying to gain and maintain

our confidence in its system and getting us not to take

proper precaution against the negative effects of its

policies. . . . [The] Fed's mission [is] to instill

confidence in us about the economy while simultaneously

instilling confidence in us about the abilities of the Fed

itself. The first mission is easy to see because Fed

officials are almost always publicly bullish and hardly ever

publicly bearish about the economy. The economy always looks

good, if not great. If there are some problems, don't worry,

the Fed will come to the rescue with truckloads of money,

lower interest rates, and easy credit. If things were to get

worse, which they won't, the Fed would be able to respond

with monetary weapons of mass stimulation. All this is

consistent with the viewpoint of mainstream economists who

see the business cycle as caused by psychological problems

and random shocks. In their view, it is your fault for

becoming overly speculative and risky and then lapsing into

risk aversion and depression. It is your fault!

This may seem like an unfair characterization of the Fed, but consider the following quotes from 2007. Remember, by early 2007 housing prices were falling in many areas.

In January of 2007, Chairman Bernanke described the Fed's superhero- like ability to access information, identify risk, anticipate crisis, and respond to any challenge.

Mr. Barnanke said:

Many large banking organizations are sophisticated

participants in financial markets, including the markets for

derivatives and securitized assets. In monitoring and

analyzing the activities of these banks, the Fed obtains

valuable information about trends and current developments in

these markets. Together with the knowledge obtained through

its monetary-policy and payments activities, information

gained through its supervisory activities gives the Fed an

exceptionally broad and deep understanding of developments in

financial markets and financial institutions. . . .

In its capacity as a bank supervisor, the Fed can obtain

detailed information from these institutions about their

operations and risk-management practices and can take action

as needed to address risks and deficiencies. The Fed is also

either the direct or umbrella supervisor of several large

commercial banks that are critical to the payments system

through their clearing and settlement activities. . . .

In my view, however, the greatest external benefits of the

Fed's supervisory activities are those related to the

institution's role in preventing and managing financial

crises.

Finally, the wide scope of the Fed's activities in

financial markets--including not only bank supervision and

its roles in the payments system but also the interaction

with primary dealers and the monitoring of capital markets

associated with the making of monetary policy--has given

the Fed a uniquely broad expertise in evaluating and

responding to emerging financial strains.

I could go on at length reading similar quotes from various Fed officials. But to save on time and embarrassment, I will simply put Mr. Thornton's article in the Record, and skip to his conclusion. Mr. Thornton says:

We can see that the Fed is a confidence game. Their public

pronouncements, while heavily nuanced and hedged, uniformly

present the American people with a rosy scenario of the

economy, the future, and the ability of the Fed to manage the

market. Ben Bernanke told Congress [in March of 2010] that we

are in the early stages of an economic recovery. Of course,

he has been saying that since the spring of 2009 (if not

earlier). . . . These are the people who said that there was

no housing bubble, that there was no danger of financial

crisis, and then that a financial crisis would not impact the

real economy. These are the same people who said they needed

a multi-trillion dollar bailout of the financial industry, or

we would get severe trouble in the economy. They got their

bailout, and we got the severe trouble anyways. It is time to

bring this confidence game to an end.

Mr. President, I ask unanimous consent that Mr. Thornton's article be printed in the Record.

The current financial reform bill will not end the cycle of financial booms and busts. This cycle is not the result of green, or capitalism, or animal spirits, or irrational exuberance. Ultimately, it is caused by our failure to recognize and enforce traditional legal principles, namely, the protection of private property.

According to Huerta de Soto: It is a remarkable fact that three of the most noted monetary theorists of the eighteenth and early nineteenth centuries were bankers: John Law, Richard Cantillon, and Henry Thornton. Their banks all failed.

Law was involved in the infamous Mississippi scheme, and Cantillon was involved in a fraudulent stock trading scheme. Only Thornton escaped controversy because his bank did not fail until after his death. All of these bankers were actively involved in convincing their colleagues and customers of the safety, soundness, and wisdom of violating traditional legal principles.

Once upon a time, common sense as well as the law recognized the difference between a demand deposit and a loan deposit.

According to Huerta de Soto, ancient Roman law made it clear that bankers carried out two different types of operations. On one hand, they accepted demand deposits, which involved no right to interest and obligated the bank to maintain the continuous availability of the money; and the depositor had absolute privilege in the case of bankruptcy. On the other hand, bankers also received loan deposits, which obligated the banker to pay interest on the money; and the depositor lacked all privileges in the case of bankruptcy.

The clear distinction between these two types of deposits began to break down with the unfortunate choice of a penalty for the failure to return a demand deposit. A banker who accepted a demand deposit and later failed to return the money upon demand was obligated to pay a penalty in the form of interest.

According to Huerta de Soto, the ban on usury by the three major monotheistic religions--Judaism, Islam, and Christianity--did much to complicate and obscure medieval financial practices. Historically, usury meant charging any interest on a loan. Today, it means charging excessive interest on a loan.

Since it was forbidden to pay interest on loans, it is easy

to understand how convenient it was in the Middle Ages to

disguise a loan as a deposit in order to make the payment of

interest legal, legitimate and socially acceptable. For this

reason, bankers started to systematically engage in

operations in which the parties openly declared they were

entering into a deposit contract and not a loan contract.

The method of concealment . . . was a simulated [demand]

deposit which . . . was not a true [demand] deposit at all,

but rather a loan [deposit]. At the end of the agreed-upon

term, the supposed depositor claimed his money. When the

[bank] failed to return [the money], [the bank] was forced to

pay a ``penalty'' in the [form] of interest on [its] presumed

``delay.''

Disguising loans as deposits became an effective way to get

around the canonical ban on interest and escape severe

sanctions, both secular and spiritual.

It would appear the history of banking consists of a continuous effort to eliminate the distinction between these two types of deposits. I do not mean to criticize modern day bankers. I suspect they are largely unaware of this history. They simply operate under the rules as they exist today. Anyone who studies money and banking in college is taught about fractional reserves, deposit insurance, and the need for a central bank to serve as lender of last resort. This is standard fare that passes for higher education around the world.

As economist John Maynard Keynes once observed, ``even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist.''

Having said all this, the question remains: Where do we go from here?

To answer that question let me return to the topic of money. In a world of paper currency--without the backing of any tangible commodity--the supply of money is ultimately determined by the government.

In most countries, the power to create money has been delegated by the government to a central bank. The central bank in turn controls the money supply in a number of ways: buying and selling financial assets-- so-called discount window or open-market operations--and requiring banks to keep deposits at the central bank--so-called reserve requirements.

As our Nation's central bank, it is often suggested that the Federal Reserve controls both interest rates and the money supply. However, the only interest rate the Fed controls is the discount rate. That is the rate the Fed charges other banks when they borrow money from the Fed. The Fed generally prefers that banks borrow from each other. So, it usually sets the discount rate higher than the rate banks charge each other. That rate is called the Federal funds rate.

U.S. banks are required to hold reserves as a percentage of their demand deposits, but not their loan deposits. These reserves are designed to cover daily withdrawals. On any given day, some banks may have a reserve shortfall, while others may have excess reserves. Thus, banks borrow from each other on an overnight basis. The Fed sets a target for the interest rate banks charge each other--the Federal funds rate--and then it attempts to achieve its target.

According to the textbook explanation, when the Fed wants to lower the Federal funds rate, it buys financial assets, such as government bonds, from other banks and pays for them by creating additional reserves. This is sometimes referred to as creating money out of thin air. Since the banks now have more reserves, they are generally willing to lend at a lower rate. When the Fed wants to raise the Federal funds rate, it sells financial assets back to the banks and withdraws the additional reserves. Since the banks now have fewer reserves, they will usually require borrowers to pay a higher interest rate.

The Fed can also change the supply of money by changing the reserve requirement. By raising or lowering the reserve requirement, the Fed can control how much money banks must hold in reserve. Higher reserves mean less money is available for banks to lend, and lower reserves mean more money to lend.

Although central banks control the money supply in the long run, in the short run individual banks are largely in control.

As the Federal Reserve Bank of Chicago explained in its publication Modern Money Mechanics:

In the real world, a bank's lending is not normally

constrained by the amount of reserves it has at any given

moment. Rather, loans are made, or not made, depending on the

bank's credit policies and its expectations about its ability

to obtain the funds necessary to pay its customers' checks

and maintain required reserves in a timely fashion.

In other words, when banks make loans, they create new deposits, thereby increasing the money supply. In the short run, banks are free to make as many loans as they want based solely on their expectation of future repayment and their ability to meet required reserves and expected withdrawals, plus their capital requirements.

In the long run, central banks control reserve requirements and the cost of borrowing excess reserves. Thus, they can eventually prevent individual banks from endlessly expanding the money supply.

Money can be defined as the thing that all other goods and services are traded for, or as the means to achieve final settlement of all transactions. As the means of final payment, money is uniquely valued above all other assets. It is considered to be the most liquid because it is accepted by everyone and it trades at face value. That is, $1 is always equal to $1.

Because banks have the power to create money--within limits set by the central bank--they are viewed with a high degree of suspicion. But banks are ultimately at the mercy of their customers because they are obligated to convert deposits into cash. When banks lose the confidence of their customers, they are subject to bankruptcy if too many customers try to withdraw their money. Banking panics in the past led to the creation of central banking and deposit insurance. These government safety nets were designed to prevent the collapse of the banking system.

To further limit the risk of a banking failure, the government imposed various standards of safety and soundness. These standards range from underwriting loans to maintaining adequate levels of capital and reserves. While these standards make banking safer, they also make it more expensive. It takes time and effort to evaluate the creditworthiness of borrowers. Likewise, money that is set aside in reserves cannot be used to make a loan and earn a rate of return.

As I have outlined earlier, Congress undermined both underwriting standards and capital requirements in an effort to expand home ownership. However, these actions alone would not have likely caused the crisis.

Another major contributing factor was the fact that all of the limits placed on traditional deposit-based commercial banking led to the expansion of the alternative securities-based investment banking system. This system is sometimes referred to as the ``shadow'' banking system. While both types of banks are arguably clouded by a fog of confusion, the differences are very clear.

Investment banks do not accept or create deposits. Instead, they help businesses and governments raise money by selling their stocks and bonds to investors. To accomplish this goal, they also perform two other important functions. They transform stocks, bonds, or mortgages into securities. This securitization process is designed to diversify the investments and reduce market risk. Many investment banks also serve as market-makers.

Just as a commercial bank must meet a depositor's demand for cash, a market-maker must buy securities for cash. However, there are two important differences. Unlike deposits that must be redeemed $1-for-$1, securities are redeemable at the market-price, which could be more or less than the amount originally paid. The other important difference is that investment banks do not have an established government safety net.

They do not have access to deposit insurance because they do not have deposits. They do not typically have the ability to borrow from the central bank as the lender of last resort, again because they do not have deposits. Nevertheless, when they lose the confidence of their customers, they are subject to the equivalent of a bank run.

That is basically what happened. Investment banks borrowed short term, primarily through repos, and invested long term, primarily in mortgage-backed securities. When it finally became apparent to everyone that mortgage default rates were going up and home prices were going down, the short-term lending came to an end. Without the ability to borrow more short-term money or sell long-term securities at their original price, the investment banks faced insolvency.

This was not our first crisis, and it won't be our last. Increased transparency and accountability are necessary, but they are not sufficient. A sound financial system requires a sound monetary policy. That means a strong and stable dollar.

The history of U.S. monetary policy, indeed the history of monetary policy around the world, reveals an ongoing effort to devalue money through endless inflation.

The reform we need most is to overcome the temptation to purchase prosperity with inflated dollars. Until that goal is achieved, I am afraid the current reform effort will amount to little more than rearranging the deckchairs on the Titanic.

Mr. President, I yield the floor.

Exhibit 1

President Harry S Truman Message to the Congress on the State of the

Union and on the Budget for 1947

January 21, 1946

National housing program

Last September I stated in my message to the Congress that

housing was high on the list of matters calling for decisive

action.

Since then the housing shortage in countless communities,

affecting millions of families, has magnified this call to

action.

Today we face both an immediate emergency and a major

postwar problem. Since VJ-day the wartime housing shortage

has been growing steadily worse and pressure on real estate

values has increased. Returning veterans often cannot find a

satisfactory place for their families to live, and many who

buy have to pay exorbitant prices. Rapid demobilization

inevitably means further overcrowding.

A realistic and practical attack on the emergency will

require aggressive action by local governments, with Federal

aid, to exploit all opportunities and to give the veterans as

far as possible first chance at vacancies. It will require

continuation of rent control in shortage areas as well as

legislation to permit control of sales prices. It will

require maximum conversion of temporary war units for

veterans' housing and their transportation to communities

with the most pressing needs; the Congress has already

appropriated funds for this purpose.

The inflation in the price of housing is growing daily.

As a result of the housing shortage, it is inevitable that

the present dangers of inflation in home values will continue

unless the Congress takes action in the immediate future.

Legislation is now pending in the Congress which would

provide for ceiling prices for old and new houses. The

authority to fix such ceilings is essential. With such

authority, our veterans and other prospective home owners

would be protected against a skyrocketing of home prices. The

country would be protected from the extension of the present

inflation in home values which, if allowed to continue, will

threaten not only the stabilization program but our

opportunities for attaining a sustained high level of home

construction.

Such measures are necessary stopgaps--but only stopgaps.

This emergency action, taken alone, is good--but not enough.

The housing shortage did not start with the war or with

demobilization; it began years before that and has steadily

accumulated. The speed with which the Congress establishes

the foundation for a permanent, long-range housing program

will determine how effectively we grasp the immense

opportunity to achieve our goal of decent housing and to make

housing a major instrument of continuing prosperity and full

employment in the years ahead. It will determine whether we

move forward to a stable and healthy housing enterprise and

toward providing a decent home for every American family.

Production is the only fully effective answer. To get the

wheels turning, I have appointed an emergency housing

expediter. I have approved establishment of priorities

designed to assure an ample share of scarce materials to

builders of houses for which veterans will have preference.

Additional price and wage adjustments will be made where

necessary, and other steps will be taken to stimulate greater

production of bottleneck items. I recommend consideration of

every sound method for expansion in facilities for insurance

of privately financed housing by the Federal Housing

Administration and resumption of previously authorized low-

rent public housing projects suspended during the war.

In order to meet as many demands of the emergency situation

as possible, a program of emergency measures is now being

formulated for action. These will include steps in addition

to those already taken. As quickly as this program can be

formulated, announcement will be made. Last September I also

outlined to the Congress the basic principles for the kind of

decisive, permanent legislation necessary for a long-range

housing program.

These principles place paramount the fact that housing

construction and financing for the overwhelming majority of

our citizens should be done by private enterprise. They

contemplate also that we afford governmental encouragement to

privately financed house construction for families of

moderate income, through extension of the successful system

of insurance of housing investment; that research be

undertaken to develop better and cheaper methods of building

homes; that communities be assisted in appraising their

housing needs; that we commence a program of Federal aid,

with fair local participation, to stimulate and promote the

rebuilding and redevelopment of slums and blighted areas--

with maximum use of private capital. It is equally essential

that we use public funds to assist families of low income who

could not otherwise enjoy adequate housing, and that we

quicken our rate of progress in rural housing.

Legislation now under consideration by the Congress

provides for a comprehensive attack jointly by private

enterprise, State and local authorities, and the Federal

Government. This legislation would make permanent the

National Housing Agency and give it authority and funds for

much needed technical and economic research. It would provide

additional stimulus for privately financed housing

construction. This stimulus consists of establishing a new

system of yield insurance to encourage large-scale investment

in rental housing and broadening the insuring powers of the

Federal Housing Administration and the lending powers of the

Federal savings and loan associations.

Where private industry cannot build, the Government must

step in to do the job. The bill would encourage expansion in

housing available for the lowest income groups by continuing

to provide direct subsidies for low-rent housing and rural

housing. It would facilitate land assembly for urban

redevelopment by loans and contributions to local public

agencies where the localities do their share.

Prompt enactment of permanent housing legislation along

these lines will not interfere with the emergency action

already under way. On the contrary, it would lift us out of a

potentially perpetual state of housing emergency. It would

offer the best hope

and prospect to millions of veterans and other American

families that the American system can offer more to them than

temporary makeshifts.

I have said before that the people of the United States can

be the best housed people in the world. I repeat that

assertion, and I welcome the cooperation of the Congress in

achieving that goal.

Mr. President, the Senator from Missouri, my friend, has given a very good explanation of this bill. Before I give my version of it, which will be similar to hers, I wish to compliment her because she is in a position of jurisdiction over IGs. She has done a very good job of strengthening these positions in other legislation she has sponsored. So I feel very good to be in the company of the Senator from Missouri on this amendment.

Our amendment would correct serious problems in section 989B of the Dodd-Lincoln substitute. This section of the bill would change the way that five inspectors general are hired and fired.

Currently, these five inspectors general are hired and fired by the agency that they oversee, but section 989B would put the President in charge of hiring and firing them. This provision was included because the sponsors of the legislation believe that making inspectors general Presidentially appointed will make them more independent.

However, rather than strengthening oversight over our financial institutions with more independent watchdogs, section 989B could introduce politics into what have traditionally been career, nonpolitical positions.

Under the Inspector General Act of 1978, there are two types of inspectors general, presidentially appointed IGs and designated Federal entity IGs, DFE IGs. Both types of inspectors general are tasked with hunting down waste, fraud, and abuse at Federal agencies. However, there are some major differences in how they are appointed and removed from office and how they operate.

DFE IGs are appointed by the agency rather than the President. The Inspector General Act created 30 of them, not just the 5 addressed in this bill. The agency-appointed IGs typically run smaller offices than Presidential appointees, often with just a handful of employees. Almost all of them oversee agencies that are headed by a bipartisan board or commission.

By contrast, Presidentially appointed IG's generally run much larger offices and employ dozens or hundreds of employees to oversee Departments such as the Department of Defense, the Department of Justice, Health and Human Services, and so on. They are nominated by the President and confirmed by the Senate. They are subject to removal at any time by the President. However, the President must provide Congress 30 days notice and a written list of reasons for dismissing the inspector general.

Agency-appointed IGs have a similar protection requiring that the agency notify Congress in advance of the reasons for any removal.

The sponsors of section 989B argue that because agency-appointed IGs are hired and fired by the agency they oversee, they might be tempted to pull their punches more than someone who could only be fired by the President. I actually agree that this is a potential problem. However, the solution in this bill misses the mark.

Unfortunately, section 989B only attempts to address this independence issue at five of the 30 agency-appointed IGs. In my view, this fix is too narrow. In addition, it attempts to ensure independence by replacing these five IGs with Presidential appointees.

There is no evidence that Presidential appointees will be more independent than their predecessors. There have been problems in the past with Presidential appointees being too cozy with the agency they are supposed to oversee or pulling punches for political reasons.

There is strong evidence that agency-appointed IGs can be fiercely independent despite the possibility of being removed by the agency head. It all depends on the quality of the appointment.

For example, David Kotz, the Securities Exchange Commission inspector general has exposed the SEC's failures in the Madoff and Stanford cases, and is currently looking into the timing of the government suit against Goldman Sachs. Similarly, the Pension Benefit Guarantee Corporation's, PBGC, inspector general aggressively investigated the former head of the agency, Charles Millard, and has challenged the acting director about providing inaccurate information to Congress. Despite the potential risks of being replaced, these IGs have not been timid about challenging their agencies to improve.

Because of the way section 989B is currently drafted, these IGs could be summarily dismissed soon after the bill is signed into law. Under this provision, each IG could continue to serve but only until the President nominates a replacement. Once the President makes a nomination, the IGs would no longer enjoy legal protections for their independence and would become instant lame ducks. In fact, SEC Inspector General Kotz recently stated that if this provision becomes law it will effectively end some of the ongoing investigations his office has at the SEC.

There is a practical problem with Presidential appointments as well. This administration does not have a great track record in filling vacancies in an expeditious manner. Having no watchdog on duty is a concern for all Americans.

There are over a dozen IG positions where there is a vacancy, an acting, or an interim IG. The administration waited 18 months to appoint an IG at the Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae. That is 18 months without strong leadership able to direct audits, investigations or examinations of agency policy. That's 18 months without a cop on the beat. Maybe that is the way the administration likes it. I am sure the bureaucrats at these agencies would enjoy life more without an inspector general asking questions. Imagine if the SEC were not held accountable for their failures in stopping the Madoff or Sanford Ponzi schemes.

This bill would create five lame ducks in the IG community and the potential for more extended vacancies unless we fix it. There would be far less oversight during the lengthy transition process under the current bill with no guarantee of vigorous oversight by the new appointees. Essentially, this provision could politicize the positions that

have historically been filled by career public servants.

I know the goal of this provision is to enhance IG independence, but there are better ways to protect the independence of these IGs than by replacing them with Presidential appointees.

We should do it more effectively and make sure that all agency- appointed IGs are more independent, not just the five singled out in the bill. That is why I am offering this amendment. The Grassley- McCaskill amendment simply applies the same sort of protections that have worked for one of the 30 agency appointed IGs to the other 29 agency-appointed IGs. The Postal Service inspector general enjoys enhanced protections and my amendment would extend those protections more broadly.

Our amendment would strike section 989B of the bill and replace it with a system that will bring true reform, independence, and accountability.

It would make the IGs report to the entire bipartisan board or commission heading their agency, and the IG could only be removed for cause by a \2/3\ majority vote of the bipartisan board or commission. This would ensure that should an agency make a political attempt to remove an IG, there would be the possibility of dissent among the board or commission members.

These are serious protections from political interference currently enjoyed by the Postal Service IG, but it also allows an IG to be held accountable when necessary. These same provisions have worked for the Postal Service inspector general and it is time to extend them to all the agency-appointed IGs.

It also holds IG's accountable by requiring that they disclose the results of all their peer reviews in the semi-annual reports to Congress, thereby making them public.

This amendment strikes the right balance, improving both independence and accountability of all DFE-IGs. In fact, even the White House has gone on the record telling the Center for Public Integrity, ``the administration does not support in any way politicizing the function of the Inspector General and we have not proposed these changes'' in the Dodd-Lincoln substitute.

The amendment is supported by the nonpartisan Project on Government Oversight and has bipartisan support from members on the committee with jurisdiction over the IG Act. This important amendment deserves an up- or-down vote at the appropriate time.

In summary, our amendment would correct serious problems in section 989B of the Dodd-Lincoln substitute. This section of the bill would change the way that five inspectors general are hired and fired. Currently, these five inspectors general are hired and fired by the agency they oversee, but this section of the bill would put the President in charge of hiring and firing them. This provision was included because sponsors of the legislation believed that making inspectors general presidentially appointed would make them more independent.

However, rather than strengthening oversight over our financial institutions with more independent watchdogs, this section could introduce politics into what has traditionally been career, nonpolitical positions. It is important to ensure that this bill does not then hurt the oversight of these designated Federal regulatory agencies by the inspectors general.

I think our amendment corrects the potential to create long-term vacancies at five important regulatory agencies that, quite frankly, cannot afford to have these sorts of vacancies and not have the proper oversight.

The amendment provides true transparency, and with transparency you get accountability among inspectors general. We are going to bring about real independence--or maybe it would be better for me to say maintain the independence these folks have shown already.

We should take steps to make all agency-appointed IGs more independent, not just the five addressed in the bill. These five should not be singled out. The amendment before us makes the IGs report to the entire bipartisan board or commission heading their agency and requires a two-thirds vote to remove an inspector general.

I will not speak about the peer review Senator McCaskill has already spoken about. But I think it is important we have semiannual reports to Congress on the effectiveness of the people in their various positions. By reporting to the entire bipartisan board or commission rather than just the chairs, these IGs will be further insulated from political influence. As a consequence, they will be more independent. So in the final analysis, I think this brings the right balance to the independence of it.

As I said, this amendment is supported by the nonpartisan Project On Government Oversight. Because it comes from another committee of jurisdiction, I am glad that through Senator McCaskill and other people on the committee, we have bipartisan support from the committee of jurisdiction.

This is an important amendment and deserves an up-or-down vote at the appropriate time.

I yield the floor.

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

Madam President, I ask unanimous consent to set aside the pending amendment for the purpose of calling up amendment No. 4072.

Madam President, I ask unanimous consent to waive the reading of the amendment in the whole.

Madam President, I yield the floor, and I suggest the absence of a quorum.

Madam President, I appreciate very much the words of my colleague from New Jersey. He is a very thoughtful Senator. He is a member of the Finance Committee so I have a lot of relationships with him. I am glad he spoke highly of some of the changes we have suggested in the IG system generally through our amendment. But I think the real difference for Senator McCaskill and this Senator is the fact of whether they should be Presidentially appointed. That is probably a difference that is going to be hard to bridge. So I will speak to that point and also say I hope Senator McCaskill will be able to come over here and rebut Senator Menendez because she is on the committee that has jurisdiction over IGs, and she has been very much involved over her recent tenure in the Senate on strengthening the system of IGs.

She will probably speak with more authority on this issue than I can, from the standpoint that I am not on that committee--even though I am involved very deeply in strengthening IGs because I think they are an extension of the checks and balances of government, particularly the extent to which they work with those of us involved in the constitutional responsibility of oversight performed by the Congress.

I wish to say flat out I do not accept the argument that Presidentially appointed IGs are always more independent. I think Senator McCaskill spoke on this point earlier when she was presenting our amendment. In fact, Presidential appointments raise another problem. President Obama has had a problem with filling IG vacancies. It took the President 18 months to appoint the IG at the Federal Housing Finance Agency. That is one example. Eighteen months without a cop on the beat would be a disaster at these financial agencies. Just think, if the SEC, Securities and Exchange Commission, did not have an IG for 18 months, how many more Madoffs would there be, how many more Sanford Ponzi schemes would there be.

Our amendment provides flexibility with accountability and transparency by reporting to the entire board or commission. The IG is not beholden to one person.

That brings up the point, for 80 years now, since independent agencies have been set up--well, I suppose for 130 years, going back to the setting up of the Interstate Commerce Commission, as an example-- they have been meant to be a fourth branch of government, pretty much immune to any one President due to the fact they are appointed to overlapping terms and there has to be representation of both political parties on a commission. Just from the history and purpose of independent agencies, you would also want to make sure that inspector general was independent from the chief executive; not totally independent--because the President appoints them--but at least more independent than inspectors general in Treasury and State and the Justice Department--name any of the Cabinet positions you want.

Also, it provides for accountability by requiring a two-thirds vote to remove an inspector general. If the inspector general were appointed by the President, the IG could be removed, then, by one person. This takes politics out of the equation. Our amendment takes politics out of the equation. It strengthens the IG's independence and obviously that is why we are offering the amendment.

I suppose we are offering the amendment from the standpoint that we want that independence to be there because it has accountability with independence; also, because we think there can be a lapse in the work of an inspector general when a President takes a long time to appoint somebody.

In further response to the reasons Senator Menendez has given, I wish to say that the underlying language in the bill would allow the IGs to serve, yes, until the President appoints someone.

But this means once the President nominates someone, the current IG is removed because there is a long lapse between appointment and Senate confirmation. This means the entire time the Senate debates the nominee, the agency does not have an IG. This is an invitation to allow waste, fraud, and abuse and mismanagement in agencies.

So we come to you--when I say ``we,'' I mean Senator McCaskill and myself--with a sincere desire that if something is not broken, do not fix it. We come with a desire to say these agencies are so important there should not be any lapse in time between what they are doing now and some new process of bringing somebody aboard.

I have seen the independence of these IGs to do their job and to help us uncover a lot of things that are wrong, particularly, as I think I have been able to point out with the Securities and Exchange Commission, not only under this administration but under the previous administration.

Probably in the last couple of years of the Bush administration, we were able to, working with IGs, make sure the job was done right and exposed a lot of things that were wrong.

I yield the floor.

Madam President, this will be the last time I will speak on it, and just for a couple of minutes. I hope the Senate would give some discretion to the fact that when Senator McCaskill comes over, that she would be able to speak for 2 or 3 minutes on this issue so that people can hear from the other side of the aisle on the importance of this amendment.

We appear to have a fundamental difference regarding how independent

Presidential appointees are. If I were an inspector general, I would feel more independent with a two-thirds vote of a bipartisan panel, meaning commission appointees, as opposed to one person. Our amendment assures IGs, if they are terminated, it will be in a public forum and not the back room of the White House, if they are Presidentially appointed.

I yield the floor.

Mr. President, my friend from Oregon has adequately spoken about the rationale behind what we are trying to do as well as the substance of it, so there is no point in my repeating that. But I think people ought to wake up to what is inevitable around here. When 3 or 4 years ago we had exactly the same substance up, it passed the Senate 84 to 13, I think, and through subterfuge, it was taken out in conference. The House doesn't conference a Senate procedure, so that is why I use the word ``subterfuge.'' So we ended up with something that has not worked in the last 3 or 4 years.

Then we hear, particularly from the other side, about the holds, blaming this side for it. Every side has some guilt of misuse of holds. The fact is there is nothing in our amendment that changes the power of an individual Senator to hold up something. It is not as though we are trying to compromise this very significant power that an individual Senator has, but we are taking the adjective ``secret'' away from secret hold so that you know who the person is; so you can have dialogue with that person; so you can find out what their objections are; so you can reach compromises. That is the purpose of it. When things are secret, it is not only obnoxious to our principle of representative government; it violates the opportunity for an institution such as this to actually work. We should want to enhance the respect of this institution and one way to do that is to take the adjective out of secret hold, not to change anything else. It will enhance so much public understanding of what we are doing, because the public's business ought to be public. In our democracy, 99 percent of what we do--and maybe the only exception would be privacy of an individual or national security--of the public's business ought to be public, and that is what the people expect. But this word ``secret'' keeps from the public knowledge a lot of information that ought to be there to make this body work and to make sure we reduce the cynicism of the public toward government operation.

As I said, first, it is inevitable that this is going to happen. Senator Wyden and I are going to pursue this, because this is the time to do it. The abuse of this power has gone on way too long.

I yield the floor.

Mr. President, I rise to recognize the sacrifice of a brave young Iowan, LCpl Joshua M. Davis, who died from wounds he received while supporting combat operations in Helmand Province, Afghanistan. He was 19 years old. Josh's loss will be felt very deeply in his hometown of Perry, IA, where his drive and leadership skills were recognized early on as a member of the football and wrestling teams and SkillsUSA. He was determined to serve his country and joined the Marine Corps right after high school, even graduating a trimester early to start basic training. Accounts describe Lance Corporal Davis as humble, but his sense of patriotism and service humbles me and makes me proud to be an Iowan. Learning about the life of this remarkable young man makes the knowledge of his tremendous sacrifice all the more poignant. My thoughts and prayers will be with his family at this time, including his father Dave, his mother Beverly, and all those touched by his loss. I cannot adequately express the debt of gratitude we owe, but I ask all Senators to reflect on, and pay tribute to, the life of a great American, LCpl Joshua Davis.

Madam President, I thank Senator Wyden for his leadership and for working together with me and other Senators over a long period of time. I think he referred to maybe 10 years that we have been struggling to get to what we are finally getting to today.

In the past, we thought we had victories and they turned out to be hollow victories--maybe a little more openness but largely ineffective. So maybe now we will finally be able to accomplish an effective openness in the Senate on one of the most powerful tools a Senator has.

I think it gives hope to the fact that if you are right, eventually right wins out, even in the Senate. Long struggle does pay. I think we are bringing simply common sense to a process in the Senate. It is, as my friend from Oregon said, transparency, and with transparency we have accountability.

The amendment Senator Wyden and I have offered would restore the prohibition on secret holds the Senate voted for overwhelmingly in a previous Congress--the 109th Congress--and make it even more robust. As I said, those turned out to be largely not very effective.

At that time, in the 109th Congress, our measure passed as an amendment to the ethics reform bill by a vote of 84 to 13. That bill never became law, but the next Congress passed then what is referred in the title of the legislation as the Honest Leadership and Open Government Act. Our provision was also originally included in that bill.

Ironically, as I have alluded to, in a move that reflected neither honest leadership nor open government, our provisions were altered substantially--I might say too substantially--behind closed doors, before we had final passage.

The current provisions essentially say it is OK to keep a hold anonymous until 6 days after someone asks unanimous consent to proceed to a bill or a nominee. I am not going to explain how that process works out, but it can be summed up in the words that it is a very ineffective sort of transparency, hardly doing any good whatsoever.

The amendment that is before us says Senators must go public from the moment they place the hold.

Perhaps I should take this opportunity to address what a hold is all about. A hold arises out of the right of all Senators to withhold their consent when unanimous consent is asked.

It goes without saying that any Senator has a right to object to a unanimous consent request that the Senator does not support because it is not unanimous unless, obviously, we all support it.

In the old days, when Senators conducted much of their daily business from their desk on the Senate floor, it was a simple matter to stand and say, ``I object'' when necessary, and, of course, that Senator was immediately identified. Now, Since most Senators spend so much time off the Senate floor in committee hearings, meeting

with constituents, and other sorts of obligations that we have, we have tended to rely upon the majority and minority leaders to protect our rights and prerogatives as individual Senators, asking them to object on our behalf.

Just as any Senator has the right to stand on the Senate floor and say, ``I object,'' it is perfectly legitimate to ask another Senator to object on our behalf if we cannot make it to the floor when consent is requested.

By that same token, it would be illegitimate, not to mention impossible, for a Senator to stand on the floor and object anonymously. Senators have no inherent right to have others object on their behalf and keep their identity secret.

If a Senator has a legitimate reason to object to proceeding to a bill or a nominee, then he or she ought to have the guts to do so publicly.

I believe this is part of expanding the principle of open government. The public's business ought to be public. Lack of transparency in the public policy process leads to cynicism and distrust of public officials and, quite honestly, less accountability.

I maintain that the use of secret holds--with emphasis upon the adjective ``secret''--damages public confidence in the institution of the Senate. The public's business ought to be done in public, period.

I have made it my practice to put a statement in the Record when I have placed a hold on a nominee or a bill for over a decade. I can tell you that is no burden whatsoever, and it hasn't hurt me in any way whatsoever to let my colleagues and the public know--for the last decade--that Senator Chuck Grassley had a hold on a bill and why I had that hold on a bill or nominee.

Our amendment--the one before us--would make it crystal clear that holds are to be public. Senators placing a hold must get a statement in the Record within 2 days, and they must give permission to their leaders at the time they place the hold to object in their name.

Also, if a Senator objects, ostensibly on behalf of another Senator but refuses to name the Senator he is objecting for and that Senator doesn't come forward within those 2 days, the objecting Senator will be listed as having that hold, owning that hold.

I wish to make it clear that we do not come to this lightly. We have tried other paths to accomplish our goal. I said those other paths have turned out to be largely ineffective.

We sought the advice and assistance of several majority and minority leaders over the last decade, and we twice tried informal policies issued jointly by the two leaders, in 1999 and 2003, but those turned out to be as flimsy as the sheet of paper on which they were written.

So working with two former majority leaders, Senators Lott and Byrd, we crafted the policy I mentioned earlier that the Senate adopted by a vote of 84 to 13, which was later gutted.

It is this policy, with some improvements--in fact, some very needed improvements--that we are introducing today. It is important the Senate have the opportunity to speak on this issue as a body. I look forward to this vote and finally having a true victory against secrecy.

I yield the floor.

Mr. President, in 1972, the Iowa Legislature created the Office of Citizens' Aide to address instances of dissatisfaction with government agencies In 1978, Bill Angrick became the State ombudsman at age 32, according to the Des Moines Register. Just a few weeks ago Bill Angrick announced he would take the State's early retirement incentives at age 64.

As a member of the State house in 1972, I was enthusiastic about the creation of the ombudsman's office. I had gone from political science student to state legislator and was beginning to appreciate the value of government oversight in the practical world. It is one thing to study political theory and have a concept of how things should work. It is another thing to represent citizens as their elected representative and see how things really work. The Federal constitution Framers knew what they were doing when they built in checks and balances among the three branches of government.

The decision to create a State ombudsman wasn't unanimous. The house vote was 70 to 28, the Senate vote 30 to 20. Then, as now, those who perform government oversight might have been seen as skunks at a picnic, fueling fears of those who might abuse their investigative powers or among agencies, rein in their power. Inspectors general and whistleblowers at Federal agencies are regularly eyed with suspicion or targeted for retaliation. I run into this at the Federal level all the time. Sometimes the executive branch tries to stifle inspectors general or Federal employees who have reports of wrongdoing. Yet those people are very often heroes who expose waste, fraud, and abuse, and by putting themselves on the line, get problems fixed and strengthen government. They deserve honor and protection, which I work to provide. And I conduct oversight of Federal agencies, just as the voters oversee my performance as their elected representative.

By all accounts I have heard, Bill Angrick served his oversight role with the honor, diligence, and integrity envisioned by those of us who created the State ombudsman's office.

His retirement provides a good opportunity to reflect on his work and on the role of an entity that exists to listen to citizens, investigate concerns, and render findings in the spirit of fixing shortcomings for public benefit. The office exists to perform oversight of State and local government agencies. Sometimes it initiates investigations upon a citizen phone call of concern or complaint. It receives thousands of inquiries every year. Occasionally, my staff in Iowa adds to the workload, referring cases to the ombudsman that deal exclusively with State and local government. I appreciate the careful consideration given in those instances. Other times, the ombudsman's staff sees the need for an investigation of an agency's interaction with a citizen over a particular case or multiple agencies' handling of a State matter that is either complex or has fallen through the cracks. As a third party, the ombudsman's office is charged with the responsibility of examining the facts as impartially and thoroughly as possible and rendering findings and recommendations in a thoughtful, constructive way. The office is removed from the emotions and biases of the people involved and proceeds without a predisposition toward a certain outcome.

The workload can involve an issue with broad implications, such as State and local governments' treatment of prison inmates, and response to child abuse cases. Mr. Angrick's office reviewed whether inmates were held too long in restraining chairs and whether government procedures were adequate to protect children in violent circumstances. The office has given special attention over the years to State and local governments' treatment of mentally ill and disabled citizens. Mr. Angrick recognizes that some challenges are interwoven among segments of society and government and merit a comprehensive response. For example, he has given needed understanding of and exposure to the fact that State prisons have become de facto housing for mentally ill citizens in many cases. He is right that government has to address this situation and give appropriate treatment to those who can't advocate for themselves.

The ombudsman's workload also involves cases with a more narrow focus. A recent investigation covered a city street superintendent accused of using city equipment on his own property and retaliating against a citizen who complained while local elected officials stood by. The resolution of that dispute might not resonate statewide, but it is meaningful for the residents of a community who expect their city employees to function aboveboard and expect their elected officials to enforce city rules and regulations. The office serves as a check-and- balance backstop on potential abuse of power.

However, the ombudsman's office doesn't only conclude that the government is wrong. Sometimes it affirms that government agencies acted properly, as in 2004 when it concluded that the Iowa Department of Natural Resources' investigation of three Asian markets for unlawful fish sales was fair and reasonable.

The citizens aide office is open to everyone, regardless of position and station in life. That equal voice for everyone is critical to its purpose and its success. Under Mr. Angrick's leadership, a prison inmate's call is taken respectfully and with care for the facts, the same as a mayor's call. Mr. Angrick recognizes that a prisoner should not be abused and is entitled to humane, compassionate treatment and certain rights as he pays his debt to society. This is not only the right way to treat our fellow human beings, but it also contributes to a stronger civic structure. If the prison inmate feels heard, he may leave his service with a greater regard for society and the rule of law than he did going into prison. He might not commit a crime the second time.

By holding the government accountable, the ombudsman's office builds faith in State and local civic institutions. A well-functioning government in which citizens have a voice, are heard, and affect change is the best antidote to cynicism about government. My strong impression is that Bill Angrick and his staff accomplished the simple slogan of their office: ``Dedicated to Making Good Government Better.'' I thank Bill Angrick for his 32 years of service to the people of Iowa.

Madam President, you have heard me say many times to my colleagues that the public's business ought to be public. I don't know why that does not apply to the Federal Reserve, at least on its regulatory activities when it gives out money. There are all kinds of reasons it should not apply to monetary policy. But for everything else, the Federal Reserve is acting at the behest of Congress through a law going way back to 1913 giving them certain powers. If Congress exercised these same powers--and under the Constitution we have the authority to do that--it would be the public's business; in fact, even more than what this amendment does. So the public's business ought to be public.

With transparency, and that is what this amendment is all about, you get accountability--it seems to me, with what has happened over the last 10 years, more transparency leading to accountability. If we had that transparency we probably would not have had the bubble in the first place that broke in 2008, which brought us to this recession.

So I rise not hesitantly but forthrightly to support the pending amendment by the Senator from Vermont. I appreciate all of his hard work on making the Federal Reserve more accountable to the people of this country. I am a cosponsor of his stand-alone bill, so I am glad to be a cosponsor of this amendment, to bring sunshine to the Fed.

During the last 2\1/2\ years, the Fed has gone well beyond what was viewed as its historical authority. It has taken on more and more risk, in complicated and unprecedented ways. It intervened in the market to prop up certain firms. It intervened in the market to protect these firms from failing, using an unlimited source of taxpayers' dollars to, in effect, pick winners and losers.

The risks they have taken will ultimately be borne by the American taxpayers. So in the interest of accountability, the taxpayers deserve to have answers on who got money and how it was spent.

Under law, the Federal Reserve has lending authority for unusual and exigent circumstances. Under section 13(c) of the Federal Reserve Act, the Reserve can ``discount for any individual, partnership or corporation, notes, drafts and bills of exchange when such notes, drafts and bills of exchange are endorsed or otherwise secured to the satisfaction of the Federal Reserve bank.''

Essentially, this means the Fed can lend to any entity or person when it believes there is an emergency. This is an extraordinary amount of power and discretion, and it should be exercised in the light of day. Transparency, accountability--the public's business ought to be public. Trillions of dollars were provided to financial institutions and corporations since the financial crisis began. The Fed helped rescue Fannie Mae and Freddie Mac. The Fed propped up Bear Stearns and AIG when they were on the brink of failure. They intervened in the business efforts of Lehman Brothers, Merrill Lynch, and Citigroup.

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

Madam President, I wish to speak as in morning business for 15 minutes.

Madam President, last Tuesday, President Obama traveled to Iowa. He visited counties and towns that have been hit particularly hard by the economic downturn. While Iowa's average unemployment rate stands at 6.8 percent, Lee County's unemployment rate stands near 11 percent. Wapello County's unemployment rate is at 9.5 percent. These were the counties that President Obama visited. Over 1,000 jobs have been lost in each of the 3 counties he visited since the recession began.

The visit to Iowa was billed as an effort to highlight the steps taken to achieve long-term growth and prosperity by creating a new, clean energy economy.

During his trip, the President visited a Siemens wind blade manufacturing facility in Fort Madison. I had the opportunity to visit there about a year and a half ago. The President touted Iowa's leadership in the production of wind energy. This Siemens facility is a great facility. I recall just a few years ago speaking to Siemens manufacturing when they were looking for a site for their first wind production facility in the United States. I told the executives at Siemens they would not be disappointed if they chose Fort Madison for their facility because Iowans are some of the hardest working and honest people in the country.

I am particularly proud of the second-in-the-Nation status of Iowa's wind production. I first authored and won enactment of the wind production tax credit in 1992. This incentive has led to the exponential growth in the production of wind across our entire United States.

It has also helped my State of Iowa to become a leader in the production of wind energy component manufacturing.

The emerging wind industry has created thousands of jobs in recent years in the cities of Newton, West Branch, Cedar Rapids, and Fort Madison.

When President Obama says energy security should be a top priority, I agree with our President. When he says we need to rely more on homegrown fuels and clean energy, I agree with our President. When he says our security and our economy depend on making America more energy independent, I agree with our President.

During a subsequent visit to an ethanol facility in Missouri, President Obama stated unequivocally that his administration would ensure the domestic biofuel industry would be successful. The President and I are in strong agreement that renewable biofuels are a key part of our future.

Unfortunately, I believe President Obama missed an important opportunity to make a push for the message of the biodiesel tax credit. While the President was in Iowa touting green jobs, this Democratic Congress has, in effect, sent pink slips to about 18,000 people who depend on the production of biodiesel for their livelihood.

On December 31, 2009, the biodiesel tax credit, which is essential to keep a young bioindustry competitive, expired. In anticipation of the expiration of the tax credit, Senator Cantwell and I introduced a long- term extension in August of 2009. That bill was never considered last year.

In December, as the expiration loomed, I came to the Senate floor to implore my colleagues to put partisan politics aside and pass a clean extension of the biodiesel tax credit because, without an extension, I knew the industry would come to a grinding halt, and it has.

For whatever reason, the Democratic leadership in the House and the Senate have never considered this extension a priority. Now the industry is experiencing the dire situation I predicted.

On January 1 of this year, about 23,000 people were employed in the biodiesel industry. Because of the lapse in the credit, nearly every biodiesel facility in the country is idle or operating at a fraction of capacity. Nearly all of Iowa's 15 biodiesel refineries have completely halted production. This has led to the loss of about 2,000 jobs in Iowa alone.

The thousands of jobs created by the wind industry in Iowa have essentially been offset by the thousands of jobs lost in the biodiesel industry.

You do not have to take my word for the dire state of the industry. A $50 million biodiesel facility in Farley, IA--that is in northeast Iowa--announced that they just laid off 23 workers and cut the pay of the rest of the staff. Renewable Energy Group laid off 9 employees in a facility in Ralston, IA, and 13 in Newton, IA. Ironically, the Newton biodiesel facility is 1 mile down the road from a wind manufacturing facility that President Obama visited on Earth Day just last year. During President Obama's trip to Iowa, he was within a few miles of three biodiesel facilities that are idle: one in Keokuk, IA, one in Washington, IA, and another in Crawfordsville, IA.

According to a press release from the Iowa Renewable Fuels Association, an Iowan affiliated with biodiesel industry was able to speak to President Obama very briefly following a townhall session in Ottumwa, IA. Mr. Albin, vice president at Renewable Energy Group, told President Obama that plants are idle and 90 percent of the biodiesel employees have been laid off simply as a result of the tax credit lapse. According to Mr. Albin, President Obama assured him that he would not let the biodiesel industry die.

He recalls the President saying something like this--and I want to quote what I suppose was a paraphrase by Mr. Albin:

I'm the President and I promise I will do whatever I can.

Look, I'm on your side, but I've got a Congress to deal with.

Well, I can understand what the President would say. I happen to believe that in my 4 years of serving with then-Senator Obama, that Senator Obama, now President Obama, is very sincere about the promotion of ethanol and biodiesel or biofuels--whatever you want to call it. In fact, I had the good occasion of working with then-Senator Obama on a Senate bill when I was still chairman of the Finance Committee to promote the tax credit that is now in place so that filling stations can get a tax credit for putting in for E85 ethanol, as an example. So I don't question President Obama's response to Mr. Albin. Of course, we do have checks and balances in government and the President has Congress to deal with. But I hope President Obama will take strong action to insert himself into this debate in the Congress.

It seems that even President Obama, from this quote, is frustrated by the lack of action by the Democratic congressional leadership on this issue.

Mr. President, I ask unanimous consent to have printed in the Record this press release from Iowa RFA at the conclusion of my remarks.

The board president of Western Iowa Energy in Wall Lake, IA, recently stated:

Due to the continued lapse of the biodiesel tax credit,

Western Iowa Energy continues to suffer from significantly

limited sales and reduced sales forecasts. Due to these

market conditions, we have made the difficult decision to

idle our facility. Today we are laying off 15 full-time

employees. This represents more than 50 percent of our staff.

On February 10, Senator Baucus, chairman of the Finance Committee, and I worked in a bipartisan fashion to develop an $84 billion jobs package that included a 1-year extension of several energy tax credits, including the biodiesel tax incentive. Before the ink was even dry on the paper, Majority Leader Reid scuttled our bipartisan package in favor of a partisan approach. That delayed passage of an extension in the Senate for well over a month, until the month of March.

Now it has been languishing for 6 weeks. Where is the urgency? This Congress jammed through a stimulus bill that spent $800 billion to keep the unemployment rate below 8 percent, and of course it didn't stay below 8 percent. Yet we can't find the time to pass a

simple tax extension that will likely reinstate 20,000 jobs overnight. We are 4 months delinquent in our obligation to these biofuel producers with no end game in sight. The lack of action on this issue defies logic or common sense.

So while the Democratic leadership talks about creating green jobs, their action has led to job cuts. Americans are unemployed today because of the action--or more aptly the inaction--of the Democratic congressional leadership, particularly on this biodiesel issue.

The United States is more dependent upon foreign oil because of the inaction of the Congress. Automobiles are producing more pollution because we have essentially eliminated this renewable, cleaner-burning biofuel. Rural economies are being stripped of the economic gain of this value-added agricultural product.

So I urge the Senate to take immediate action to extend this tax incentive and reduce our dependence upon foreign oil and save green jobs.

Mr. President, I yield the floor.

Exhibit 1

President Obama Gets Biodiesel Message in Ottumwa

IRFA Secretary Albin Uses 90 Seconds with the President to Share

Urgency of Tax Credit

Ottumwa, IA.--During his Iowa visit on April 27, 2010,

President Barack Obama heard firsthand of the urgency to

reinstate the biodiesel tax credit from Brad Albin, Vice

President at Renewable Energy Group and Secretary of the Iowa

Renewable Fuels Association (IRFA).

Following President Obama's speech and town hall session at

Indian Hills Community College, Albin grabbed the President's

attention. During a 90 second exchange, Albin shared the

message of the biodiesel industry's state of disruption and

uncertainty resulting from the lapse of the federal biodiesel

blenders tax credit since January 1, 2010.

``I shook his hand and told him that we're losing jobs as

we stand here, which seemed to get his attention,'' explained

Albin, who had been sitting in the second row. ``I told him

about plants idling and that more than 90 percent of

manufacturing staff at U.S. biodiesel plants have been laid

off as a result of the tax credit lapse.''

President Obama acknowledged that his biodiesel tax credit

updates are coming through USDA Secretary Vilsack. The

President continued to listen as Albin explained that for 20

years Americans have worked to meet the challenge of

increasing energy independence, that farmers and families

have invested billions, and that now companies are bleeding

to death or bankrupt. Albin further explained that the five

month lapse of the tax credit could not have come at a worse

time as the Renewable Fuels Standard goes into effect July 1,

2010.

``We're going to die without this tax credit,'' Albin added

even after the President's assurances. ``The President then

responded, `We won't let you die.' ''

``Those that know me know I want to make sure my message is

clearly understood; so as the President was walking away to

shake another hand, I asked him if he could commit to the tax

credit being in place by May 31,'' Albin said. May 31, 2010,

the start of the Memorial Day recess, is the date Chairman

Sander Levin of the House Ways and Means Committee promised

as a reinstatement deadline for the biodiesel tax credit

during an energy hearing earlier this month.

``The President heard me ask him again about the May 31

date. He turned back to me and said, `I'm the President and I

promise I'll do whatever I can,' '' Albin recalled of the

exchange. ``President Obama then assured me of his commitment

to clean energy by saying, `Look, I'm on your side, but I've

got a Congress to deal with.' ''

``I believe he now has our urgent message straight from the

state where the tax credit lapse is having the most impact--

the nation's top biodiesel state,'' Albin said. ``It really

was a miracle to be in that right spot at the right moment to

be able to get the biodiesel message straight to the

President of the United States of America.''

The Iowa Renewable Fuels Association was formed in 2002 to

represent the state's ethanol and biodiesel producers. The

trade group fosters the development and growth of the

renewable fuels industry in Iowa through education,

promotion, legislation and infrastructure development.

Madam President, I would like to recognize the passing of a

mentor to me and many other political science students over the years.

Russell Marion Ross was a professor of political science for more than 40 years at the University of Iowa. He died on Tuesday, April 27, at age 88.

Dr. Ross was an Iowan through and through. Born in Washington, IA, he received his bachelor and master degrees, and Ph.D. in political science from the University of Iowa. He served as chairman of the department for many years. In 1987, he wrote a book on the department's history for the Iowa State Historical Society. Following his retirement, he continued to teach long-distance education classes until the time of his death. Dr. Ross began his association with long- distance education while serving in the Navy on the aircraft carrier USS Manilla Bay.

He was an expert on local government and politics. He wrote several books in his field, served as executive assistant to Governor Norman Erbe in the 1960s, and was the mayor of University Heights for more than 10 years.

Dr. Ross influenced numerous students over the years. Online condolences included postings by two city managers who said Dr. Ross guided their vocations. Other postings came from those with fond memories of Dr. Ross' friendliness, approachability, and honesty.

As Joel and Sandy Barkan of Washington, DC, wrote: ``He was devoted to the University, a good steward, and a straight shooter in the Iowa tradition. He will be missed.''

That is exactly the sentiment I have about Dr. Ross.

In 1957 and 1958, Dr. Ross was my professor at the University of Iowa when I was pursuing course work toward a doctorate in political science. As an authority on state and local government, he would have been my adviser on my dissertation topic, which was the reorganization of state government to save money.

Professor Ross was an expert and very well-regarded in his field, sought after for decades by the news media for his sharp insight into Iowa politics. He combined his significant knowledge with a plain- spoken common sense that cut to the chase. For example, in assessing the Democratic Presidential caucus fight in 2000, Dr. Ross was quoted as saying of candidate Bill Bradley, who was slow to respond to attacks from Al Gore, ``He muffed it pretty badly.'' That was the bottom line in just five words.

So Professor Ross was generous with his insight. He also was generous with his time. To a 23-year-old graduate student, as I was, an accomplished scholar can be intimidating and hard to approach. Dr. Ross was the opposite. He always had time for his students, and all of these years later, that's the first impression that comes to mind when I think of him.

I didn't finish my doctoral program, but that had nothing to do with Dr. Ross. I ran for the State legislature instead. With his generosity of spirit and knowledge, Dr. Ross helped me to find my calling, as he excelled at his. Iowans are fortunate to have had such an outstanding person in our lives.

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

I ask unanimous consent to speak for 12 minutes as in morning business.

Mr. President, I ask unanimous consent to have printed in the Record at the end of my remarks some letters to which I will refer.

Mr. President, last Thursday, I wrote Secretary Geithner asking why the Treasury Department allowed General Motors to use TARP money from a Treasury escrow account to repay its multibillion-dollar TARP taxpayer loan. This afternoon, I received a response from Treasury. I would like to say a few words about the reply and the questions that remain unanswered.

Last week, Treasury and GM announced with press releases and nationwide TV commercials that GM had repaid its TARP loans ``in full, with interest, ahead of schedule, because more customers are buying [GM vehicles].''

However, the hype does not match the reality. Taxpayers have not been repaid in full--far from it. Many billions of TARP dollars remain invested by Treasury in GM, and much of it will never be repaid. The Congressional Budget Office estimates that taxpayers will lose around $30 billion on GM.

In addition, the payment that occurred last week did not come from revenue GM earned by selling cars, despite what was claimed. Instead, Treasury allowed GM to use funds in a separate escrow account to pay its TARP debt. The Treasury Department's response to me today makes a point of saying that GM ``owns'' the money in the escrow account, as if that somehow justifies all the hoopla about GM's so-called ``repayment.''

Well, let's look at how GM came to ``own'' those escrow funds in the first place. The escrow funds were part of the TARP money Treasury paid for GM stock coming out of the bankruptcy. The money was supposed to be used by GM for expenses, as Treasury concedes. Treasury had the power to approve or disapprove GM's use of the money to repay the TARP taxpayer loan. Treasury approved, and GM pretended it was paying the loan back from revenue because business had improved.

Business may have improved, but that is not how they paid the loan. Taking TARP money out of one account to pay back TARP loans in another account is not at all the same as paying off a loan with earnings, as GM's TV commercials imply they have done. That is why I called it ``an elaborate TARP money shuffle'' and nothing in Treasury's reply today changes that.

The public would know nothing about the TARP escrow money being the source of the supposed repayment from simply watching GM's TV commercials or reading Treasury's press release. Treasury's letter today says all these details are public knowledge and nothing new. Well, that may be technically correct, but it wasn't clearly communicated that way to the average citizen. Most Americans don't pore through SEC filings and special inspectors general reports.

The GM commercial also did not mention that GM could have used the TARP escrow funds to repay a $2.5 billion 9 percent loan it received from its union health plan as part of the bankruptcy process. The union loan runs until 2017. The TARP loan was at 7 percent and ran until 2015. What sort of money manager would advise you to pay off a lower interest loan before a higher interest loan? GM and Treasury have still not explained that, and I have asked the TARP watchdog, Special Inspector Neil Barofsky, to get to the bottom of it. And to make matters worse, Treasury has admitted that it let GM take an additional 6.6 billion of TARP dollars out of the escrow fund last week with no strings attached. That money, too, could have been used to repay the high interest union loan.

There are reports that GM also applied to the Department of Energy for a $10 billion 5 percent loan to retool its plants to meet fuel economy standards. GM seems to be using government money to pay back government money, and then asking for more government money at a lower interest rate. It sounds like a plan to refinance GM's government debt with more taxpayer money--not pay it back.

GM had to ask permission from Treasury to use the taxpayers' stock investment to pay off the taxpayers' loan. Treasury's response to my letter says that ``Treasury retained approval rights over GM's use of funds from the escrow account in order to protect the taxpayer.'' Well, why didn't they protect the taxpayer then?

Why would Treasury allow GM to use its equity investment to pay off the loan when it means giving up the legal right to 7 percent rate of return for the taxpayers in exchange for essentially nothing? Since the taxpayer has an equity stake in the company, it's true that future growth of GM could theoretically make taxpayers whole, but taxpayers already had that equity interest before this latest transaction and didn't get any more equity as a result of the transaction.

Another key question is: Why would GM orchestrate a major media campaign to make the public think this all represents some big accomplishment by GM when the truth is that the taxpayers are still on the hook for billions that we may never recover?

Using the taxpayers' stock investment in GM to reduce its debt to the taxpayers is not the same as repaying that debt from money actually earned by selling cars. Treasury's reply today does not explain why it approved this transaction. Maybe it is a step in the right direction, maybe not. But instead of misleading the American people, we should be clear and up front about what happened here.

Exhibit 1

U.S. Senate,

Committee on Finance,

Washington, DC, April 22, 2010.

Hon. Timothy F. Geithner,

Secretary, U.S. Department of the Treasury, Washington, DC.

Dear Secretary Geithner: General Motors (GM) yesterday

announced that it repaid its TARP loans. I am concerned,

however, that this announcement is not what it seems. In

fact, it appears to be nothing more than an elaborate TARP

money shuffle.

On Tuesday of this week, Mr. Neil Barofsky, the Special

Inspector General for TARP, testified before the Senate

Finance Committee. During his testimony Mr. Barofsky

addressed GM's recent debt repayment activity, and stated

that the funds GM is using to repay its TARP debt are not

coming from GM earnings. Instead, GM seems to be using TARP

funds from an escrow account at Treasury to make the debt

repayments. The most recent quarterly report from the Office

of the Special Inspector General for TARP says ``The source

of funds for these quarterly [debt] payments will be other

TARP funds currently held in an escrow account.'' See, Office

of the Special Inspector General for TARP, Quarterly Report

to Congress dated April 20, 2010, page 115.

Furthermore, Exhibit 99.1 of the Form 8K filed by GM with

the SEC on November 16, 2009, seems to confirm that the

source of funds for GM's debt repayments was a multi-billion

dollar escrow account at Treasury--not from earnings. In the

8K filing GM acknowledged:

Of the $42.6 billion in cash and marketable securities

available to GM as of September, 30, 2009, $17.4 billion came

from an escrow account with Treasury,

$6.7 billion of the escrow account available to GM was

allocable to the repayment of loans to Treasury,

$5.6 billion in cash would remain in the Treasury escrow

account following the repayment by GM of their loans, and

Upon repaying Treasury, any balance of escrow funds would

be released to GM.

Therefore, it is unclear how GM and the Administration

could have accurately announced yesterday that GM repaid its

TARP loans in any meaningful way. In reality, it looks like

GM merely used one source of TARP funds to repay another. The

taxpayers are still on the hook, and whether TARP funds are

ultimately recovered depends entirely on the government's

ability to sell GM stock in the future. Treasury has merely

exchanged a legal right to repayment for an uncertain hope of

sharing in the future growth of GM. A debt-for-equity swap is

not a repayment.

I am also troubled by the timing of this latest maneuver.

According to Mr. Barofsky, Treasury had supervisory authority

over GM's use of these TARP escrow funds. Since GM's exit

from bankruptcy court, Treasury had approved the use of the

escrow funds for costs such as GM's obligations to its parts

supplier Delphi. See, Office of the Special Inspector General

for TARP, Additional Insight on Use of Troubled Asset Relief

Program Fund (SIGTARP-10-004), dated December 10, 2009, at

page 6. According to the GM 8K, GM had planned to use the

TARP funds in escrow to pay back the TARP loans on a

quarterly basis beginning in the fourth quarter of 2009. But

following the April 20, 2010, hearing of the Senate Finance

Committee, where Treasury's decision to exempt GM from the

bank TARP excise tax was questioned and GM's refusal to

testify was noted, it is odd that GM suddenly drew down on

the TARP escrow and accelerated the repayment of the

remaining balance of GM's outstanding TARP loans.

The bottom line seems to be that the TARP loans were

``repaid'' with other TARP funds in a Treasury escrow

account. The TARP loans were not repaid from money GM is

earning selling cars, as GM and the Administration have

claimed in their speeches, press releases and television

commercials. When these criticisms were put to GM's Vice

Chairman Stephen Girsky in a television interview yesterday,

he admitted that the criticisms were valid:

Question: Are you just paying the government back with

government money?

Mr. Girsky: Well listen, that is in effect true, but a year

ago nobody thought we'd be able to pay this back.

Mr. Girsky then said that GM originally planned to pay the

loan over the next five years. So the question is why--other

than a desire to justify excluding GM from the

administration's TARP tax proposal--would Treasury and GM

reduce GM's TARP debt with TARP equity and then

mischaracterize it as a repayment from earnings? Accordingly,

please explain:

Your department's justification for allowing GM to use

funds from the TARP escrow account to repay TARP loans,

The amount of funds remaining in the TARP escrow account at

Treasury that may be released to GM, and

The date that you anticipate that the remaining funds in

escrow will be released to GM.

Thank you in advance for your cooperation. Please provide

the requested information by April 30, 2010. Should you have

any questions regarding the contents of this letter please do

not hesitate to contact Jason Foster. All formal

correspondence should be sent electronically in PDF format to

[email protected].

Sincerely,

Charles E. Grassley,

Ranking Member.

Mr. President, I have come to the floor to speak about a bill that Senator Baucus and I have introduced today. It's called the Haiti Economic Lift Program Act of 2010.

The purpose of our bill is to help Haiti recover from the devastation it suffered in the massive earthquake that struck the country in January.

How we respond to natural disasters says a lot about ourselves, whether it's flooding in Iowa or an earthquake in Haiti.

The idea behind the bill is simple. First, we extend current trade preferences for Haiti through fiscal year 2020, to provide more certainty for companies doing business either in Haiti or with Haitian partners.

Second, we grant additional duty-free access to the U.S. market for targeted

categories of textile and apparel products. That will help to draw more investment into Haiti's economy and thereby promote long-term job creation, economic development, and political stability.

Our bill is a bipartisan, bicameral compromise. It is the product of 3 months of collaborative negotiations among the chairmen and ranking members of the Senate Finance and House Ways and Means committees and with representatives of the U.S. textile industry and the Haitians themselves.

We also reached out to members of Congress who have constituent textile and apparel interests, to ensure that their concerns were addressed.

Our ability to reach agreement on the bill is a testament to the good will and good faith of all those involved in our negotiations.

The result reflects a careful balancing of interests, including Haiti's interest in spurring more investment in its economy, the interests of our trading partners in Central America in maintaining existing trade relationships, and our own domestic textile interests.

We took special care to address the sensitivities of our domestic producers.

In fact, I have a letter here from the two leading U.S. textile industry organizations. Their letter expresses support for our bill and encourages the Senate to pass the bill in an expeditious manner by unanimous consent.

Finally, I want to make special mention of my colleagues from states with textile interests, and to thank them for their constructive input in developing this legislation.

Without their engagement and support, we would not have arrived at the compromise bill that is being introduced today in both the Senate and the House of Representatives.

This is a balanced bill that addresses an urgent priority in the Western Hemisphere.

I ask my colleagues to give the bill their unanimous support when it comes before the Senate.

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

Mr. President, I have come to the floor to speak about a bill that Senator Baucus and I have introduced today. It's called the Haiti Economic Lift Program Act of 2010.

The purpose of our bill is to help Haiti recover from the devastation it suffered in the massive earthquake that struck the country in January.

How we respond to natural disasters says a lot about ourselves, whether it's flooding in Iowa or an earthquake in Haiti.

The idea behind the bill is simple. First, we extend current trade preferences for Haiti through fiscal year 2020, to provide more certainty for companies doing business either in Haiti or with Haitian partners.

Second, we grant additional duty-free access to the U.S. market for targeted

categories of textile and apparel products. That will help to draw more investment into Haiti's economy and thereby promote long-term job creation, economic development, and political stability.

Our bill is a bipartisan, bicameral compromise. It is the product of 3 months of collaborative negotiations among the chairmen and ranking members of the Senate Finance and House Ways and Means committees and with representatives of the U.S. textile industry and the Haitians themselves.

We also reached out to members of Congress who have constituent textile and apparel interests, to ensure that their concerns were addressed.

Our ability to reach agreement on the bill is a testament to the good will and good faith of all those involved in our negotiations.

The result reflects a careful balancing of interests, including Haiti's interest in spurring more investment in its economy, the interests of our trading partners in Central America in maintaining existing trade relationships, and our own domestic textile interests.

We took special care to address the sensitivities of our domestic producers.

In fact, I have a letter here from the two leading U.S. textile industry organizations. Their letter expresses support for our bill and encourages the Senate to pass the bill in an expeditious manner by unanimous consent.

Finally, I want to make special mention of my colleagues from states with textile interests, and to thank them for their constructive input in developing this legislation.

Without their engagement and support, we would not have arrived at the compromise bill that is being introduced today in both the Senate and the House of Representatives.

This is a balanced bill that addresses an urgent priority in the Western Hemisphere.

I ask my colleagues to give the bill their unanimous support when it comes before the Senate.

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