Floor Statements

Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

Madam President, I ask unanimous consent to speak as in morning business.

Madam President, as we continue to learn more facts from various investigations into the 2008 financial meltdown, a certain picture is becoming increasingly clear. Like a jigsaw puzzle slowly taking shape, we can begin to see the outlines of many of the causes of the crisis--and the solutions they demand. In my view, it is a picture of Wall Street banks and institutions that have grown too large and complex and that suffer from irreconcilable conflicts between the services they provide for their customers and the transactions they engage in for themselves. It is also a picture of management that either knew about the lack of financial controls and outright fraud at the very core of these institutions or was grossly incompetent because it did not. And the picture includes regulators who failed miserably as well, due to malfeasance or incompetence or some combination of both.

Until Congress breaks these gigantic institutions into manageably sized banks and draws hard, clear lines for regulators to ensure that effective controls remain in place, we will have done neither that which is necessary to restore the rule of law on Wall Street nor that which will ensure that another financial crisis does not soon happen again.

What have we learned in just the past 5 weeks?

On March 15, I came to the Senate floor to discuss the bankruptcy examiner's report on Lehman Brothers and said, as many of us have suspected all along, that there was fraud--fraud--at the heart of the financial crisis. The examiner's report exposed the so-called Repo 105 transactions and what appears to have been outright fraud by Lehman Brothers, its management, and its accounting firm, which all conspired to hide $50 billion in liabilities at quarter's end to ``window dress'' its balance sheet and mislead investors. And this practice does not appear to be unique to Lehman Brothers.

I went further and noted that questions were being raised in Europe about whether Goldman Sachs had an improper conflict of interest when it underwrote billions of Euros in bonds for Greece. The questions being raised include whether some of these bond-offering documents disclosed the true nature of these swaps to investors and, if not, whether the failure to do so was material.

Last week, we learned about more alleged fraud at the heart of the financial crisis. On Friday, the Securities and Exchange Commission filed charges against Goldman Sachs and one of its traders for alleged fraud in the structuring and marketing of collateralized debt obligations tied to subprime mortgages. Goldman allegedly defrauded investors by failing to disclose conflicts of interest in the design and structure of these collateralized debt obligations. The SEC says this alleged fraud cost investors more than $1 billion.

While I will not prejudge the merits of the case, the SEC's complaint alleges that Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and that the hedge fund had taken a short position against the CDO.

Robert Khuzami, Director of the SEC Division of Enforcement, said:

Goldman wrongly permitted a client that was betting against

the mortgage market to heavily influence which mortgage

securities to include in an investment portfolio, while

telling other investors that the securities were selected by

an independent, objective third party.

Kenneth Lench, chief of the SEC's Structured and New Products Unit, added:

The SEC continues to investigate the practices of

investment banks and others involved in the securitization of

complex financial products tied to the U.S. housing market as

it was beginning to show signs of distress.

Goldman Sachs has denied any wrongdoing and has said it will defend the transaction.

This particular case involving Goldman Sachs was almost certainly not unique. Instead, it was emblematic of problems that occurred throughout the securitization market.

Late last month, Bob Ivry and Jody Shenn of Bloomberg News wrote about the conflicts of interest present in the management of CDOs, a topic also discussed at length in Michael Lewis's book ``The Big Short.'' The SEC should pursue other instances of conflicts of interest in the CDO market that led to a failure to disclose material information.

Last year, Senators Leahy, Grassley, and I, along with many others in the Congress, worked to pass the bipartisan Fraud Enforcement and Recovery Act so that our law enforcement officials would have additional resources to target and uncover any financial fraud that was a cause of the great financial crisis. However long it takes, whatever resources the SEC needs, Congress should continue to back the SEC and the Justice Department in their efforts to uncover and prosecute wrongdoing.

I applaud SEC Chairman Mary Schapiro and especially Rob Khuzami and the team he has reshaped in the Enforcement Division. They deserve our steadfast support as the leadership of the SEC continues its historic mission of revitalizing that institution and making it clear to all on Wall Street that there is a new cop on the beat.

Also last week, our colleague, chairman Carl Levin, ranking member Tom Coburn, and the staff of the Permanent Subcommittee on Investigations began a series of hearings on the causes of the financial crisis. It is a testament to the professionalism and dedication of Chairman Levin that he has brought the subcommittee's resources to bear in such an effective and thorough manner. I also commend ranking member Tom Coburn for his dedication and effort as a partner in this effort. Chairman Levin and the subcommittee staff deserve credit and our deep appreciation for the work they have put into this series of hearings on Wall Street and the financial crisis.

Since November 2008, subcommittee investigators have gathered millions--millions--of pages of documents, conducted over 100 interviews and depositions, and consulted with dozens of experts. It is truly a mammoth undertaking, and the fruits of their labor were evident in last week's two hearings on Washington Mutual Bank. I look forward to the subcommittee's remaining two hearings on this subject, including this Friday's hearing on the role of the credit rating agencies. I commend this hearing to all my colleagues.

The Levin hearings deserve comparison to the legendary Pecora investigations of the 1930s, which were held by the Senate Committee on Banking and Currency to investigate the causes of the Wall Street crash of 1929. The name refers to the fourth and final chief counsel for the investigation, Ferdinand Pecora, an assistant district attorney for New York County. As chief counsel, Pecora personally examined many high- profile witnesses who included some of the Nation's most influential bankers and stockbrokers. The

investigation uncovered a wide range of abusive practices on the part of banks and bank affiliates. These included a variety of conflicts of interest, such as the underwriting of unsound securities in order to pay off bad bank loans as well as ``pool operations'' to support the price of bank stocks.

The Pecora hearings galvanized broad public support for new banking and securities laws. As a result of the Pecora investigation's findings, the Congress passed the Glass-Steagall Banking Act of 1933 to separate commercial and investment banking; the Securities Act of 1933 to set penalties for filing false information about stock offerings; and the Securities Exchange Act of 1934, which formed the Securities and Exchange Commission, to regulate the stock exchanges. Thanks to the legacy of the Pecora Commission hearings and subsequent legislation, the American financial institution rested on a sound regulatory foundation for over half a century; that is, until we began the folly of dismantling it.

The Levin hearings have shined a much needed spotlight on the role of potential outright fraud by financial actors as well as the incompetence and complicity of bank regulators in the financial crisis. There is no better example of the danger that fraud and lax regulation poses to our financial system than the collapse of Washington Mutual Bank, known as WaMu.

Far too often, the failure of institutions such as Washington Mutual is blamed on high-risk business strategies. It kind of sounds all right, doesn't it? While such strategies are clearly part of the problem, they should not be used to mask other causes such as fraud and malfeasance which played a significant role in the collapse of WaMu. Evidence developed by the subcommittee demonstrates that WaMu officials tolerated, if not outright encouraged, fraud as a byproduct of promoting a dramatic expansion of loan volume.

The most blatant example of WaMu's culture of fraud was its widespread use of what are called stated income loans. Stated income loans is a practice of lending qualified borrowers loans without independent verification of what they state their income is. Listen to this. This is unbelievable. Approximately 90 percent of WaMu's home equity loans, 73 percent of its option ARMs, and 50 percent of its subprime loans were stated income loans. You go to the bank, you walk in, they say: Ted, what is your income? You say what it is, and that is it. Based on that, you can get 90 percent of WaMu's home equity loans, 73 percent of its option ARMs, and 50 percent of its subprime loans-- stated income loans. As Treasury Department inspector general Eric Thorson said last week, WaMu's predominant mix of stated income loans created a ``target rich environment'' for fraud.

Because WaMu made these stated income loans with the intent to resell them into the secondary market, there was less concern whether borrowers would ever be able to repay them. WaMu created a compensation system that rewarded employees with higher commissions for selling the very riskiest of loans. In 2005, WaMu adopted what it called its high- risk lending strategy because those loans were so profitable. In order to implement this strategy, it coached its sales branch to embrace ``the power of yes.'' The message was clear. As one industry analyst has said: ``If you were alive, they would give you a loan . . . if you were dead, they would give you a loan.''

That this culture led to fraud on a massive scale should have surprised no one. An internal review by one southern California loan officer revealed that 83 percent of loans contained instances of confirmed fraud. In another office, 58 percent of loans were considered to be fraudulent. What did WaMu management do when it became clear that fraud rates were rising as house prices began to fall? What did they do? Rather than curb its reckless business practices, it decided to try to sell a higher proportion of these risky, fraud-tainted mortgages into the secondary market, thereby locking in a profit for itself even as it spread further contagion into our capital markets.

In order for WaMu and institutions similar to it to sell these low- quality loans to the secondary market, they need a AAA rating from credit rating agencies. So what did these institutions do? They gamed the system and manipulated the agencies by engaging in a practice called barbelling. Apparently, the credit rating agencies did not examine individual FICO scores when rating mortgage-backed securities and instead relied on average FICO scores. As revealed at the hearing by a WaMu risk officer and detailed in Michael Lewis's book ``The Big Short,'' lenders could create the requisite average score by pairing loans whose borrowers had relatively high scores with borrowers whose scores were far lower and would normally warrant a loan, which is the reason why it is called barbelling. So if the raters wanted an average FICO score of 615, a lender could compare scores of 680 with scores of 550, even though borrowers with scores of 550 were almost certain to default on the loan. This barbell effect satisfied the rating agencies, even though half the loans, in many cases, had little chance of success. At the hearing, WaMu's CEO, Kerry Killinger, effectively admitted to barbelling by saying ``I don't have the barbell numbers in front of me.''

To make matters worse, WaMu scored high FICO scores by seeking out borrowers with short credit histories. Such borrowers often have high FICO scores, even though they have not demonstrated the ability to take on and pay off large debts over time. These borrowers are called ``thin file'' borrowers. According to a report in the New York Times, WaMu encouraged thin file loans, even circulating a flier to sales agents that said ``a thin file is a good file.'' The book ``The Big Short'' even discusses a Mexican strawberry picker with an income of $14,000 and no English who was ostensibly given a $724,000 mortgage on the basis of his thin file.

Plainly, the Office of Thrift Supervision failed miserably in its responsibility to regulate WaMu and to protect the public from the consequences of WaMu's excessive and unwarranted risk-taking, including the toleration of widespread fraud. Although WaMu comprised fully 25 percent of OTS's regulatory portfolio, OTS adopted a laissez faire regulatory attitude at WaMu. Although line bank examiners identified the high prevalence of fraud and weak internal controls at WaMu, OTS did virtually nothing to address the situation. In fact, OTS advocated for WaMu, among other regulators, and even actively thwarted an FDIC investigation into WaMu during 2007 and 2008. The complete abdication of regulatory responsibility by OTS may find sad explanation in the fact that OTS was dependent on WaMu's user fees for 12 to 15 percent of its budget.

The regulatory failures at OTS were not unique. The overall regulatory environment at the time was extremely deferential to the market based on the widespread but faulty assumption that markets can and will effectively self-regulate. Self-regulate. At last Friday's hearing, the testimony of the inspector general at the Department of the Treasury was particularly noteworthy. He said bank regulators:

. . . hesitate to take any action, whether it's because they

get too close after so many years or they're just hesitant or

maybe the amount of fees enter into it . . . I don't know.

But whatever it is, this is not unique to WaMu and it is not

unique to OTS.

Let me repeat. It was the conclusion of our Treasury Department's inspector general that the failure of regulators to harness the lawless nature of conflicted institutions was not unique to Washington Mutual or to the Office of Thrift Supervision.

I have said it before and I will say it again: It is time we return the rule of law to Wall Street, where it has been seriously eroded by the deregulatory mindset that captured our regulatory agencies over the past 30 years. We became enamored of the view that self-regulation was adequate, that enlightened self-interest would motivate counterparties to undertake stronger and better forms of due diligence than any regulator could perform, and that market fundamentalism would lead to the best outcomes for the most people. Some people even say that today. They say transparency and vigorous oversight by outside accountants is supposed to help our financial system--keep our financial system credible and sound. The allure of deregulation led us instead to the biggest financial crisis since 1929 and to former Federal Reserve Chairman Alan Greenspan's

frank admission that he was ``deeply dismayed'' that the premise of enlightened self-interest had failed to work. Now we are learning, not surprisingly, that fraud and lawlessness were key ingredients in the collapse as well.

As we turn to financial regulatory reform, we must remember that effective regulation requires not only motivated and competent regulators but also clear lines drawn by Congress. Based on what we have learned, what must we do?

First, we must undo the damage done by decades of deregulation. That damage includes financial institutions that are too big to manage and too big to regulate--as former FDIC Chairman Bill Isaac has called them: too big to manage, too big to regulate. It also includes a Wild West attitude on Wall Street, in which conflict of interests are rampant and lead to fraudulent behavior as well as colossal failures by accountants and lawyers who misunderstand or disregard their role as gatekeepers. The rule of law depends, in part, on having manageably sized institutions, participants interested in following the law, and gatekeepers motivated by more than a paycheck from their clients.

That is why I believe we must separate commercial banking from investment banking activities, restoring a modern version of the Glass- Steagall Act to end the conflicts of interest at the heart of the financial speculation undertaken by mega banks that are too big to fail. We further should limit the size of bank and nonbank institutions, something Senator Sherrod Brown and I proposed in legislation we intend to introduce this Wednesday. Otherwise, we will continue to bear these mega banks' claims that they are merely market makers and no one who deals with them should trust whether the very creator of a financial product they sell is secretly betting against its success.

Second, we must help regulators and other gatekeepers not only by demanding transparency but also by providing clear, enforceable rules of the road wherever possible. One clear lesson of the Goldman allegations is, we need greater transparency and disclosure of counterparty positions in the over-the-counter derivatives market. We should mandate that derivatives are traded on an exchange or at least essentially cleared. The rare exemption should carry with it a reporting requirement so that all counterparties understand the positions being taken by other clients of the dealer firm.

Clearly, we need to fix a broken securitization market. No market, regardless of how sophisticated its participants, can function without proper transparency and disclosure. While I am pleased that the current reform bill would direct the SEC to issue rules requiring greater disclosure regarding the underlying loans in an asset-backed security, I believe we must go further still. Requirements for disclosure should not merely begin and end at issuance. Instead, disclosure should be automated, standardized, and updated on a timely basis. This will provide investors with relevant information on the performance of the loans, their compliance with relevant laws--fraudulent origination, for example, is generally uncovered after the fact--and the replacement of new collateral. This information should empower investors and countervail the malfeasance of issuers looking to adversely select dodgy collateral that they are also shorting on the side. Moreover, such real-time monitoring by investors would also have beneficial effects further up the securitization supply chain. If originators know they can't get away with selling fraudulent or poorly underwritten loans, they will also be forced to improve their standards.

While not a silver bullet, I am also generally supportive of requirements that those who originate and securitize loans retain risk by keeping some percentage on their very own balance sheets. WaMu, for example, developed, in Senator Levin's words, a ``conveyor belt'' that originated, packaged, and dumped toxic mortgage products downstream to unsuspecting investors. Their lack of ``skin in the game'' allowed them to make a mockery of the originate-to-distribute model. While Bear Stearns, Lehman Brothers, and other firms faltered due to their excessive retention of risk, this basic requirement will better align the interests of originators and securitizers with those of investors.

Moreover, a clear lesson of the Levin hearings is that Congress must ban the widespread issuance of stated income loans.

I understand Senator Levin is developing further reform proposals based on his conclusions from the hearings.

Third, we must concentrate law enforcement and regulatory resources on restoring the rule of law to Wall Street. We must treat financial crimes with the same gravity as other crimes because the price of inaction and a failure to deter future misconduct is enormous. That is why I'm pleased the SEC is turning the page on its recent history and sending a message throughout Wall Street: fraud will not pay.

Madam President, last week's revelations about Washington Mutual and Goldman Sachs reinforce what I've been saying for some time. Deregulation was based on the view that rational actors would operate in their own self-interest within a framework of law. But even with the most rigorous regulators, it is impossible to trace the financial self- interest of convoluted financial conglomerates, much less constrict their behavior before it runs afoul of the law. WaMu made loans they knew could not be paid back. Goldman Sachs allegedly permitted clients to take secret positions against the very financial products that it had created.

The picture being revealed by the jigsaw puzzle of multiple investigations is now emerging clearly in my eyes. These financial institutions are too big and conflicted to manage, too big and conflicted to regulate, and too big to fail. Even Alan Greenspan has said about our current predicament: ``If they're too big to fail, they're too big.''

Our country took a giant step backwards during the last financial crisis, upending the dream of home ownership for millions of Americans, and throwing millions of people out of work as well. The credibility of our markets, one of the pillars of our economic success, was badly damaged. It must be restored. There must be structural and substantive change to Wall Street, where bankers must resume their central role of efficiently allocating capital, not taking bets in opaque markets that no one can understand.

The solution is clear. We must split up our largest financial institutions into more manageable entities; we must separate their component parts so they are no longer inherently conflicted and so they can be properly regulated. Only then, if necessary, can they be allowed to fail without sending our entire economy to the precipice of disaster.

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

Madam President, I rise once again to speak about one of our Nation's great Federal employees.

We have just returned to Washington, and I know we have a long and busy work period ahead in the Senate. All of us will be relying on our staff--especially our schedulers and personal assistants--to keep us abreast of the latest vote schedules and meetings with constituents and colleagues.

I cannot overstate how much those of us in positions of leadership depend on the hard work and expertise of those who keep us organized and ever-prepared. This is not just true for me and my colleagues in the Senate but also for Members of the House, Cabinet Secretaries, agency heads, and other senior officials.

That is why I have chosen to honor as this week's great Federal employee a woman whose long career did so much to help keep our Nation safe during the Cold War.

Thelma Stubbs Smith served for over 40 years in the Defense Department as a personal assistant.

She worked for seven consecutive Secretaries of Defense--both Republican and Democratic. Before that, Thelma served under six Assistant Secretaries in the Department.

A native of Chicago, Thelma began her public service career during World War II, when she worked for the Selective Service System and the Office of Price Administration. After the war, she worked as a secretary at the Veterans Administration before coming to Washington to work for the Pentagon's Guided Missiles Committee.

Thelma briefly served on the staff of Illinois Congressman Melvin Price in 1952, but she soon returned to the Pentagon.

In the 1950s and 1960s, Thelma served as the personal assistant to six Assistant Secretaries of Defense, including William Bundy, John McNaughton, and Paul Nitze. During this time, she began accompanying them on what would later total 85 trips overseas during her career. As part of her duties during that period, she worked closely with Secretary Robert McNamara.

One of the most harrowing moments in her life came on the 13th day of the

Cuban Missile Crisis. Thelma spent that evening personally burning important cables and notes in a small office at the Pentagon, as they were too sensitive to be shredded with other papers. When she finally left after midnight, she was one of the few Americans who knew just how precarious the situation was, and she could not say with certainty whether the Pentagon would be there the next morning.

But, thankfully, that morning came.

In 1969, when Melvin Laird was confirmed as Secretary of Defense, he asked Thelma to serve as his personal assistant. She agreed to do so on a temporary basis.

I know personally how a ``temporary basis'' can evolve into a life's pursuit. When Joe Biden asked me to help him set up his Senate office in 1972, I took a 1-year leave of absence from my job with the DuPont Company, and I ended up staying with Joe Biden for 22 years.

In that way, Thelma began her service as the personal assistant to every Secretary of Defense from Melvin Laird to Frank Carlucci.

During the course of her service, Thelma visited every corner of the world. She was awarded 10 Meritorious Civilian Service Medals and the Secretary of Defense Medal for Distinguished Public Service, which is the highest medal a civilian employee of the Pentagon can earn.

A paragon of professionalism and discretion, Thelma always answered those who urged her to write a book by saying that ``It would be 500 blank pages, and the title would be `My Lips are Sealed.' ''

All of us who serve in positions of leadership with enormous responsibility to the American people owe so much to great organizers and assistants like Thelma.

I know firsthand how Thelma's dedication to public service was passed on to her family. Her daughter, Sheryl Rogers, and son-in-law, Geoff Rogers, have lived in my home State of Delaware for over 20 years, and both were Federal employees as staffers here in the Senate.

Sheryl used to work in the office of former Virginia Senator John Warner, and Geoff spent a few years in then-Senator Joe Biden's office, back when I was chief of staff.

Thelma, now retired, resides in Northern Virginia, not far from the Pentagon, where she served for so many years.

I hope my colleagues will join me in honoring the great contribution Thelma Stubbs Smith has made to our Nation as well as thanking all those who serve as personal assistants in the Defense Department and across our government.

They are all truly great Federal employees.

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

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

Mr. President, I ask unanimous consent to extend morning business.

Mr. President, I have come to the floor several times now to discuss the problem of too big to fail, which I believe is the most critical issue to be addressed in any financial reform bill.

Financial institutions that are too big to fail are so large, so complex, and so interconnected that they cannot be allowed to fail nor follow the normal corporate bankruptcy process because of the dire threat that would pose to the entire financial system.

The largest six bank holding companies--Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley--are certainly too big to fail. The term may also cover a larger set of institutions.

After all, last year's most vaunted stress tests of the largest bank holding companies covered 19 institutions, and even that exercise did not include many other systemically significant nonbank financial institutions, including Fannie Mae and Freddie Mac, insurance companies, derivatives clearinghouses, and hedge funds.

While many in government and industry want to eliminate the term ``too big to fail,'' the fact is these too-big-to-fail financial institutions are bigger, more powerful, and more interconnected now than ever before.

Only 15 years ago, the six largest U.S. banks had assets equal to 17 percent of overall gross domestic product. The six largest U.S. banks now have total assets estimated in excess of 63 percent of gross domestic product. That goes from 17 percent of GDP just 15 years ago to 63 percent of GDP now.

While some still argue there are benefits to having very large financial conglomerates--and I am sure there are--virtually everyone agrees the problem of too big to fail needs to be address. The disagreement is how this be done.

I was interested to hear Senator McConnell on the Senate floor yesterday say we must never use taxpayer money again to bail out too- big-to-fail institutions. But no one wants to do that. No one is thinking about that. No one is planning to do that.

The question is, What is the solution to prevent these institutions from failing in the first place? The other party has put forward no solution, and doing nothing is by far the worst solution of all.

The minority leader came to the floor today and said the bill before the Senate is good for Wall Street and bad for Main Street. That is simply an astounding statement to make. Main Street wants Congress to act. Main Street wants Congress to ensure that Wall Street never engages in reckless behavior again. Yet what does the minority leader offer?

Despite the experience of Lehman Brothers, the minority leader apparently believes we should do nothing and simply stand back in the future and let these megabanks fail when they take risks that go wrong.

The minority leader said yesterday:

The way to solve this problem is to let the people who made

the mistakes pay for them. We won't solve this problem until

the biggest banks are allowed to fail.

Astounding. His answer is, the resolution of too-big-to-fail banks needs to be dealt with through the bankruptcy process. In my view, that approach is dangerous and irresponsible.

If we do nothing and wait for another crisis, future Presidents-- whether Republican or Democratic--will face the same choices as President Bush: Whether to let spiraling, interconnected, too-big-to- fail institutions, such as AIG, Citigroup, and others, collapse in a contagion, sending the economy into a depression or step in ahead of bankruptcy and save them with taxpayer money.

If that happens, the choice of allowing bankruptcy will mean tremendous economic pain on Main Street America. So some Congress in the future will similarly be faced with another TARP-like decision, which in the fall of 2008 many in both parties believed they had no choice but to support, including the minority leader.

Relying on bankruptcy law is not the answer. The approach by many conservatives and those on the other side of the aisle is to simply let them fail and let U.S. bankruptcy law--where shareholders get wiped out and creditors take a haircut--reimpose the discipline in the financial system that was lacking in the runup to the crisis.

For example, Peter Wallison and David Skeel have argued in the Wall Street Journal:

The real choice before the Senate is between the FDIC and

the bankruptcy courts. It should be no contest, because

bankruptcy courts do have the experience and expertise to

handle a large-scale financial failure. This was demonstrated

most recently by the Lehman Brothers bankruptcy.

If bankruptcy was a cure in Lehman Brothers, it was one that almost killed the patient. When former Treasury Secretary Hank Paulson decided to let Lehman Brothers go into bankruptcy, our global credit markets froze and creditors and counterparties panicked and headed for the hills. Instead of imposing market discipline, it only prompted more bailouts and almost brought down the entire financial system. It ultimately took 18 months to close out the case on Lehman Brothers, an eternity for financial institutions that mark to market and fund their balance sheets on an interday basis.

Bankruptcy is an even more unattractive option when one considers that Lehman was an investment bank, while today's megabanks operate under the bank holding company umbrella. It is virtually impossible to have an integrated resolution of a large and complex bank holding company. The bank subsidiary would go into FDIC resolution, the insurance affiliates would go into State liquidation procedures, the securities affiliate would go into chapter 7, while other affiliates and overall holding companies would go into chapter 11.

A plan this unwieldy is no plan at all. In fact, the only way to truly eliminate the problem with too-big-to-fail banks is for Congress to act. It is true that I believe we should go further than the current bill. I would break these big banks apart, thus limiting their size and leverage. Given the consequences of failing to do enough to prevent another financial crisis, the safest thing to do today is for Congress to put an end to too big to fail. If you believe these megabanks are too big, if you reject the choice of bankruptcy that will lead to a recession or depression, then breaking them up is the logical answer. That is the only way that greatly diminishes the future probability of another financial disaster. The Great Depression of the 1930s must be avoided at all cost.

Two years ago, permitting Lehman Brothers to enter bankruptcy brought about the Great Recession, the most painful economic downturn this country has seen since the Great Depression. If we were to let other institutions fall into bankruptcy, adopting the minority leader's approach, the horrors our economy would have faced would make the realities of the past 2 years pale in comparison.

I certainly don't want to rely on bankruptcy to break the boom-bust- bailout cycle. I believe Congress should break the cycle today. We should not follow an abdication of regulatory responsibility with an abdication of democratic government. As representatives of the people most hurt by the financial crisis, Congress should act decisively to ensure that we benefit again from decades of financial stability, not do nothing, which most assuredly would leave us to live on the precipice of financial disaster, as the minority leader would have us do.

We need a full and straightforward debate in the Senate about what Congress must do. In my view, the mere existence of too-big-to-fail institutions perpetuates a long cycle of boom, bust, bailout. Instead of hopelessly trying to impose order and discipline in a chaotic crisis, we need to clearly, decisively, and preemptively deal with the problem of too big to fail now.

As Senator Levin pointed out this week, when he kicked off the Permanent Subcommittee's hearings on its investigation of the financial crisis, there are many eerie parallels between this crisis and the one in the late 1920s and early 1930s. In both cases, bankers were derelict in their duties, while drawn to disruptive and excessive speculation, fueled in part by their compensation arrangements. Does that sound familiar? Bankers were derelict in their duties, while drawn to disruptive and excessive speculation, fueled in part by their compensation arrangements.

In the 1930s, in response to these problems, we built an enduring regulatory framework that put our entire financial system on stable footing for decades. We simply cannot afford another financial meltdown. The choice is clear. But it is also clear that the worst thing we can do is to take the dangerous risk of doing nothing. To me, the choice that is best for the American people is clear.

I yield the floor.

Madam President, some things have changed. I came here in 1973 working for now-Vice President Biden. Back then, if you asked the American people what they most disliked about Washington, they would say partisan bickering, the back-and-forth. That is what they really do not like about what goes on.

My basic reaction is, and I have said to people that today what looks like a lot of partisanship--basically, Senators like each other. This is not about people not liking each other. There is not a Senator on the Republican side of the aisle whom I do not have a positive relationship with and feel good about. You can say that about the issues. What I say is there is a difference on the issues. Basically, we disagree about the issues. But I do have a hard time, when it comes to judicial nominations especially, on the rationale for the argument because it is not a matter of issues.

We have differences about some judges, but the vast majority of judges still being held are judges we all agree are competent judges. So why is it they are not being confirmed, especially when we talk about the two areas about which most Americans are so concerned? One is crime, that we deal with crime and deal with it in a quick manner; that people are given a fair trial, but then if they are guilty, they are put in jail. All Americans agree to that. To do that, one of the key chokepoints for us is the judges. We need the judges to be confirmed in order to deal with crime.

The other area, as I know my friend from Virginia is so aware, is the business side. If you are a businessperson, you need certainty. You need the ability to know, if you have a dispute, that you can get it handled in a court and that you get prompt action. That is what everyone wants. With many of these things, it isn't as important that you win as it is that you get an answer. When we have vacancies in district and circuit courts, that holds up everything.

The final point is, there were always differences of opinion, but starting about the 1980s, the judges became a football. They just became a football. When I hear about the old wars--it is like the Hatfields and McCoys. Who was the first Senator to hold up the most number of judges and when did it happen? Our judge did this. You did this. We did that. It really sounds like the Hatfields and McCoys on the floor sometimes.

I am saying it is time to put that behind us. It is time to put that behind us, especially when it comes to these judges whom we know are competent; where there is agreement, there is no disagreement. I defend the right of the minority to hold up judges they think are not competent. We had three judges in a row who were confirmed by unanimous votes of the Senate.

What I am saying is it is time to put that behind us. The American people are looking to us to behave in a bipartisan manner. Again, we are going to have partisan differences on some judges, but when we have judges where there is bipartisan agreement, the American people are stymied to understand why in Washington we are behaving this way. I call on my colleagues to work together and see if we cannot get these judges confirmed.

I thank the distinguished Senator.

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

Madam President, I ask unanimous consent to speak as in morning business.

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

Mr. President, I rise to discuss a bill I am introducing today, the Pre-Election Presidential Transition Act of 2010, bipartisan legislation that concerns both our national security and America's democratic institutions.

I am proud to be joined by my colleague from Ohio, Senator Voinovich in introducing this bill. I also want to thank our cosponsors, Chairman Akaka of the Oversight of Government Management Subcommittee as well as Chairman Lieberman of the Homeland Security and Government Affairs Committee.

I am appreciative of their support and for their input while drafting this bill.

I also would like to thank the Partnership for Public Service, a leading nonpartisan, nonprofit organization in the area of government accountability and reform. Their recent ``Ready to Govern'' report on the 2008-2009 transition made a number of important recommendations that are included in our bill.

As the strong, bipartisan support for this bill demonstrates, this is not a political issue.

After the attacks of September 11, we face new security challenges that require close cooperation between outgoing and incoming administrations, and the recent economic crisis underscores the importance of a smooth handoff on domestic policy as well.

This was highlighted in a recent article by Martha Kumar, a respected political scientist at Towson University and Director of the nonpartisan White House Transition Project. As Professor Kumar recounts in her December 2009 article in Presidential Studies Quarterly, a threat to President Obama's inauguration brought together the incoming and outgoing senior national security personnel in the White House Situation Room the morning of his swearing-in.

In the hours before then-President-elect Obama was to take office, intelligence sources had indicated a possible plot to attack the National Mall during the ceremony. Thankfully, this threat proved a false alarm.

But, as Kumar explains, that Situation Room meeting between advisers to President Bush and President-elect Obama was a powerful example of why transition planning is so important.

In their meeting that morning, those on both sides worked well together as a team. This was so because they had met frequently in the weeks beforehand and had undergone joint emergency preparedness exercises together.

This occurred in no small part because the administration of former President George W. Bush made it a high priority. The former President and his White House staff deserve great credit for their work during their final months in office. By appointing his chief of staff, Joshua Bolton, as his transition point-person and convening a formal Transition Coordinating Council, President Bush created a successful model for a 21st century transfer of power.

Presidential inaugurations have always been moments of celebration for Americans, as we reaffirm the elective nature of our government. But they also represent moments of potential vulnerability.

In the earliest years of our history, that vulnerability inhabited the untested nature of our institutions. In an era when elected government was rare, the transition from one executive administration to another, particularly those between parties, brought fears of political or social unrest.

The primary example of such a transition remains that from the administration of John Adams to that of Thomas Jefferson, the first between opponents of different parties to contest the Presidency.

The peaceful nature of the 1801 transition came as a welcome surprise to some. The early American writer and novelist, Margaret Bayard Smith, whose brother, James Bayard, held the Senate seat from Delaware I now occupy, attended that inauguration. In a letter to her daughter, she described it thus:

I have this morning witnessed one of the most interesting

scenes a free people can ever witness. The changes of

administration, which in every government and in every age

have most generally been epochs of confusion, villainy, and

bloodshed, in this our happy country take place without any

species of distraction or disorder.

It is also notable that the greatest political crisis in our history occurred during the period between election day in November 1860 and Abraham Lincoln's inauguration the following March. The States that seceded did so amid a palpable uncertainty of national leadership.

Today, however, our concern is less with political stability than with national security.

During the Cold War, when fears of a power vacuum caused a renewed focus on continuity of government, Congress passed the Presidential Transition Act of 1963. It formalized several important elements of a successful transition, including public funds for transition staff, use of office space and equipment from the General Services Administration, reimbursement for travel by the President-elect and Vice President- elect, and their use of franked mail. It was amended in 1998 to permit the President-elect and Vice President-elect to supplement public transition funding with private donations and laid out requirements for disclosing their sources.

In 2004, Congress took an important step by including provisions in the Intelligence Reform and Terrorism Prevention Act that allow transition personnel to request FBI background checks for potential appointees. This helps ensure that, on January 20 when the new President is sworn in, the most critical national security positions are immediately filled.

While some aspects of a successful Presidential transition process have been formalized by these acts, much of what has become necessary for a safe and smooth transition is still left to chance.

Fortune favors the prepared.

We were very lucky that the first transition of the post-September 11 era was carried out smoothly and with great preparation by both the outgoing and incoming administrations.

As I said a few moments ago, we owe great thanks to former President Bush for making this a priority and committing staff and resources to the process.

I also commend those who worked on both the Obama transition team as well as those from Senator McCain's campaign who engaged in some transition planning before election day.

Most importantly, our bill will go a long way in removing the stigma that has historically caused candidates to hide or even delay important transition planning until after election day.

We all recognize that the first priority of any Presidential campaign is to win the election. I certainly understand why, in the past, candidates have been wary of revealing that they have engaged in pre- election transition planning.

But we cannot afford to lose critical planning time because of fears that a candidate might be accused by a rival of ``measuring the drapes'' prematurely. We must also ensure that incumbents make the necessary preparations in case they lose bids for reelection.

Candidate transition planning is an act of responsibility, not presumptuousness.

With the security and domestic policy challenges we face today, it must become the norm for any major party nominee to begin making arrangements for a transition long before election day.

The bill my colleagues and I are introducing will both formalize many of the recent transition's successes and provide additional resources to help nominees begin their transition efforts earlier.

The Pre-Election Presidential Transition Act of 2010 encourages eligible Presidential candidates to accept transition office space and a broad array of services from the General Services Administration immediately after their nominating conventions.

Presently, candidates must wait until after election day before these resources become available. We know that this is too late, since both campaigns in 2008, and others in recent years, began informal transition planning months in advance.

Under our bill, salaries for candidates' transition staff, travel expenses, and allowances are funded exclusively by separate funds raised by their campaigns prior to the election.

Eligible candidates would be authorized to set up a separate account to support these activities. They would be able to transfer money from their campaign accounts into this transition account as well as raise funds separately.

Those candidates eligible to receive GSA-provided services and access to facilities include major party candidates. Third-party candidates would be eligible if they met the same criteria used by the Commission on Presidential Debates to participate in general election debates.

The GSA would distribute to candidates a report on modern transitions, including a bibliography of resources. This report would also be released to the public and posted on the Internet to educate the press and public on the importance of early transition planning.

Of course, under the bill services and information to candidates would be provided on an equal basis and without regard to political affiliation, and they would have to be used only for transition purposes.

Because a transition depends on the careful attention of those both preparing to assume power and those leaving it, our bill also authorizes appropriations for the outgoing administration to use in planning and coordinating transition activities across departments and agencies. It recommends adopting the Bush model of a transition coordinating council, staffed by both outgoing appointees and career managers from each agency. This council would meet regularly with representatives from the major nominees and update them on transition matters.

The bill also encourages the outgoing administration to prepare comprehensive briefing materials for incoming officials on a range of issues and potential areas of concern.

My colleagues and I approach this as pragmatists, and our goal is not to tie the hands of an administration. It is to inspire responsible preparation. This bill is not about telling an outgoing President what to do; rather, it lays out a strongly suggested model for how to do the right thing.

The only new requirement it sets for the outgoing President is the submission of two reports to Congress in the months before election day describing the activities being undertaken to prepare for the transfer of power.

But the model it suggests has worked and can serve as a blueprint for transitions to come.

My first job in politics after Joe Biden was elected to the Senate in 1972 was to help him set up his Senate office in Delaware. My last job, before I was appointed to his Senate seat was as co-chair of his Vice Presidential Transition Team.

I can tell you from experience, setting up a Senate office is tough, but it is nothing like setting up a White House.

I was there in the room when then-President-elect Obama and Vice President-elect Biden convened their first transition meetings right after election day. I cannot stress more forcefully how important it was in those meetings that the Obama-Biden transition had begun much earlier.

There simply is not enough time between November and January to get everything done that needs to be done.

These are the reasons why I hope my colleagues will join us in supporting this legislation to make our presidential transitions smoother and safer.

We cannot afford to leave something this important to chance.

Again, I want to thank my friend and colleague from Ohio, Senator Voinovich, for his help in pulling this bill together as well as Senators Akaka and Lieberman for their support and leadership.

I look forward to working with them on the Homeland Security and Governmental Affairs Committee to move this measure through the Congress.

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

Mr. President, I rise to discuss a bill I am introducing today, the Pre-Election Presidential Transition Act of 2010, bipartisan legislation that concerns both our national security and America's democratic institutions.

I am proud to be joined by my colleague from Ohio, Senator Voinovich in introducing this bill. I also want to thank our cosponsors, Chairman Akaka of the Oversight of Government Management Subcommittee as well as Chairman Lieberman of the Homeland Security and Government Affairs Committee.

I am appreciative of their support and for their input while drafting this bill.

I also would like to thank the Partnership for Public Service, a leading nonpartisan, nonprofit organization in the area of government accountability and reform. Their recent ``Ready to Govern'' report on the 2008-2009 transition made a number of important recommendations that are included in our bill.

As the strong, bipartisan support for this bill demonstrates, this is not a political issue.

After the attacks of September 11, we face new security challenges that require close cooperation between outgoing and incoming administrations, and the recent economic crisis underscores the importance of a smooth handoff on domestic policy as well.

This was highlighted in a recent article by Martha Kumar, a respected political scientist at Towson University and Director of the nonpartisan White House Transition Project. As Professor Kumar recounts in her December 2009 article in Presidential Studies Quarterly, a threat to President Obama's inauguration brought together the incoming and outgoing senior national security personnel in the White House Situation Room the morning of his swearing-in.

In the hours before then-President-elect Obama was to take office, intelligence sources had indicated a possible plot to attack the National Mall during the ceremony. Thankfully, this threat proved a false alarm.

But, as Kumar explains, that Situation Room meeting between advisers to President Bush and President-elect Obama was a powerful example of why transition planning is so important.

In their meeting that morning, those on both sides worked well together as a team. This was so because they had met frequently in the weeks beforehand and had undergone joint emergency preparedness exercises together.

This occurred in no small part because the administration of former President George W. Bush made it a high priority. The former President and his White House staff deserve great credit for their work during their final months in office. By appointing his chief of staff, Joshua Bolton, as his transition point-person and convening a formal Transition Coordinating Council, President Bush created a successful model for a 21st century transfer of power.

Presidential inaugurations have always been moments of celebration for Americans, as we reaffirm the elective nature of our government. But they also represent moments of potential vulnerability.

In the earliest years of our history, that vulnerability inhabited the untested nature of our institutions. In an era when elected government was rare, the transition from one executive administration to another, particularly those between parties, brought fears of political or social unrest.

The primary example of such a transition remains that from the administration of John Adams to that of Thomas Jefferson, the first between opponents of different parties to contest the Presidency.

The peaceful nature of the 1801 transition came as a welcome surprise to some. The early American writer and novelist, Margaret Bayard Smith, whose brother, James Bayard, held the Senate seat from Delaware I now occupy, attended that inauguration. In a letter to her daughter, she described it thus:

I have this morning witnessed one of the most interesting

scenes a free people can ever witness. The changes of

administration, which in every government and in every age

have most generally been epochs of confusion, villainy, and

bloodshed, in this our happy country take place without any

species of distraction or disorder.

It is also notable that the greatest political crisis in our history occurred during the period between election day in November 1860 and Abraham Lincoln's inauguration the following March. The States that seceded did so amid a palpable uncertainty of national leadership.

Today, however, our concern is less with political stability than with national security.

During the Cold War, when fears of a power vacuum caused a renewed focus on continuity of government, Congress passed the Presidential Transition Act of 1963. It formalized several important elements of a successful transition, including public funds for transition staff, use of office space and equipment from the General Services Administration, reimbursement for travel by the President-elect and Vice President- elect, and their use of franked mail. It was amended in 1998 to permit the President-elect and Vice President-elect to supplement public transition funding with private donations and laid out requirements for disclosing their sources.

In 2004, Congress took an important step by including provisions in the Intelligence Reform and Terrorism Prevention Act that allow transition personnel to request FBI background checks for potential appointees. This helps ensure that, on January 20 when the new President is sworn in, the most critical national security positions are immediately filled.

While some aspects of a successful Presidential transition process have been formalized by these acts, much of what has become necessary for a safe and smooth transition is still left to chance.

Fortune favors the prepared.

We were very lucky that the first transition of the post-September 11 era was carried out smoothly and with great preparation by both the outgoing and incoming administrations.

As I said a few moments ago, we owe great thanks to former President Bush for making this a priority and committing staff and resources to the process.

I also commend those who worked on both the Obama transition team as well as those from Senator McCain's campaign who engaged in some transition planning before election day.

Most importantly, our bill will go a long way in removing the stigma that has historically caused candidates to hide or even delay important transition planning until after election day.

We all recognize that the first priority of any Presidential campaign is to win the election. I certainly understand why, in the past, candidates have been wary of revealing that they have engaged in pre- election transition planning.

But we cannot afford to lose critical planning time because of fears that a candidate might be accused by a rival of ``measuring the drapes'' prematurely. We must also ensure that incumbents make the necessary preparations in case they lose bids for reelection.

Candidate transition planning is an act of responsibility, not presumptuousness.

With the security and domestic policy challenges we face today, it must become the norm for any major party nominee to begin making arrangements for a transition long before election day.

The bill my colleagues and I are introducing will both formalize many of the recent transition's successes and provide additional resources to help nominees begin their transition efforts earlier.

The Pre-Election Presidential Transition Act of 2010 encourages eligible Presidential candidates to accept transition office space and a broad array of services from the General Services Administration immediately after their nominating conventions.

Presently, candidates must wait until after election day before these resources become available. We know that this is too late, since both campaigns in 2008, and others in recent years, began informal transition planning months in advance.

Under our bill, salaries for candidates' transition staff, travel expenses, and allowances are funded exclusively by separate funds raised by their campaigns prior to the election.

Eligible candidates would be authorized to set up a separate account to support these activities. They would be able to transfer money from their campaign accounts into this transition account as well as raise funds separately.

Those candidates eligible to receive GSA-provided services and access to facilities include major party candidates. Third-party candidates would be eligible if they met the same criteria used by the Commission on Presidential Debates to participate in general election debates.

The GSA would distribute to candidates a report on modern transitions, including a bibliography of resources. This report would also be released to the public and posted on the Internet to educate the press and public on the importance of early transition planning.

Of course, under the bill services and information to candidates would be provided on an equal basis and without regard to political affiliation, and they would have to be used only for transition purposes.

Because a transition depends on the careful attention of those both preparing to assume power and those leaving it, our bill also authorizes appropriations for the outgoing administration to use in planning and coordinating transition activities across departments and agencies. It recommends adopting the Bush model of a transition coordinating council, staffed by both outgoing appointees and career managers from each agency. This council would meet regularly with representatives from the major nominees and update them on transition matters.

The bill also encourages the outgoing administration to prepare comprehensive briefing materials for incoming officials on a range of issues and potential areas of concern.

My colleagues and I approach this as pragmatists, and our goal is not to tie the hands of an administration. It is to inspire responsible preparation. This bill is not about telling an outgoing President what to do; rather, it lays out a strongly suggested model for how to do the right thing.

The only new requirement it sets for the outgoing President is the submission of two reports to Congress in the months before election day describing the activities being undertaken to prepare for the transfer of power.

But the model it suggests has worked and can serve as a blueprint for transitions to come.

My first job in politics after Joe Biden was elected to the Senate in 1972 was to help him set up his Senate office in Delaware. My last job, before I was appointed to his Senate seat was as co-chair of his Vice Presidential Transition Team.

I can tell you from experience, setting up a Senate office is tough, but it is nothing like setting up a White House.

I was there in the room when then-President-elect Obama and Vice President-elect Biden convened their first transition meetings right after election day. I cannot stress more forcefully how important it was in those meetings that the Obama-Biden transition had begun much earlier.

There simply is not enough time between November and January to get everything done that needs to be done.

These are the reasons why I hope my colleagues will join us in supporting this legislation to make our presidential transitions smoother and safer.

We cannot afford to leave something this important to chance.

Again, I want to thank my friend and colleague from Ohio, Senator Voinovich, for his help in pulling this bill together as well as Senators Akaka and Lieberman for their support and leadership.

I look forward to working with them on the Homeland Security and Governmental Affairs Committee to move this measure through the Congress.

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

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

Mr. President, I have spoken twice on the floor in the past

few weeks on the problem of ``too big to fail.'' This is a critical issue for any financial reform legislation. Each Senator must ask whether this issue is effectively addressed in landmark legislation the Senate will soon consider. I will limit my remarks today to the central aspect of the challenge we face, ``too big to fail.'' In particular, does this bill take the necessary steps to reduce the size, complexity, and concentrated power of the behemoths that currently dominate our financial industry and our economy?

If not, what is the justification for maintaining their status quo, what is the risk that one might fail, and--if that were to occur--what is the likelihood that the American taxpayer will once again have to bail them out?

The answer is that there is little in the current legislation that would change the behavior or reduce the size of the Nation's six megabanks.

Instead, this bill invests its hopes in two ideas: First, that chastened regulators--who, we must remember, failed miserably in preventing the crisis--will this time control these megabanks more effectively--today, tomorrow, and decades into the future. And, second, that a resolution authority designed to shield the taxpayers from yet another bailout will be able successfully to unwind incredibly complex megabanks that are engaged across the globe.

In the midst of the Great Depression, Congress built laws that maintained financial stability for nearly 60 years.

Through the Glass-Steagall Act, which included the establishment of the Federal Deposit Insurance Corporation, Congress separated investment banks, which were free to engage in risky behavior, and commercial banks, whose deposits were federally insured.

As I described in a previous speech, during the last 30 years, that division was methodically disassembled by a deregulatory mindset, leading to the reckless Wall Street behavior that caused the greatest financial crisis and economic downturn since the 1930s.

What walls will this bill erect? None.

On what bedrock does this bill rest if the Nation is to hope for another 60 years of financial stability? Better and smarter regulators, plain and simple.

No great statutory walls, no hard divisions or limits on regulatory discretion, only a reshuffled set of regulatory powers that already exist. Remember, it was the regulators who abdicated their responsibilities and helped cause this crisis.

Thus far, on the central aspect of ``too big to fail,'' financial reform consists of giving regulators the authority to supervise institutions that are too big, and then the ability to resolve those banks when they are about to fail.

Upon closer examination, however, the former is virtually the same authority regulators currently possess, while the latter--an orderly resolution of a failing megabank--I believe, is an illusion.

Unless Congress breaks up the megabanks that are ``too big to fail,'' the American taxpayer will remain the ultimate guarantor in an almost certain-to-repeat-itself cycle of boom, bust, and bailout.

The first question is how big must a financial institution be to be ``too big to fail''?

Let us examine how concentrated some of our giant financial institutions have become.

Only 15 years ago, the six largest U.S. banks had assets equal to 17 percent of overall gross domestic product.

The six largest banks today in the United States now have total assets estimated to be in excess of 63 percent of our gross domestic product.

Three of these megabanks have close to $2 trillion of assets on their balance sheets.

Their gigantic size, and the perception in the marketplace that they are indeed too big for the government ever to permit them to fail, gives these megabanks a competitive advantage over smaller financial institutions. It also instills a dangerous willingness to engage in excessive risk taking.

As Federal Reserve Chairman Ben Bernanke recently stated,

[I]f a firm is publicly perceived as too big, or

interconnected, or systemically critical for the authorities

to permit its failure, its creditors and counterparties have

less incentive to evaluate the quality of the firm's business

model, its management, and its risk-taking behavior.

As a result, such firms face limited market discipline,

allowing them to obtain funding on better terms than the

quality or riskiness of their business would merit and giving

them incentives to take on excessive risks.

In other words, with a taxpayer safety net beneath them, these Wall Street firms will continue to have an irresistible incentive to keep walking across a financial high-wire of speculative investments in search of ever greater profits.

Some might say that Canada and other countries also have large banks and didn't encounter serious problems. But this ignores the obvious facts that our economy is about 10 times the size of Canada's and our financial ecosystem is far more complex.

It also ignores that Canada's largest banks rest on a bedrock of government-guaranteed mortgages and a social compact between those banks and their regulators.

To adopt a Canadian-type model in the U.S., we would need to merge our banks into even fewer banking giants, and then re-inflate Fannie Mae and Freddie Mac to guarantee some of the riskiest parts of the banks' portfolios.

Moreover, for every example of a country--usually far smaller than ours--that has coped with megabanks, there are at least as many where this system has failed, and failed spectacularly.

Take Ireland, for example, whose largest banks went on a credit binge that ended in disaster. Now Ireland's citizens are paying the price through draconian pay cuts and higher taxes, to say nothing of the country's lost economic growth.

Ireland provides a cautionary tale. These megabanks, whether they are legally domiciled in our borders or beyond, are simply too big to manage and too complicated to regulate.

There are also those who argue that we have had financial crises caused largely by small institutions. That is absolutely true. But those problems were managed without bringing our entire financial system to the brink of disaster, the signature and near-cataclysmic event of the last crisis.

In the savings and loan crisis, more than 700 thrifts--both large and small--failed, many wrongdoers were sent to prison, and the Resolution Trust Corporation was created to liquidate the assets of failed institutions. In short, the crisis was managed and our financial system absorbed the blows.

Compare that to the last crisis when our financial system barely recovered from a black hole that threatened to suck into oblivion our entire financial system after the failure of just one large investment bank.

The legislation proposes that we must improve the regulation of institutions that are ``too big.'' The reform proposals would put in place a systemic risk council to monitor for such risks and to identify financial institutions that should be subject to enhanced supervision. Next, they would have the Federal Reserve act as the de facto regulator of these systemically significant financial institutions.

The truth is, we have had a de facto systemic risk council for decades. It is called the President's Working Group on Financial Markets. Chaired by the Treasury Secretary, it includes the heads of the Federal Reserve, the Securities and Exchange Commission, and the Commodities Futures Trading Commission, and it was established by President Reagan following the 1987 stock market crash.

Its track record in spotting incipient financial risks has been abysmal. Notably, Treasury Secretary Paulson used the President's Working Group as a form of a systemic risk council, but it achieved essentially nothing--nothing--to reduce those risks. While adding additional members and providing some additional powers, the new systemic risk council is the President's Working Group by another name.

The reform proposals would also give the Federal Reserve the authority to supervise institutions that the council deems are systemically significant. Under the proposed legislation, the Federal Reserve would have specific powers to impose higher leverage, capital, liquidity, and other requirements upon these institutions.

The Federal Reserve already has the power to impose such standards on most of these institutions. The proposed regulatory reforms are mainly a redundant statement of the Fed's existing powers.

Just this week, a Moody's report stated:

. . . the proposed regulatory framework doesn't appear to

be significantly different from what exists today.

Moody's went on to explain that:

The current regulatory regime is already authorized to

protect the soundness of banks and the financial system as a

whole. In addition, the current banking laws give bank

regulators the power to have banks cease and desist from

activities and to require banks to have higher capital

ratios.

No doubt the bill does contain some expanded tools for the Fed. For the first time, the Fed will have direct supervisory authority for not just bank holding companies, but for their large nonbank subsidiaries as well. In addition, the Fed will also have authority over nonbank financial institutions that the council deems are systemically risky.

But as Moody's has recognized, the powers resemble the current regulatory framework. Federal bank regulators, which had the responsibility to ensure financial stability before the crisis, will again bear the responsibility after the crisis.

And bank regulators will continue to dance the tango with the big banks, interrupted briefly by new legislation which, in fact, includes few substantive changes in safety and soundness banking practices.

It is true that under the current Senate bill, regulators could-- could--potentially invoke the Volcker Rule, which would prohibit commercial banks from owning or sponsoring ``hedge funds, private equity funds, and purely proprietary trading in securities, derivatives or commodity markets.''

I applaud former Federal Reserve Chairman Paul Volcker for his critical leadership on these issues, which the administration has endorsed.

Unfortunately, the legislation now being considered by the Senate requires the council first to study the Volcker rule before deciding whether to enforce it. In the end, it could issue a recommendation not to enforce the Volcker rule at all.

Or the council might recommend simply that regulators mandate capital requirements that are adequate for any risky proprietary activities a particular bank might undertake--a power regulators already have. The reality is that regulators have long had the authority to prohibit speculative activities at banks, but never opted to do so.

Under the Bank Holding Company Act, the Federal Reserve may require a bank holding company to terminate an activity or control of a nonbank subsidiary--such as a broker-dealer or an insurance company--if that activity or subsidiary poses serious risk to the safety, soundness or stability of the holding company.

As we all know too well, in the past, these very same bank regulators failed utterly. Indeed, as the ``umbrella regulator'' for all bank holding companies, the Federal Reserve could have increased capital and other requirements for these institutions, but instead farmed out this function to credit rating agencies and the banks themselves.

Meanwhile, as the consolidated supervisor of major investment banks, the SEC had similar powers to those of the Fed. And it goes without saying that its track record of regulatory enforcement was littered with colossal failures.

Chastened regulators may try in the coming years to be harder on the megabanks, to increase their capital requirements, and to keep a close eye on their liquidity levels, liabilities, and leverage ratios.

But even if they do, history has shown us that the tango will reach the end of the dance floor, and the big banks will execute the turn and lead again, leaving our regulators hopelessly aside in understanding the complex and opaque transactions that interconnect the giant banks.

In sum, little in these reforms is really new, and nothing in these reforms will change the size ofour megabanks.

That is why I believe we must impose these changes by statute--by statute. I would go beyond even statutorily requiring banks to live under the Volcker rule, by reinstating by statute the firewall between commercial and investment banking activities. Unless we break the megabanks apart, they will remain too large and interconnected for regulators to effectively control them. And once the next inevitable financial crisis occurs, and the contagion spreads too quickly for the government to believe that a failing firm won't take down others as well, the American taxpayer--the American taxpayer--the American taxpayer--will again be forced into the breach.

The proposed plan calls for a resolution authority to deal with these institutions when they inevitably get into trouble. An early resolution, we are promised, guided by a systemic council looking into its crystal ball, will prevent the taxpayer from ever again needing to save the day.

It is true that the existing mechanism, which tasks the FDIC with resolving failing depository institutions, has worked well--but only worked well up to a point. The problem is that our experience with resolving banks--highlighted by the 140 bank failures that occurred last year and their cost to the deposit insurance fund--has shown us that prompt corrective action is almost always too late.

As many commentators have noted, no matter how well Congress crafts a resolution mechanism, there can never be an orderly winddown of a $2 trillion financial institution that has hundreds of billions of dollars of off-balance-sheet assets, relies heavily on wholesale funding, and has more than a toehold in over 100 countries.

A backstop of a $50 billion or even a $100 billion resolution fund would come nowhere close to being big enough to resolve a $2 trillion financial institution.

As the Economist notes:

[Resolution authority] may prove unworkable, of course. The

threat of being wiped out in bankruptcy could cause creditors

to flee both the troubled firm and any firms like it,

precisely the sort of panic the resolution regime is meant to

avoid.

``In a severe financial crisis it will be too terrifying

for politicians and bureaucrats to use'' the new process,

predicts Douglas Elliott of the Brookings Institution.

Instead, he says, they will resort to ad hoc measures as

they did in 2008.

Not surprisingly, there are many barriers to resolving large and complex financial institutions. Most notably, there are international dimensions to the problem, depending on resolution authority.

Following the collapse of Lehman Brothers, there was an intense and disruptive dispute between regulators in the U.S. and U.K. over how to handle customer claims and liabilities. While U.S. bankruptcy protection allowed Lehman Brothers' U.S. operations to continue for days as a going concern, Lehman's operations in the U.K. were halted in accordance with British bankruptcy law.

Given that there apparently were more than 600,000 open derivatives contracts in the U.K. on the day that Lehman failed, many counterparties and clients were stranded, consequently hampering bankruptcy efforts in the U.S. as well.

To those who promote resolution authority as a solution, I ask: Exactly what would have happened differently if Lehman had been in receivership during those harrowing days in September?

Moreover, the reluctance last spring to nationalize these banks, to place them in a form of resolution receivership, was because it would have been too costly to the taxpayer to take over or put into bankruptcy the megabanks.

Why would it not be costly with a U.S.-only resolution authority? The truth is: It would be. The taxpayer will remain the ultimate guarantor.

The international difficulty of acting quickly before contagion spreads is almost impossible to overcome without a cross-border resolution agreement. Unfortunately, there is nothing in the resolution authority that the Senate will consider that would help address this problem. We all know that it is a problem that will only get worse given the inevitability of further financial globalization.

In coming years, the U.S. megabanks will extend their reach into global markets, relying on their funding advantages as too-big-to-fail U.S. banks to profit from increasingly sophisticated transactions in countries around the world.

The problems with resolution authority for the megabanks aren't just international in nature. These institutions use short-term collateralized loans called repurchase agreements, or repos, to finance a significant portion of their

balance sheet and have massive counterparty exposures that arise out of their roles as derivatives dealers.

Both repos and derivatives are qualified financial contracts, meaning that exposures that arise from them are effectively super senior to the claims of all other creditors. By giving these trading exposures such a privileged position under the bankruptcy code, we have allowed a major part of our financial system--called the shadow banking system--to grow completely unchecked without any market or regulatory discipline whatsoever.

As Peter Fisher, former Under Secretary of the Treasury and former head of the markets desk at the Federal Reserve Bank of New York, has stated:

[these changes to the bankruptcy code] transformed the

`too-big-to-fail' problem of our largest deposit takers into

the `too-interconnected-to-fail' problem of our major

financial institutions.

The proof of that statement is borne out by the data.

One report by researchers at the Bank of International Settlements estimated that the size of the overall repo market in the U.S., Euro region and the U.K. totaled approximately $11 trillion at the end of 2007.

Meanwhile, the total notional value of OTC derivatives contracts is equal to $605 trillion, as of June, 2009.

Large financial institutions that rely chiefly upon wholesale financing and have massive counterparty exposures from their derivatives positions are combustible. The case studies of Lehman and the other investment banks show how quickly and violently these institutions can implode. When they do, their interconnected nature inevitably causes a contagion, leading to a collapse in confidence and the classic patterns of a bank run.

As the Moody's report summarizes the question, We must:

try to assess whether or not the law could be effective in

its stated objective: allowing a troubled, systemically

important financial institution to default on selected

obligations, while avoiding the larger effects that such a

default might have on the financial system and on the broader

economy.

That is a challenging objective to accomplish in reality,

given contagion risk and the high degree of connectedness

among such institutions, both domestically and cross border

(where any such resolution authority would have no

authority).

Resolution authority is therefore a slender reed upon which to lean when it comes to institutions as large, complex and interconnected as these.

The truth is that we need to split up and break down the largest and most complex financial institutions.

As President of the Federal Reserve Bank of Dallas Richard Fisher stated on March 3rd:

I think the disagreeable but sound thing to do regarding

institutions that are [`too big to fail'] is to dismantle

them over time into institutions that can be prudently

managed and regulated across borders. And this should be done

before the next financial crisis, because it surely cannot be

done in the middle of a crisis.

The first step is to separate federally insured banks from risky investment banks. As Senators Maria Cantwell, John McCain and others have urged, we should break up the largest banks and resign to history ``too big to fail'' banks. This worked for nearly 60 years, and would once again ensure the soundness of commercial banks while placing risky investment bank activities far beyond any government safety net.

Second, we also need statutory size and leverage limits on banks and nonbanks. We should set a hard cap on the liabilities of banks and other financial institutions as a percentage of GDP.

The size limit should constrain the amount of non-deposit liabilities at large mega-banks, which rely heavily on short-term financing like repos and commercial paper.

In addition, we should institute a simple statutory leverage requirement to limit how much firms can borrow relative to how much their shareholders have on the line.

Finally, we must put in place reforms for derivatives and other qualified financial contracts.

Get this: The five largest banks control 95 percent of the OTC derivatives market.

We must require derivatives to be centrally cleared, which will reduce the complex web of counterparty credit risks throughout our system.

CFTC Chairman Gary Gensler underscores that point by stating:

Central clearing would greatly reduce both the size of

dealers as well as the interconnectedness between Wall Street

banks, their customers and the economy.

In addition, we should reconsider the legal treatment of qualified financial contract exposures under the bankruptcy code, and therefore under a resolution regime, as well.

Given the sheer size of cross exposures arising from derivatives and repos that financial firms have with each other, it makes sense to allow derivative and repo exposures to be netted out prior to any automatic stay.

It is not apparent why that net credit exposure should come ahead of the claims of other secured creditors. This is special treatment, not market discipline.

All of these changes taken together would reduce risk in the system, impose discipline in the market, and break the cycle of obligatory booms, busts and bailouts. In short, they eliminate the problem of having institutions that are both too big and interconnected to fail.

If instead our solution is to depend on regulators, and to wait with an impractical plan to resolve failing institutions, the financial system will continue on its inexorable path, growing bigger, more complex and more concentrated. And we will only be laying the groundwork for an even greater crisis the next time.

In the midst of the Great Depression, we built strong walls that lasted for generations. The devastation of our most recent crisis challenges us to do so again.

These megabanks are too big to manage, too big to regulate, too big to fail, and too interconnected to resolve when the next crisis hits. We must break up these banks and separate again those commercial banking activities that are guaranteed by the government from those investment banking activities that are speculative and reflect greater risk.

We must limit the size, liabilities, and leverage of any systemically significant financial institution.

Given the ever-increasing rate of financial innovation, the need for Congress--not the regulators--to impose these time-honored principles has never been greater. The stakes have never been higher.

It is time to follow in the footsteps of those great Senators who made the tough decision in the 1930s to pass the Glass-Steagall Act and other landmark reform bills, which paved the way for almost 60 years without a major financial meltdown. Once again, we must ensure that government guarantees of commercial bank deposits do not enable financial institutions to engage in the risky activities of investment banks.

Finally we must guarantee that there are no banks that are too big to manage too big to regulate, and too big to fail. The American people deserve no less.

Mr. President, I yield the floor.

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

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

Mr. President, I ask unanimous consent that the Veterans Affairs Committee be discharged from further consideration of S. 3162 and the Senate proceed to its immediate consideration.

I ask unanimous consent that the bill be read a third time and passed, the motion to reconsider be laid upon the table, with no intervening action or debate, and any statements related to the bill be printed in the Record.

Mr. President, I ask unanimous consent that the Homeland Security and Governmental Affairs Committee be discharged from further consideration of H.R. 4621, and the Senate proceed to its immediate consideration.

I ask unanimous consent that the bill be read a third time and passed, the motion to reconsider be laid upon the table, with no intervening action or debate, and any statements related to the bill be printed in the Record.